Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes [X] No [ ]
As of March 17, 2020, there were 881,118
shares of the issuer’s common stock, par value $0.0001, issued and outstanding.
PART
I
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). The Securities
and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a
company’s future prospects and make informed investment decisions. This report and other written and oral statements that
we make from time to time contain such forward-looking statements that set out anticipated results based on management’s
plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by
using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe,” “will,” “may,” “could,” “should” and
similar expressions in connection with any discussion of future operating or financial performance. In particular, these include
statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome
of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations
and financial condition to differ materially are discussed in greater detail under Item 1A – “Risk Factors”
of this report.
Forward-looking
statements include, but are not limited to, statements about:
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our ability to
continue as a going concern;
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our ability to
raise additional capital when needed;
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our ability to
achieve commercial success for ProscaVax™;
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our ability to generate
revenues from ProscaVax™;
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the outcome of our
disposal of Vitel Laboratories;
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competition;
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our ability to hire
and retain key personnel;
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our collaboration
arrangements and reliance on third parties;
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our clinical trial
and product development initiatives;
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our ability to maintain
or gain required regulatory approvals;
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the availability
and extent of coverage and reimbursement from third-party payers;
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our use of hazardous
materials;
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our ability to safeguard
against security;
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our ability to insure
against product liability claims;
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our ability to protect
our intellectual property;
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the cost of intellectual
property litigation;
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our ability to obtain
and maintain our patent protection;
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our ability to protect
our intellectual property throughout the world;
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the volatility of
our stock price;
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our ability to pay
dividends.
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We
caution that the factors described herein and other factors could cause our actual results of operations and financial condition
to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions including without limitation
the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. New factors emerge
from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each
such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
ITEM
1. BUSINESS
OncBioMune
Pharmaceuticals, Inc., a Nevada corporation (referred to collectively with its subsidiaries as “OncBioMune”, “we”,
“us”, “our” or the “Company” in this Annual Report) is the registrant for SEC reporting purposes.
Business
Overview
We
are a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary
vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s
healthy cells. The Company has proprietary rights to an investigational immunotherapy platform with an initial focus on prostate
and breast cancers but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission
is to improve overall patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths
associated with cancer and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically
proven research methods of treatment to provide optimal likelihood of patient recovery.
Strategy
We
seek to create a portfolio of product candidates that may be developed as therapeutics for our own proprietary programs or for
development by potential collaborative partners. We recognize that the product development process is subject to both high costs
and a high risk of failure. We believe that identifying a variety of product candidates and working in conjunction with other
pharmaceutical partners may minimize the risk of failure, fill the product pipeline gap at major pharmaceutical companies, and
ultimately increase the likelihood of advancing clinical development and potential commercialization of the product candidates.
The
key elements to our business and scientific strategy are to:
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Develop
and commercialize ProscaVax™ as well as the other technologies that come from our vaccine platform, as cancer treatments
where we believe a company our size can successfully compete;
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Develop
and commercialize a diverse portfolio of licensed and acquired drugs that address a focused brand of therapeutic indications
or that represent significant market opportunities;
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Develop
and commercialize drugs globally through joint ventures;
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Develop
and commercialize our targeted therapies globally;
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Develop
our drug candidates by establishing strategic collaborations with pharmaceutical and biotechnology companies to further develop
and market our product candidates; and
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Establish
infrastructure and capabilities to support the future commercialization of our products. Our management team has extensive
experience developing and/or commercializing pharmaceutical products and as our product candidates advance, we intend to add
the appropriate additional regulatory and commercial expertise to maximize the potential for successful product launches and
franchise management. In certain instances, we will seek partners to maximize the commercial potential of our product candidates,
develop drug candidates and establish strategic collaborations with pharmaceutical and biotechnology companies to further
develop and market our product candidates.
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ProscaVax™
We
completed a Phase 1a clinical trial of our lead product, ProscaVax™, the Company’s lead immunotherapy product from
its platform. On May 11, 2018, the Institutional Review Board and Scientific Review Committee at the Dana-Farber Cancer Institute
approved the Phase 2 clinical trial of ProscaVax™. The Phase 2 trial ProscaVax™, which is being evaluated for use
as a vaccine for prostate cancer, is being hosted by Beth Israel Deaconess Medical Center (BIDMC), a teaching hospital of Harvard
University, and its affiliate hospital, the Dana-Farber Cancer Institute. The trial commenced in March 2019. The trial is expected
to last 43 months and enroll 120 prostate cancer patients (80 in the ProscaVax™ arm, 40 in active surveillance arm). Although
the trial has commenced as of March of 2020 no patients have been enrolled due to lack of funding.
Our
Company’s clinical efforts began with a mouse model used to test a whole cell mouse mammary cancer vaccine. Laboratory research
conducted by OncBioMune demonstrated that when mice are vaccinated either subcutaneously or intraperitoneally with a series of
whole cell preparations of mouse mammary carcinoma cells combined with granulocyte-macrophage colony-stimulating factor (GM-CSF)
and Interleukin-2 (IL-2) and then transplanted with the same tumor cells, the growth of the cancerous tumor is significantly inhibited.
Also, the adjuvants alone (GM-CSF and IL-2) either injected subcutaneously or intraperitoneally do not inhibit growth of the tumor.
Dr.
Jonathan Head, our Chief Scientific Officer noted that development of this mouse model should allow future studies to investigate
the possible use of allogeneic mammary cell lines in a whole cell vaccine with IL-2 and GM-CSF as adjuvants. This early research
is important in our efforts to expand into additional indications for our platform. Our intent is to continue studies of our technology
that we believe could lead to an off-the-shelf breast cancer therapeutic vaccine and possible preventative vaccine for high-risk
breast cancer patients.
This
preclinical finding further supports the efficacy of the Company’s proprietary therapeutic cancer vaccine platform. Our
prostate cancer vaccine, ProscaVax™ (a combination of prostate cancer associated prostate specific antigen (PSA) with the
biological adjuvants interleukin-2 (IL-2) and granulocyte-macrophage colony-stimulating factor (GM-CSF)) was evaluated in a Phase
1 clinical trial in PSA (Prostate Specific Antigen) recurrent prostate cancer in both hormone-naïve and hormone-independent
patients in the United States.
The
trial was hosted at the University of California San Diego Moores Cancer Center and Veterans Hospital in La Jolla, California
(UCSD/VA) under the U.S. Food and Drug Administration’s Investigational New Drug (IND) program with funding from the U.S.
Navy Cancer Vaccine Program.
Twenty
patients were enrolled in the Phase 1a trial, all of which completed vaccination and are in long term follow-up. The trial established
a strong safety profile for ProscaVax™, and to date no serious adverse events or dose limiting adverse events have been
reported. All adverse events due to the vaccine were Grade 1 with no Grade 2, 3 or 4 adverse events attributable to the vaccine.
We believe these results further validate a showing of minimal toxicity due to the Company’s vaccine technology.
Preliminary
data from the UCSD/VA trial shows ProscaVax™ is safe and may provide a clinical benefit to prostate cancer patients. These
data include:
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All
20 patients in the Phase 1a portion of the trial have received their complete vaccine injection series and are in long term
follow-up.
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None
of the 20 patients who have completed their vaccine series have had a dose limiting adverse event (DLAE)
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None
of the 20 patients who have completed their vaccine series have had a serious adverse event (SAE).
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15
of 18 patients (83%) at 31 weeks post first vaccine have had an increased immune response to PSA as determined with a LBA
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14
of 20 patients (57%) have had an increase in their PSA doubling time (slowed progression)
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4
of the 20 patients who have completed their vaccine series have experienced disease progression (one radiological, three PSA)
at 31 weeks.
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At
19 weeks post-therapy, 80 percent of the patients (n=20) treated with ProscaVax™ demonstrated stable disease/no prostate
cancer progression. At 43 weeks post-therapy, overall survival was 100% for all 20 patients and 12 of the 17 evaluable patients
(70.6%) continued to live with stable, progression-free disease.
The
trial was originally designed as a Phase 1a/1b study with 20 patients to be enrolled in the Phase 1a portion and 28 in the Phase
1b. As previously disclosed, based upon encouraging preliminary data, we are foregoing the Phase 1b portion of the trial and advancing
into Phase 2 clinical trials.
We
initiated work on the Phase 2 trial of ProscaVax™ in early-stage prostate cancer patients in the “active surveillance”
stage of disease at Harvard’s BIDMC with additional patients from Harvard-affiliated Hospitals and Research Institutes.
This will be a 120 patient clinical trial with 40 control patients in active surveillance and 80 active surveillance patients
receiving ProscaVax™ (full series of vaccines and vaccines with IL-2). This trial was approved by the IRB at BIDMC and Dana-Farber
Cancer Institute on May 11, 2018. This protocol was amended after IRB approval and did not activate at that time. Amendment 2
was IRB approved on February 28, 2019. The trial is at present date on hold due to lack of funding.
This
study will evaluate the safety and efficacy of ProscaVax™ in patients with low-risk localized prostate cancer. The goal
of the study is to evaluate the frequency of prostate cancer “progression” at 2 years following administration of
ProscaVax™ in men with localized prostate cancer who would otherwise be candidates for active surveillance (AS).Active surveillance
is a frequently used disease management option for patients with localized prostate cancer that elect to work with their doctor
to monitor the disease for progression before taking more drastic intervention measures, such as surgery or radiotherapy that
are often accompanied by unpleasant side effects, including impotence and urinary incontinence.
In
the ProscaVax™ arm of the study, during the first four months of induction treatment, six doses of the ProscaVax™
vaccine will be administered intradermally at weeks 1, 2, 3, 7, 11, and 15, followed by maintenance booster injections once every
month which will alternate between low dose IL-2 alone (at weeks 19, 27 and 35) and ProscaVax™ vaccine (at weeks 23, 31,
39) for six months.
Primary
outcomes for the study shall be determined by:
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Prostate
cancer progression measured by PSA test (Time Frame: At pre-study, week 7, 19, 35, 52, 65, 78, 91, 104) for both arms of the
study.
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Prostate
cancer progression measured by digital rectal examination (Time Frame: At pre-study and then at week 19, 52, 78, 104)
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Prostate
cancer progression measured by prostate biopsy (Time Frame: At pre-study and then every twelve-months for two years)
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Assessment
of Adverse Events (Time Frame: At week 7, 19, 35, 52, 65, 78, 91, 104)
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We
anticipate that the Phase 2 trials will expand the results that we found in our Phase 1 clinical trial in a different patient
population. We also plan to develop our other proprietary technologies, with the lead being PGT or paclitaxel, gallium, transferrin,
which is currently being manufactured for preclinical studies to assess comparative efficacy in these models. Our tentative clinical
development strategy is to file an orphan drug indication followed by a tumor agnostic indication. Timelines are yet to be determined.
With
a strong safety profile now established for ProscaVax™ with no serious adverse events or dose limiting adverse events reported,
we believe we have further validated prior research in hundreds of patients showing minimal toxicity of our vaccine technology.
We believe that additional clinical data will further support the previously reported efficacy of ProscaVax™ in both early
and late stage prostate cancer.
Intellectual
Property
We
have obtained, and intend to actively seek to obtain, when appropriate, protection for our current and prospective products and
proprietary technology by means of United States and foreign patents, trademarks, and applications for each of the foregoing.
In addition, we rely upon trade secrets and contractual agreements to protect certain of our proprietary technology and products.
ProscaVax™ is a novel biologic, and it is difficult to predict how competition could develop and accordingly which aspects
of our related intellectual property may prove the most significant in the future. We currently have a patent application relating
to protein therapeutic cancer vaccines and a provisional patent application relating to taxane- and taxoid-protein compositions.
Both United States patent applications expire in 2031. In addition, we had a patent that expired in 2014 relating to vaccination
of cancer patients using tumor-associated antigens mixed with interleukin-2 and granulocyte-macrophage colony stimulating factor.
Patent
expiration dates may be subject to patent term extension depending on certain factors. In addition, following expiration of a
basic product patent or loss of patent protection resulting from a legal challenge, it may be possible to continue to obtain commercial
benefits from other characteristics such as clinical trial data, product manufacturing trade secrets, uses for products, and special
formulations of the product or delivery mechanisms.
We
intend to continue using our scientific experience to pursue and patent new developments to enhance our position in the cancer
field. Patents, if issued, may be challenged, invalidated, declared unenforceable, circumvented or may not cover all applications
we desire. Thus, any patent that we own or license from third parties may not provide adequate protection against competitors.
Our pending patent applications, those we may file in the future, or those we may license from third parties may not result in
issued patents. Also, patents may not provide us with adequate proprietary protection or advantages against competitors with,
or who could develop, similar or competing technologies, or who could design around our patents. In addition, future legislation
may impact our competitive position in the event brand-name and follow-on biologics do not receive adequate patent protection.
From time to time, we have received invitations to license third-party patents.
We
also rely on trade secrets and know-how that we seek to protect, in part, by using confidentiality agreements. Our policy is to
require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed
or made known to the individual during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies
that receive our confidential data. For employees, consultants and contractors, we require agreements providing that all inventions
conceived while rendering services to us shall be assigned to us as our exclusive property.
Competition
All
though there is no competition in the active surveillance patient population, we have prepared below the overall competition in
prostate cancer including industry standards for care.
The
biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a
strong emphasis on proprietary products. Pharmaceutical and biotechnology companies, academic institutions and other research
organizations are actively engaged in the discovery, research and development of products designed to address prostate cancer
and other indications. There are products currently under development by other companies and organizations that could compete
with ProscaVax™ or other products that we are developing. Products such as chemotherapeutics, androgen metabolism or androgen
receptor antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer
are also under development by a number of companies and could potentially compete with ProscaVax™ and our other product
candidates. In addition, many universities and private and public research institutes may in the future become active in cancer
research, which may be in direct competition with us. Docetaxel (also referred to by its brand name Taxotere) was approved by
the FDA for the therapeutic treatment of metastatic, androgen-independent prostate cancer in 2004 and JEVTANA® (cabazitaxel)
was approved in 2010 for use in men as a second line therapy following progression after initial treatment with docetaxel.
In
2011, ZYTIGA® (abiraterone acetate) was approved for use in men with prostate cancer with progression following treatment
with a chemotherapeutic regime. In 2012, ZYTIGA was approved, in combination with prednisone, to treat men with metastatic castrate-resistant
prostate cancer prior to receiving chemotherapy, and Xtandi (Enzalutamide), an androgen receptor inhibitor, was approved to treat
men with metastatic castrate-resistant prostate cancer who previously received docetaxel chemotherapy. In 2013, Xofigo (radium
RA 223 dichloride) injection was approved for the treatment of patients with castration-resistant prostate cancer (CRPC), symptomatic
bone metastases and no known visceral metastatic disease. Other therapies such as Bavarian Nordic’s PROSTVAC® are the
subject of ongoing clinical trials in men with metastatic castrate-resistant prostate cancer. PROSTVAC®, currently in Phase
3 clinical development, is a therapeutic cancer vaccine being studied in men with asymptomatic or minimally symptomatic metastatic
castrate-resistant prostate cancer.
Our
competitors include major pharmaceutical companies. These companies may have significantly greater financial resources and expertise
in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and
marketing. In addition, smaller competitors may collaborate with these large established companies to obtain access to their resources.
Our
ability to successfully commercialize ProscaVax™ and our other potential products, and compete effectively with third parties
will depend, in large part, on:
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the
perception of physicians and other healthcare professionals of the safety, efficacy and relative benefits of ProscaVax™
or our other products compared to those of competing products or therapies;
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the
effectiveness of our sales and marketing efforts in appropriately targeting a resonant clinical message to both oncologists
and urologists;
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the
willingness of physicians to adopt a new treatment regimen consisting of infusion of an immunotherapy;
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reimbursement
policies for ProscaVax™ or our other product candidates, if developed and approved;
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the
price of ProscaVax™ and that of other products we may develop and commercialize relative to competing products;
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our
ability to manufacture ProscaVax™ and other products we may develop on a cost-effective commercial scale;
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our
ability to accurately forecast demand for ProscaVax™, and our product candidates if regulatory approvals are achieved;
and
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our
ability to advance our other product candidates through clinical trials and through the FDA approval process and those of
non-United States regulatory authorities.
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Competition
among approved marketed products will be based upon, among other things, efficacy, reliability, product safety, price-value analysis,
and patent position. Our competitiveness will also depend on our ability to advance our product candidates, license additional
technology, maintain a proprietary position in our technologies and products, obtain required government and other approvals on
a timely basis, attract and retain key personnel and enter into corporate relationships that enable us and our collaborators to
develop effective products that can be manufactured cost-effectively and marketed successfully.
Regulatory
General
Government
authorities in the United States and other countries extensively regulate, among other things, the preclinical and clinical testing,
manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of biologic products.
In the United States, the FDA subjects pharmaceutical and biologic products to rigorous review under the Federal Food, Drug, and
Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.
FDA
Approval Process
To
obtain approval of our product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy
as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive
laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications
for review by the FDA, are costly in time and effort, and may require significant capital investment. We may encounter significant
difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may
develop.
A
company typically conducts human clinical trials in three sequential phases, but the phases may overlap. Phase 1 trials consist
of testing of the product in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase
1 trials in cancer are often conducted with patients who are not healthy and who have end-stage or metastatic cancer. Phase 2
trials, in addition to safety, evaluate the efficacy of the product in a patient population somewhat larger than Phase 1 trials.
Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically
dispersed test sites. Prior to commencement of each clinical trial, a company must submit to the FDA a clinical plan, or “protocol,”
which must also be approved by the Institutional Review Boards at the institutions participating in the trials. The trials must
be conducted in accordance with the FDA’s good clinical practices. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time.
To
obtain marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together
with, and among other things, detailed information on the manufacture and composition of the product, in the form of a New Drug
Application (“NDA”) or, in the case of a biologic such as ProscaVax™, a Biologics License Application (“BLA”).
We
are also subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether
or not FDA approval has been obtained, approval of conduct of a clinical trial or authorization of a product by the comparable
regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in
those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than
that required for FDA approval based on local regulations. In the E.U., Canada and Australia, regulatory requirements and approval
processes are similar, in principle, requiring a rigorous assessment of the data to ensure a product has satisfactorily demonstrated
an acceptable benefit/risk profile prior to regulatory approval for marketing.
Fast
Track Designation/Priority Review
Congress
enacted the Food and Drug Administration Modernization Act of 1997 (the “Modernization Act”) in part to ensure the
availability of safe and effective drugs, biologics and medical devices by expediting the development and review for certain new
products. The Modernization Act established a statutory program for the review of Fast Track products, including biologics. A
Fast Track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet medical needs for this condition. Under the Fast Track program, the sponsor of
a new drug or biologic may request that the FDA designate the drug or biologic as a Fast Track product at any time during the
development of the product, prior to a new drug application or BLA submission.
Post-Marketing
Obligations
All
approved drug products are subject to continuing regulation by the FDA, including record-keeping requirements, reporting of adverse
experiences with the product, sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing
or labeling changes, complying with certain electronic records and signature requirements, submitting periodic reports to the
FDA, maintaining and providing updated safety and efficacy information to the FDA, and complying with FDA promotion and advertising
requirements. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or
regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action, criminal prosecution,
or civil penalties.
The
FDA may require post-marketing studies or clinical trials to develop additional information regarding the safety of a product.
These studies or trials may involve continued testing of a product and development of data, including clinical data, about the
product’s effects in various populations and any side effects associated with long-term use. The FDA may require post-marketing
studies or trials to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may
require periodic status reports if new safety information develops. Failure to conduct these studies in a timely manner may result
in substantial civil fines.
Drug
and biologics manufacturers and their subcontractors are required to register their establishments with the FDA and certain state
agencies, and to list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United States
and abroad in order to assure compliance with the applicable current good manufacturing practices, or cGMP, regulations and other
requirements. Facilities also are subject to inspections by other federal, foreign, state or local agencies. In complying with
the cGMP regulations, manufacturers must continue to assure that the product meets applicable specifications, regulations and
other post-marketing requirements. We must ensure that third-party manufacturers continue to ensure full compliance with all applicable
regulations and requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory
action, such as suspension of manufacturing, recall or seizure of product, injunction, and criminal prosecution.
Also,
newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the
addition of new warnings and contraindications, additional preclinical or clinical studies, or even in some instances, revocation
or withdrawal of the approval. Violations of regulatory requirements at any stage, including after approval, may result in various
adverse consequences, including the FDA’s withdrawal of an approved product from the market, other voluntary or FDA-initiated
action that could delay or restrict further marketing, and the imposition of civil fines and criminal penalties against the manufacturer
and BLA holder. In addition, discovery of previously unknown problems may result in restrictions on the product, manufacturer
or BLA holder, including withdrawal of the product from the market. Furthermore, new government requirements may be established
that could delay or prevent regulatory approval of our products under development, or affect the conditions under which approved
products are marketed.
We
are also subject to a variety of regulations governing post-marketing obligations for our product in the European Union. As part
of the approval process governed by European regulations, a company may be required to complete post marketing commitments as
a condition of approval to assess additional information regarding the safety of a product. The European Medicines Agency (“EMA”)
may require post-marketing studies to investigate known serious risks or signals of serious risks or identify unexpected serious
risks and may require periodic status reports if new safety information develops. Failure to complete post-marketing requirements
in a timely manner may result in substantial fines including the risk to continued marketing in the European Union.
Biosimilars
The
Biologics Price Competition and Innovation Act (“BPCIA”) was passed on March 23, 2010 as Title VII to the Patient
Protection and Affordable Care Act. The law provides for an abbreviated approval pathway for biological products that demonstrate
biosimilarity to a previously-approved biological product. The BPCIA provides 12 years of exclusivity for innovator biological
products. The BPCIA may be applied to our product in the future and could be applied to allow approval of biosimilars to our products.
Federal
Anti-Kickback, False Claims Laws & The Federal Physician Payment Sunshine Act
In addition to FDA restrictions on marketing
of pharmaceutical products, several other types of state and federal laws are relevant to certain marketing practices in the pharmaceutical
industry. These laws include anti-kickback statutes, false claims statutes, and the federal Physician Payment Sunshine Act. The
federal healthcare program anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting,
receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual
for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federal health
care programs such as the Medicare and Medicaid programs. For example, this statute has been interpreted to apply to arrangements
between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. The federal
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 and subsequent
legislation (collectively, “PPACA”), among other things, amends the intent requirement of the federal anti-kickback
statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition,
PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal
anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. There are a number of
statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions;
however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe
harbor may be subject to scrutiny and liability.
Federal false claims laws prohibit, among
other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment, or knowingly
making, or causing to be made, a false record or statement material to a false or fraudulent claim. For example, several pharmaceutical
and other healthcare companies have faced enforcement actions under these laws for allegedly inflating drug prices they report
to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly
providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition,
anti-kickback statute violations and certain marketing practices, including off-label promotion, may also implicate false claims
laws. Federal false claims laws violations may result in imprisonment, criminal fines, and exclusion from participation in federal
healthcare programs. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false
claims laws, which apply to items and services reimbursed under Medicaid and other state programs. A number of states have anti-kickback
laws that apply regardless of the payer.
In
addition, the federal Physician Payment Sunshine Act requires extensive tracking of physician and teaching hospital payments,
maintenance of a payments database, and public reporting of the payment data. The Centers for Medicare & Medicaid Services
(“CMS”) has issued a final rule implementing the Physician Payment Sunshine Act provisions and clarified the scope
of the reporting obligations. Failure to comply with the reporting obligations may result in civil monetary penalties. Following
the enactment of the SUPPORT Act (Pub. Law No. 115-271), Section 6111 of the SUPPORT Act broadens the scope of the Physician Payment
Sunshine Act such that effective January 1, 2022 reporting requirements will also include payments to physician assistants, nurse
practitioners, clinical nurse specialists, certified registered nurse anesthetist, and certified nurse-midwives.
State
Laws
Marketing
Restrictions and Disclosure Requirements. A number of states, such as Minnesota, Massachusetts and Vermont, have
requirements that restrict pharmaceutical marketing activities. These state requirements limit the types of interactions we may
have with healthcare providers licensed in these jurisdictions. In addition, a number of states have laws that require pharmaceutical
companies to track and report payments, gifts and other benefits provided to physicians and other health care professionals and
entities similar to the Physician Payment Sunshine Act. Still other state laws mandate implementation of specific compliance policies
to regulate interactions with health care professionals.
State
Fraud and Abuse Laws. Several states have enacted state law equivalents of federal laws, such as anti-kickback
and false claims laws. These state laws may apply to items or services reimbursed under Medicaid and other state programs or,
in several states, apply regardless of the payer.
State
Price Reporting Requirements. Several states have enacted state fraud and abuse laws similar to federal laws, such
as anti-kickback and false claims laws. These state laws may apply to arrangements or claims involving items or services reimbursed
under Medicaid and other state programs or, in several states, apply regardless of the payer.
Healthcare
Reform. Certain states, such as Massachusetts, are pursuing their own programs for health reform. These programs may include
cost containment measures that could affect state healthcare benefits, particularly for higher priced drugs. Under PPACA, states
have authority to define packages of “essential health benefits” that health plans in the individual and small group
markets offer. The definition of these packages affect coverage of our products by those plans.
Sale
of Pharmaceutical Products. Many states have enacted their own laws and statutes applicable to the sale of pharmaceutical
products within the state, with which we must comply. We are also subject to certain state privacy and data protection laws and
regulations.
Coverage
and Reimbursement by Third-Party Payers
Our
sale of ProscaVax™ is dependent on the availability and extent of coverage and reimbursement from third-party payers, including
government healthcare programs and private insurance plans.
Medicare
Part B Coverage and Reimbursement of Drugs and Biologicals
In
the United States, the Medicare program is administered by the Centers for Medicare and Medicaid Services (“CMS”).
Coverage and reimbursement for products and services under Medicare are determined in accordance with the Social Security Act
and pursuant to regulations promulgated by CMS, as well as the agency’s subregulatory coverage and reimbursement determinations.
Medicare Part B provides limited coverage of outpatient drugs and biologicals that are furnished “incident to” a physician’s
services. Generally, “incident to” drugs and biologicals are covered only if they satisfy certain criteria, including
that they are the type of drug that is not usually self-administered by the patient and they are reasonable and necessary for
a medically accepted diagnosis or treatment.
Medicare Part B pays providers under a payment
methodology using average sales price (“ASP”) information. Manufacturers are required to provide ASP information to
CMS on a quarterly basis. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the statute provides
for civil monetary. This information is used to compute Medicare payment rates, updated quarterly based on this ASP information.
The Medicare Part B payment methodology for physicians is ASP plus six percent and can change only through legislation. There is
a mechanism for comparison of ASP for a product to the widely available market price and the Medicaid Average Manufacturer Price
for the product, which could cause further decreases in Medicare payment rates, although this mechanism has yet to be utilized.
The statute establishes the payment rate for new drugs and biologicals administered in hospital outpatient departments that are
granted “pass-through status” at the rate applicable in physicians’ offices (i.e., ASP plus six percent) for
two to three years after FDA approval. CMS establishes the payment rates for drugs and biologicals that do not have pass-through
status by regulation.
The methodology under which CMS establishes
reimbursement rates is subject to change, particularly because of budgetary pressures facing the Medicare program and the federal
government. The Medicare regulations and interpretive determinations that determine how drugs and services are covered and reimbursed
also are subject to change.
Pharmaceutical
Pricing and Reimbursement Under Medicaid and Other Programs
In
many of the markets in which we may do business in the future, the prices of pharmaceutical products are subject to direct price
controls (by law) and to drug reimbursement programs with varying price control mechanisms.
We expect that ProscaVax™ will be made
available to patients that are eligible for Medicaid benefits. A condition of federal funds being made available to cover our
products under Medicaid and Medicare Part B is our participation in the Medicaid drug rebate program. Under the Medicaid drug
rebate program, we will pay a rebate to each state Medicaid program for each unit of ProscaVax™ paid for by those programs.
The rebate amount varies by quarter, and is based on pricing data reported by us on a monthly and quarterly basis to CMS. These
data include the monthly and quarterly average manufacturer price (“AMP”) for our drugs, and in the case of innovator
products like ProscaVax™, the quarterly best price (the “QBP”), which is our lowest price in a quarter to any
commercial or non-governmental customer. If we become aware that our reported prices for prior quarters are incorrect or should
be changed to reflect late-arriving pricing data, we would be obligated to submit the corrected data for a period not to exceed
12 quarters from the quarter in which the data originally were due. Any corrections to our pricing data could result in an overage
or underage in our rebate liability for past quarters, depending on the nature of the correction.
The
availability of federal funds under Medicaid and Medicare Part B to pay for any products that are approved for marketing also
is conditioned on our participation in the Public Health Service 340B drug pricing program. The 340B drug pricing program requires
participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price”
for the manufacturer’s covered outpatient drugs. These covered entities include hospitals that serve a disproportionate
share of low-income patients, as well as a variety of community health clinics and other recipients of health services grant funding.
PPACA expanded the 340B program to include certain free standing cancer hospitals, critical access hospitals, rural referral centers
and sole community hospitals. The 340B ceiling price for a drug is calculated using a statutory formula that is based on the AMP
and Medicaid rebate amount for the drug. Any revisions to previously reported Medicaid pricing data also may require revisions
to the 340B ceiling prices that were based on those data and could require the issuance of refunds.
If
we make ProscaVax™ available for purchase by authorized users of the Federal Supply Schedule (“FSS”) of the
General Services Administration pursuant to an FSS contract with the Department of Veterans Affairs (“VA”), the Veterans
Health Care Act of 1992 (“VHCA”), would require us to offer deeply discounted FSS contract pricing to four federal
agencies commonly referred to as the “Big Four” - the VA, the Department of Defense (“DoD”), the Coast
Guard and the Public Health Service (including the Indian Health Service) - for federal funding to be made available for reimbursement
of any of our products under the Medicaid program, Medicare Part B and for our products to be eligible to be purchased by those
four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the
federal ceiling price (“FCP”). The FCP is based on a weighted average wholesale price known as the non-federal
average manufacturer price (“Non-FAMP”). We are required to report Non-FAMP to the VA on a quarterly and annual basis.
If we misstate Non-FAMP or FCP, we must restate these figures. In addition, if we are found to have knowingly submitted false
information to the government, the VHCA provides for civil monetary penalties in addition
to other penalties the government may impose.
The
FSS contract is a federal procurement contract that includes standard government terms and conditions and extensive disclosure
and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract
price reductions under certain circumstances where pricing is reduced to an agreed “tracking customer.” Further, in
addition to the “Big Four” agencies, all other federal agencies and some non-federal entities are authorized to access
FSS contracts. If we overcharge the government in connection with our FSS contract, whether due to a misstated FCP or otherwise,
we would be required to refund the difference to the government.
Data
Privacy
Numerous
federal and state laws, including state security breach notification laws, state health information privacy laws and federal and
state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have,
or are developing, laws governing the collection, use and transmission of personal information (e.g., the European Union’s
General Data Protection Regulation). In addition, most healthcare providers who prescribe our product and from whom we obtain
patient health information are subject to privacy, security, and breach notification requirements under the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”). We are not a HIPAA covered entity, and we do not operate as a business associate
to any covered entities. Therefore, these privacy, security, and breach notification requirements do not apply to us. However,
we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity
in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. We are unable to predict
whether our actions could be subject to prosecution in the event of an impermissible disclosure of health information to us. The
legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount
of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a
majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing
business.
Environmental
and Safety Laws
We
are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous
materials, including chemicals and radioactive and biological materials. Our operations produce such hazardous waste products.
Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed
by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.
We generally contract with third parties for the disposal of such substances, and store our low level radioactive waste at our
facilities until the materials are no longer considered radioactive. We are also subject to various laws and regulations governing
laboratory practices and the experimental use of animals.
We
are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental
Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations.
OSHA and/or the EPA may promulgate regulations that may affect our research and development programs.
Employees
As
of March 17, 2020, we had two full time employees. None of our employees are represented by a union. We believe we
have good relations with our employees.
Our
Corporate History and Recent Developments
Historical
Businesses
We
were incorporated under the laws of the State of Nevada on March 18, 2005. From 2010 until 2013, we engaged in the pharmaceutical
business. During 2013, we decided to divest the balance of our pharmaceutical assets and engage in the digital media business,
which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.
Amended
and Restated Articles of Incorporation
On
August 12, 2015, we amended and restated our articles of incorporation to, among other things:
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change
our corporate name from Quint Media, Inc. to OncBioMune Pharmaceuticals, Inc.,
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increase
our authorized shares to 520,000,000, of which 500,000,000 shares were common stock, with a par value of $0.0001 per
share, and 20,000,000 shares were preferred stock, with a par value of $0.0001 per share, and
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effect
a reverse stock split, which became effective on August 27, 2015 (“Reverse Stock Split”), of our outstanding common
stock pursuant to which every 139.23 issued and outstanding shares of our common stock was reclassified and converted into
one share of common stock. No cash was paid or distributed as a result of the Reverse Stock Split, and no fractional shares
were issued. All fractional shares which would otherwise have been required to be issued as a result of the Reverse Stock
Split were rounded up to a whole share.
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On
August 20, 2015, we filed a Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares of preferred
stock as Series A Preferred Stock (“Series A Preferred Stock”). Each holder of Series A Preferred Stock is entitled
to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote
or for the consent of the stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled to vote with holders of common stock as set forth
herein) for taking any corporate action. On August 27, 2015, the Financial Industry Regulatory Authority approved the Reverse
Stock Split and our corporate name change.
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 10,523 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law.
The
holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the
Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred
stock have the following voting rights:
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Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
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Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
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Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
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On
February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series
B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of
Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series B Preferred.
As of December 31, 2019 and 2018, there were 3,856 and 10,523 shares of Series B Preferred issued and outstanding, respectively.
On
April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 500,000,000 shares to 1,500,000,000 shares. The Company’s 1,520,000,000 authorized shares consisted
of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock, par value $0.0001
per share.
On
August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 1,500,000,000 shares to 5,000,000,000 shares. The Company’s 5,020,000,000 authorized shares consisted
of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001
per share par value.
On
August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s
issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which
became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized
shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A
Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of
the common and preferred stock. All share and per share amounts in the accompanying audited
consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock
Split.
As
of March 17, 2020, we had 881,118 shares of common stock, 1,333 shares
of Series A preferred stock and 3,856 shares of Series B preferred stock issued
and outstanding.
Acquisition
of OncBioMune, Inc.
Effective
as of September 2, 2015, we closed the exchange (the “Exchange”) pursuant to that certain share exchange agreement
dated as of June 22, 2015, as amended, among OncBioMune, the OncBioMune stockholders and us (the “Exchange Agreement”).
On September 2, 2015, pursuant to the terms of the Exchange Agreement, we issued an aggregate of 62,667 shares of our common stock
(representing approximately 91.3% of our then-outstanding common stock) and 1,333 shares of our Series A preferred stock (representing
100% of our outstanding Series A preferred shares) in exchange for 62,667 shares of OncBioMune’s common stock. As a result,
the OncBioMune stockholders became our stockholders and OncBioMune became our wholly-owned subsidiary.
In
connection with our corporate name change to OncBioMune Pharmaceuticals, Inc., the trading symbol for our common stock was changed
from “QUNI” to “OBMP.” Also, effective as of September 2, 2015, we changed our fiscal year end from February
28 to December 31.
Shareholders
Agreement with Vitel Laboratorios, S.A. de C.V.
On
August 19, 2016, we entered into a Shareholders Agreement (the “Shareholders Agreement”) with Vitel Laboratorios related
to their ownership of Oncbiomune México. Oncbiomune Mexico is authorized to issue 13 shares of Common Stock, of which 7
shares were subscribed for and issued to us and 7 shares were subscribed for and issued to Vitel Laboratorios.
This
Agreement became effective as of August 19, 2016 and, except as otherwise set forth herein, will continue in effect thereafter
until terminated upon the mutual consent of all of the Parties hereto. We plan to dissolve OBM Mexico after we dispose of Vitel.
As of the filing date of this report, OBM Mexico has not been dissolved.
Acquisition
of Vitel Laboratorios
On
March 10, 2017 (the “Closing Date”), we completed the acquisition of 100% of the issued and outstanding capital
stock of Vitel Laboratorios from its shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the
“Vitel Stockholders”) pursuant to the terms and conditions of a Contribution Agreement to the Property of Trust F/2868
entered into among we and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”). Pursuant to the
terms of the Contribution Agreement we issued 81,544 shares of our unregistered common stock, par value $0.0001 per share (the
“Common Stock”) and 6,667 shares of Series B preferred stock (the “Series B Preferred”) to Banco Actinver,
S.A., in its capacity as Trustee (the “Trustee”) of the Irrevocable Management Trust Agreement Trust No. 2868 (the
“Trust Agreement”) for the benefit of the Vitel Stockholders in exchange for 100% of the issued and outstanding capital
stock of Vitel Laboratorios (the “Vitel Shares”). The Common Stock and Series B Preferred are held by Trustee for
the benefit of the Vitel Stockholders as provided for in the Trust Agreement and 98% of the Vitel Shares are held by the
Trustee for the benefit of our company as provided for in the Trust Agreement and 2% of the Vitel Shares were transferred
to OBMP. Vitel Laboratorios became a wholly owned subsidiary of our company as of the Closing Date. In addition, we agreed to
issue 3,856 shares of Series B Preferred to Jonathan F. Head, Ph. D, our Chief Executive Officer and a member of the Board of
Directors of our company as provided for in the Contribution Agreement.
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel Laboratorios
S.A. de C.V. (“Vitel”) and Oncbiomune México, S.A. De C.V. (“OBMP Mexico”) due to disputes with
the original Vitel Stockholders and resulting loss of operational control of the assets and operations of Vitel and Oncbiomune
Mexico. Accordingly, Vitel and Oncbiomune México were treated as a discontinued operation through December 31, 2017 and
were deconsolidated effective January 1, 2018. On February 20, 2019, pursuant to the Certificate
of Designation, Rights and Preferences of the Series B Preferred, the Company exercised its right to redeem all of the 6,667 shares
of the Series B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the
benefit of Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 which was equal to $0.075
per share of Series B Preferred.
Discontinuation
of the Vitel Business
On
December 29, 2017, we determined to sell or otherwise dispose of our interest in Vitel and OBMP. Accordingly, Vitel and Oncbiomune
Mexico are now treated as a discontinued operation. Accordingly, as of December 31, 2017, the Company presented Vitel and Oncbiomune
Mexico as discontinued operations and effective January 1, 2018 has deconsolidated these wholly-owned subsidiaries.
This
decision will enable us to focus more of our efforts and resources on the Phase 2 clinical trials of ProscaVax™ in the United
States. In connection with the foregoing, Manuel Cosme Odabachian resigned as a member of the board of directors of OBMP and as
an officer of the Company on December 22, 2017. Carlos Alaman also resigned as an officer of Vitel. We expect to terminate the
Contribution Agreement, Stockholders Agreement and Trust Agreement during 2020.
ITEM
1A. RISK FACTORS
Risks Relating to Our Financial Position
and Operations
There
is substantial doubt about our ability to continue as a going concern.
We
had net income (loss) of $(9,402,244) and $6,468,325 for the years ended December 31, 2019 and 2018, respectively, however the
net income in 2018 resulted primarily from the change in fair value of derivative liabilities. The net loss from operations were
$1,768,569 and $1,777,973 for the years ended December 31, 2019 and 2018, respectively. The net cash used in operations were $1,171,131
and $1,679,406 for the years ended December 31, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit
of $26,589,908 and $17,187,664, at December 31, 2019 and 2018, respectively, had a stockholders’ deficit of $15,937,452
at December 31, 2019, had a working capital deficit of $15,969,504 at December 31, 2019. The Company had no revenues from continuing
operations for the years ended December 31, 2019 and 2018, and we defaulted on our debt. Management believes that these matters
raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date
of this report.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to
raise capital through additional debt and/or equity financings to fund its operations in the future.
Although
management believes there is substantial doubt about our ability to continue as a going concern our consolidated financial
statements, they do not reflect any adjustments that might result if we are unable to continue our business. Our consolidated
financial statements contain additional note disclosure describing the circumstances that lead to this disclosure. Even if we
are able to successfully realize our commercialization goals for ProscaVax™, because of the numerous risks and uncertainties
associated with commercialization of a biologic, we may still require additional funding. And in any event, we are unable to predict
when we will become profitable, if at all. Even if we do produce revenues and achieve profitability, we may not be able to maintain
or increase profitability.
We
will need additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce
or eliminate our research and development activities.
We
will need to raise additional funding. We may not be able to generate significant revenues for several years, if at all. Until
we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We
cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available,
we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.
Risks
Relating to our Product Commercialization Pursuits
If
we fail to achieve and sustain commercial success for ProscaVax™, our business will suffer, our future prospects may be
harmed and our stock price would likely decline.
We
have never sold or marketed our pharmaceutical products in our continuing operations. Unless we can successfully commercialize
ProscaVax™ or another product candidate or acquire the right to market other approved products, our business will be materially
adversely affected. Our ability to generate revenues for ProscaVax™ will depend on, and may be limited by, a number of factors,
including the following:
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Our
ability to complete the necessary clinical trials for ProscaVax™;
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Our
ability to receive approval of ProscaVax™ by the FDA;
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acceptance
of and ongoing satisfaction with ProscaVax™ by the medical community, patients receiving therapy and third-party payers
in the United States, and eventually in foreign markets if we receive marketing approvals abroad;
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our
ability to develop and expand market share for treating late stage prostate cancer patients, both in the United States and
potentially in the rest of the world if we receive marketing approvals outside of the United States, in the midst of numerous
competing products for late stage prostate cancer, many of which are in late stage clinical development;
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whether
data from clinical trials for the additional indication of early stage prostate cancer patients are positive and whether such
data, if positive, will be sufficient to achieve approval from the FDA and its foreign counterparts to market and sell ProscaVax™
for this additional indication;
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adequate
coverage or reimbursement for ProscaVax™ by government healthcare programs and third-party payors, including private
health coverage insurers and health maintenance organizations; and
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the
ability of patients to afford any required co-payments for ProscaVax™.
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If
for any reason we are unable to sell ProscaVax™, our business would be seriously harmed and could fail.
If
ProscaVax™ were to become the subject of problems related to its efficacy, safety, or otherwise, our ability to generate
revenues from ProscaVax™ could be seriously harmed.
ProscaVax™,
in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA,
and we cannot assure you that newly discovered safety issues will not arise. With the use of any newly marketed drug by a wider
patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself.
Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our
approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition. In the event
of a withdrawal of ProscaVax™ from the market, our revenues would decline significantly and our business would be seriously
harmed and could fail.
Adoption
of ProscaVax™ for the treatment of patients with either early stage or advanced prostate cancer may be slow or limited for
a variety of reasons, including competing therapies and perceived difficulties in the treatment process or delays in obtaining
reimbursement. If ProscaVax™ is not successful in broad acceptance as a treatment option for prostate cancer, our business
would be harmed.
The
rate of adoption of ProscaVax™ for early stage or advanced prostate cancer and the ultimate market size will be dependent
on several factors, including the education of treating physicians on the patient treatment process with ProscaVax™ and
immunotherapies generally. A significant portion of the prospective patient base for treatment with ProscaVax™ may be under
the care of urologists who may be less experienced with immunotherapy than oncologists. Acceptance by urologists of ProscaVax™
as a treatment option may be measurably slower than adoption by oncologists of ProscaVax™ as a therapy and may require more
educational effort by us.
To
achieve global success for ProscaVax™ as a treatment, we will need to obtain approvals by foreign regulatory authorities.
Data from our completed clinical trials of ProscaVax™ may not be sufficient to support approval for commercialization by
regulatory agencies governing the sale of drugs outside of the United States. This could require us to spend substantial sums
to develop sufficient clinical data for licensure by foreign authorities. Submissions for approval by foreign regulatory authorities
may not result in marketing approval by these authorities for the requested indication. In addition, certain countries require
pricing to be established before reimbursement for the specific indication may be obtained. We may not receive or maintain marketing
approvals at favorable pricing levels or at all, which could harm our ability to market ProscaVax™ globally. Prostate cancer
is common in many regions where the healthcare support systems are limited and reimbursement for ProscaVax™ may be limited
or unavailable, which will likely limit or slow adoption in these regions. If we are unable to successfully achieve the full global
market potential of ProscaVax™ due to diagnosis practices or regulatory hurdles, our future prospects would be harmed and
our stock price could decline.
Risks
from Competitive Factors
Our
competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner, which may
diminish or eliminate the commercial success of any products we may commercialize.
Competition
in the cancer therapeutics field is intense and is accentuated by the rapid pace of advancements in product development. In addition,
we compete with other clinical-stage companies and institutions for clinical trial participants, which could reduce our ability
to recruit participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability
to bring a product to market prior to our competitors. Further, research and discoveries by others may result in breakthroughs
that render potential products obsolete before they generate revenue.
Products
such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense
compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could
potentially compete with ProscaVax™ and our other product candidates. In addition, many universities and private and public
research institutes may in the future become active in cancer research, which may be in direct competition with us.
Some
of our competitors in the cancer therapeutics field have substantially greater research and development capabilities and manufacturing,
marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical and biotechnology
companies could enhance our competitors’ resources. In addition, our competitors may obtain patent protection or FDA approval
and commercialize products more rapidly than we do, which may impact future sales of our products. We expect that competition
among products approved for sale will be based, among other things, on product efficacy, price, safety, reliability, availability,
patent protection, and sales, marketing and distribution capabilities. Our profitability and financial position will suffer if
our products receive regulatory approval, but cannot compete effectively in the marketplace.
We
could face competition for ProscaVax™ or other approved products from biosimilar products that could impact our profitability.
We
may face competition in Europe from biosimilar products, and we expect we may face competition from biosimilars in the future
in the United States as well. To the extent that governments adopt more permissive approval frameworks and competitors are able
to obtain broader marketing approval for biosimilars, our products will become subject to increased competition. Expiration or
successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the
validity and/or scope of our patents. We cannot predict to what extent the entry of biosimilar products or other competing products
could impact our future potential sale of ProscaVax™ in the E.U., where biosimilars to other innovator biological products
are already available. Our inability to compete effectively in foreign territories would reduce global sales potential, which
could have a material adverse effect on our results of operations.
On
March 23, 2010, PPACA became law and authorized FDA approval of biosimilar products. PPACA established a period of 12 years of
data exclusivity for reference products and outlined statutory criteria for science-based biosimilar approval standards. Under
this framework, data exclusivity protects the data in the innovator’s regulatory application by prohibiting, for a period
of 12 years, others from gaining FDA approval based in part on reliance or reference to the innovator’s data. FDA has issued
a number of guidance documents concerning its biosimilar policies and has licensed a number of biosimilar products. The biosimilar
law does not change the duration of patents granted on biologic products. Because of this pathway for the approval of biosimilars
in the U. S., we may in the future face greater competition from biosimilar products and downward pressure on our product prices,
sales and revenues, subject to our ability to enforce our patents.
Failure
to retain key personnel could impede our ability to develop our products and to obtain new collaborations or other sources of
funding.
We
currently do not have the necessary senior management and senior scientific, clinical, regulatory, operational and other personnel
to operate our business. The development of new therapeutic products requires expertise from a number of different disciplines,
some of which are not widely available.
Companies
like ours depend upon our scientific staff to discover new product candidates and to develop and conduct pre-clinical studies
of those new potential products. Clinical and regulatory staff is responsible for the design and execution of clinical trials
in accordance with FDA requirements and for the advancement of product candidates toward FDA approval and submission of data supporting
approval. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their
success in performing their responsibilities, may directly influence the success of our product development programs. As we pursue
successful commercialization of ProscaVax™, we will need to hire sales and marketing, and operations executive management
staff in order to ensure our organizational success. In addition, we require additional executive officers to provide strategic
and operational guidance. r Our inability to recruit key management and scientific, clinical, regulatory, medical, operational
and other personnel, may delay or prevent us from achieving our business objectives. We face intense competition for personnel
from other companies, universities, public and private research institutions, government entities and other organizations.
Risks
Relating to Collaboration Arrangements and Reliance on Third Parties
We
must rely on relationships with third-party suppliers to supply necessary components used in our products, which relationships
are not easy to replace.
We
rely upon contract manufacturers for components used in the manufacture of ProscaVax™. Problems with any of our suppliers’
facilities or processes could result in failure to produce or a delay in production of adequate supplies of the antigen or other
components we use in the manufacture of ProscaVax™. This could delay or reduce commercial sales and materially harm our
business. Any prolonged interruption in the operations of our suppliers’ facilities could result in cancellation of orders,
loss of components in the process of being manufactured or a shortfall in availability of a necessary component. A number of factors
could cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures,
damage to a facility due to natural disasters, changes in FDA or equivalent other country authorities’ regulatory requirements
or standards that require modifications to manufacturing processes, or action by us to implement process changes or other similar
factors. Because manufacturing processes are complex and are subject to a lengthy FDA or equivalent non-United States regulatory
approval process, alternative qualified supply may not be available on a timely basis or at all. Difficulties or delays in our
suppliers’ manufacturing and supply of components could delay our clinical trials, increase our costs, damage our reputation
and, for ProscaVax™, cause us to lose revenue or market share if we are unable to timely meet market demands.
Risks
Relating to Our Clinical Trial and Product Development Initiatives
The
costs of our product candidate development and clinical trials are difficult to estimate and will be very high for many years,
preventing us from making a profit for the foreseeable future, if ever.
Clinical
and other studies necessary to obtain approval of a new drug can be time consuming and costly, especially in the United States,
but also in foreign countries. Our estimates of the costs associated with future clinical trials and research may be substantially
lower than what we actually experience. It is impossible to predict what we will face in the development of a product candidate,
such as ProscaVax™. The purpose of clinical trials is to provide both regulatory authorities and us with safety and efficacy
data in humans. It is relatively common to revise a trial or add subjects to a trial in progress. These examples of common variances
in product development and clinical investigations demonstrate how predicted costs may exceed reasonable expectations. The difficult
and often complex steps necessary to obtain regulatory approval especially that of the FDA and the European Union’s European
Medicines Agency (the “EMA”) involve significant costs and may require several years to complete. We expect that we
will need substantial additional financing over an extended period in order to fund the costs of future clinical trials, related
research, and general and administrative expenses.
The
extent of our clinical trials and research programs are primarily based upon the amount of capital available to us and the extent
to which we receive regulatory approvals for clinical trials. We have established estimates of the future costs of the Phase 2
clinical trial for ProscaVax™, but, as explained above, that estimate may not prove correct. We expect the phase 2 clinical
trial at Dana-Farber Hospital and Beth Israel Deaconess Hospital to take three and a half years and cost roughly $6,100,000.
Our
clinical and pre-clinical candidates in the pipeline for other potential cancer immunotherapies and targeted products may never
reach the commercial market for a number of reasons.
To
sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging
in discovery research and product development, conducting pre-clinical and clinical studies, and seeking regulatory approval in
the United States for product candidates and in other countries for ProscaVax™ and other products we may market in the future.
Our long-term success depends on the discovery and development of new drugs that we can commercialize. Our cancer immunotherapy
and targeted program pipeline candidates are still at a relatively early stage in the development process. There can be no assurance
that these product candidates or any other potential therapies we may pursue will become a marketed drug. In addition, we may
find that certain products cannot be manufactured on a commercial scale and, therefore, they may not be economical to produce,
or may be precluded from commercialization by proprietary rights of third parties.
A
significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify
disease targets and product candidates require substantial technical, financial and human resources, whether or not we ultimately
identify any candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail
to yield candidates for clinical development for a number of reasons, including difficulties in formulation which cannot be overcome,
timing and competitive concerns.
An
Investigational New Drug (“IND”) application must become effective before human clinical trials may commence. The
IND application is automatically effective 30 days after receipt by the FDA unless before that time, the FDA raises concerns or
questions about the product’s safety profile or the design of the trials as described in the application. In the latter
case, any outstanding concerns must be resolved with the FDA before clinical trials can proceed. Thus, the submission of an IND
may not result in FDA authorization to commence clinical trials in any given case. After authorization is received, the FDA retains
the authority to place the IND, and clinical trials under that IND, on clinical hold. If we are unable to commence clinical trials
or clinical trials are delayed indefinitely, we would be unable to develop additional product candidates and our business could
be materially harmed. Clinical trials, both in the United States and in other countries, can be delayed for a variety of reasons,
including:
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delays
or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating to
our product candidates or similar product candidates of our competitors or failure to follow regulatory guidelines;
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delays
or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidate for use in trials;
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delays
or failures in reaching agreement on acceptable terms with prospective study sites;
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delays
or failures in obtaining approval of our clinical trial protocol from an institutional review board (“IRB”) or
ethics committee (“EC”) to conduct a clinical trial at a prospective study site;
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delays
in recruiting patients to participate in a clinical trial;
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failure
of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices or equivalent
other country regulations and requirements;
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unforeseen
safety issues, including negative results from ongoing pre-clinical studies;
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inability
to monitor patients adequately during or after treatment;
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unexpected
adverse events occurring during the clinical trial;
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failure
by third-party clinical trial managers to comply with regulations concerning protection of patient health data;
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difficulty
monitoring multiple study sites;
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failure
of our third-party clinical trial managers to satisfy their contractual duties, comply with regulations or meet expected deadlines;
and
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determination
by regulators that the clinical design of the trials is not adequate.
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The
nature and efforts required to complete a prospective research and development project are typically indeterminable at very early
stages when research is primarily conceptual and may have multiple applications. Once a focus towards developing a specific product
candidate has been developed, we obtain more visibility into the efforts that may be required to reach conclusion of the development
phase. However, there are inherent risks and uncertainties in developing novel biologics in a rapidly changing industry environment.
To obtain approval of a product candidate from the FDA or other country regulatory authorities, we must, among other requirements,
submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate.
In most cases, this entails extensive laboratory tests and pre-clinical and clinical trials. The collection of this data, as well
as the preparation of applications for review by the FDA and other regulatory agencies outside the United States are costly in
time and effort, and may require significant capital investment.
We
may encounter significant difficulties or costs in our efforts to obtain FDA approvals or approvals to market products in foreign
markets. For example, the FDA or the equivalent in jurisdictions outside the United States may determine that our data is not
sufficiently compelling to warrant marketing approval, or may require we engage in additional clinical trials or provide further
analysis which may be costly and time consuming. Regardless of the nature of our efforts to complete development of our products
and receive marketing approval, we may encounter delays that render our product candidates uncompetitive or otherwise preclude
us from marketing products.
We
may be required to obtain additional funding to complete development of product candidates or in order to commercialize approved
products. However such funding may not be available to us on terms we deem acceptable or at all. Our ability to access additional
capital is dependent on the success of our business and the perception by the market of our future business prospects. In the
event we were unable to obtain necessary funding, we might halt or temporarily delay ongoing development projects.
If
we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.
Clinical
trials for our product candidates may require that we identify and enroll a large number of patients with the disease under investigation.
We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity
in a study, to complete our clinical trials in a timely manner.
Patient
enrollment is affected by factors including:
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design
of the trial protocol;
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the
size of the patient population;
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eligibility
criteria for the study in question;
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perceived
risks and benefits of the product candidate under study;
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availability
of competing therapies and clinical trials;
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efforts
to facilitate timely enrollment in clinical trials;
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patient
referral practices of physicians;
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the
ability to monitor patients adequately during and after treatment; and
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geographic
proximity and availability of clinical trial sites for prospective patients.
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Additionally,
even if we are able to identify an appropriate patient population for a clinical trial, there can be no assurance that the patients
will continue in the clinical trial through completion.
If
we have difficulty enrolling or maintaining a sufficient number of patients with sufficient diversity to conduct our clinical
trials as planned, we may need to delay or terminate ongoing or planned clinical trials either of which would have a negative
effect on our business.
Risks
Related to Regulation of the Pharmaceutical Industry
ProscaVax™
and our other products in development cannot be sold if we do not maintain or gain required regulatory approvals.
Our
business is subject to extensive regulation by numerous state and federal governmental authorities in the United States, including
the FDA, and potentially by foreign regulatory authorities, with regulations differing from country to country. In the United
States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency,
labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. Other
applicable non-United States regulatory authorities have equivalent powers. Failure to comply with applicable requirements could
result in, among other things, one or more of the following actions: withdrawal of product approval, notices of violation, untitled
letters, warning letters, fines and other monetary penalties, unanticipated expenditures, delays in approval or refusal to approve
a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions;
and criminal prosecution. We are required in the United States and in foreign countries to obtain approval from regulatory authorities
before we can manufacture, market and sell our products.
Obtaining
regulatory approval for marketing of a product candidate in one country does not assure we will be able to obtain regulatory approval
in other countries. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on
the regulatory process in other countries. Once approved, the FDA and other United States and non-United States regulatory authorities
have substantial authority to limit the uses or indications for which a product may be marketed, restrict distribution of the
product, require additional testing, change product labeling or mandate withdrawal of our products. The marketing of our approved
products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including:
the manufacturing, testing, distribution, labeling, packaging, storage, reporting and record-keeping related to the product, advertising,
promotion, and adverse event reporting requirements. In addition, incidents of adverse drug reactions, unintended side effects
or misuse relating to our products could result in required post-marketing studies, additional regulatory controls or restrictions,
or even lead to withdrawal of a product from the market.
In
general, the FDA and equivalent other country authorities require labeling, advertising and promotional materials to be truthful
and not misleading, and marketed only for the approved indications and in accordance with the provisions of the approved label.
If the FDA or other regulatory authorities were to challenge our promotional materials or activities, they may bring enforcement
action.
Our
failure to obtain approval, significant delays in the approval process, or our failure to maintain approval in any jurisdiction
will prevent us from selling a product in that jurisdiction. Any product and its manufacturer will continue to be subject to strict
regulations after approval, including but not limited to, manufacturing, quality control, labeling, packaging, adverse event reporting,
advertising, promotion and record-keeping requirements. Any problems with an approved product, including the later exhibition
of adverse effects or any violation of regulations could result in restrictions on the product, including its withdrawal from
the market, which could materially harm our business. The process of obtaining approvals in foreign countries is subject to delay
and failure for many of the same reasons.
Regulatory
authorities could also add new regulations or change existing regulations at any time, which could affect our ability to obtain
or maintain approval of our products. ProscaVax™ and our investigational cellular immunotherapies are novel. As a result,
regulatory agencies lack experience with them, which may lengthen the regulatory review process, increase our development costs
and delay or prevent commercialization of ProscaVax™ outside of the United States and with respect to our active immunotherapy
products under development. We are unable to predict when and whether any changes to regulatory policy affecting our business
could occur, and such changes could have a material adverse impact on our business. If regulatory authorities determine that we
have not complied with regulations in the research and development of a product candidate, a new indication for an existing product
or information to support a current indication, they may not approve the product candidate or new indication or maintain approval
of the current indication in its current form or at all, and we would not be able to market and sell it. If we were unable to
market and sell our products or product candidates, our business and results of operations would be materially and adversely affected.
Failure
to comply with foreign regulatory requirements governing human clinical trials and failure to obtain marketing approval for product
candidates could prevent us from selling our products in foreign markets, which may adversely affect our operating results and
financial condition.
The
requirements governing the conduct of clinical trials, manufacturing, testing, product approvals, pricing and reimbursement outside
the United States vary greatly from country to country. In addition, the time required to obtain approvals outside the United
States may differ significantly from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on the
timeframe we may desire, if at all. Approval by the FDA does not assure approval by regulatory authorities in other countries,
and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain
required approvals could impair our ability to develop foreign markets for our products and may have a material adverse effect
on our business and future prospects.
We
use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.
Our
operations produce hazardous waste products, including chemicals and radioactive and biological materials. We are subject to a
variety of federal, state and local laws and regulations relating to the use, handling, storage and disposal of these materials.
Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed
by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.
We generally contract with third parties for the disposal of such hazardous waste products and store our low-level radioactive
waste at our facilities in compliance with applicable environmental laws until the materials are no longer considered radioactive.
We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental
Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations.
OSHA and/or the EPA may promulgate regulations that may affect our research and development programs. We may be required to incur
further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental
contamination or injury from these materials, we could be held liable for any damages that result, including remediation, and
any such liability could exceed our resources.
If
we are unable to safeguard against security breaches with respect to our information systems, our business may be adversely affected.
In
the course of our business, we gather, transmit and retain confidential information through our information systems. Although
we endeavor to protect confidential information through the implementation of security technologies, processes and procedures,
it is possible that an individual or group could defeat security measures and access sensitive information about our business
and employees. Any misappropriation, loss or other unauthorized disclosure of confidential information gathered, stored or used
by us could have a material impact on the operation of our business, including damaging our reputation with our employees, third
parties and investors. We could also incur significant costs implementing additional security measures and organizational changes,
implementing additional protection technologies, training employees or engaging consultants. In addition, we could incur increased
litigation as a result of any potential cyber-security breach. We are not aware that we have experienced any material misappropriation,
loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach
or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have
a material adverse effect on our business, prospects, financial condition or results of operations.
We
are exposed to potential product liability claims, and insurance against these claims may not be adequate and may not be available
to us at a reasonable rate in the future.
Our
business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of drug candidates
and products. If any of our drug candidates in clinical trials or our marketed products harm people or allegedly harm people,
we may be subject to costly and damaging product liability claims. Most, if not all, of the patients who participate in our clinical
trials are already seriously ill when they enter a trial. We have clinical trial insurance coverage, and commercial product liability
insurance coverage. However, this insurance coverage may not be adequate to cover all claims against us. There is also a risk
that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful
assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such
a claim, could adversely affect our product development or product sales and could cause a decline in our product revenues. Even
a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely
affect our product development and could cause a decline in our product revenues. In addition, product liability claims could
result in an FDA or equivalent non-United States regulatory authority investigation of the safety or efficacy of our products,
our manufacturing processes and facilities, or our marketing programs. An FDA or equivalent non-United States regulatory authority
investigation could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the
indications, for which they may be used, or suspension or withdrawal of approval.
Risks
in Protecting Our Intellectual Property
If
we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively
or operate profitably.
We
invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through
United States and foreign patent filings, trademarks and trade secrets. We have issued patents, and applications for United States
and foreign patents in various stages of prosecution. We expect that we will continue to file and prosecute patent applications
and that our success depends in part on our ability to establish and defend our proprietary rights in the technologies that are
the subject of issued patents and patent applications.
The
fact that we have filed a patent application or that a patent has issued, however, does not ensure that we will have meaningful
protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated,
declared unenforceable or circumvented or may not cover all applications we may desire. Our pending patent applications as well
as those we may file in the future may not result in issued patents. Patents may not provide us with adequate proprietary protection
or advantages against competitors with, or who could develop, similar or competing technologies or who could design around our
patents. Patent law relating to the scope of claims in the pharmaceutical field in which we operate is continually evolving and
can be the subject of some uncertainty. The laws providing patent protection may change in a way that would limit protection.
We
also rely on trade secrets and know-how that we seek to protect, in part, through confidentiality agreements. Our policy is to
require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed
or made known to the individual during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies
that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing
that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property. It is possible,
however, that these parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible
that our trade secrets or know-how will otherwise become known to or be independently developed by competitors.
We
are also subject to the risk of claims, whether meritorious or not, that our products or immunotherapy candidates infringe or
misappropriate third-party intellectual property rights. Defending against such claims can be quite expensive even if the claims
lack merit and if we are found to have infringed or misappropriated a third-party’s intellectual property, we could be required
to seek a license or discontinue our products or cease using certain technologies or delay commercialization of the affected product
or products, and we could be required to pay substantial damages, which could materially harm our business.
We
may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue
and uncertain in its outcome.
Our
business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships,
or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that
are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be
expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our
business.
Litigation
relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an
industry dominated by very large companies may cause us to be at a disadvantage in defending our intellectual property rights
and in defending against claims that our immunotherapy candidates infringe or misappropriate third-party intellectual property
rights. Even if we are able to defend our position, the cost of doing so may adversely affect our profitability. We may in the
future be subject to patent litigation and may not be able to protect our intellectual property at a reasonable cost if such litigation
is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require
us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant
adverse effect on our business.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and
rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent
agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent
lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations
in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this
circumstance would have a material adverse effect on our business.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States can be less extensive than those in the United
States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal
and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions
in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection
to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement
is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
Risks
Relating to an Investment in Our Common Stock
Market
volatility may affect our stock price, and the value of an investment in our common stock may be subject to sudden decreases.
The
trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock
trades depends on a number of factors, including the following, many of which are beyond our control:
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the
relative success of our commercialization efforts for ProscaVax™;
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pre-clinical
and clinical trial results and other product development activities;
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our
historical and anticipated operating results, including fluctuations in our financial and operating results or failure to
meet revenue guidance;
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changes
in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors’ businesses;
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announcements
of technological innovations or new commercial products by us or our competitors;
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developments
concerning our key personnel;
|
|
|
|
|
●
|
our
ability to protect our intellectual property, including in the face of changing laws;
|
|
|
|
|
●
|
announcements
regarding significant collaborations or strategic alliances;
|
|
|
|
|
●
|
publicity
regarding actual or potential performance of products under development by us or our competitors;
|
|
|
|
|
●
|
market
perception of the prospects for biotechnology companies as an industry sector; and
|
|
|
|
|
●
|
general
market and economic conditions.
|
During
periods of extreme stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner
not necessarily related to their individual operating performance. Furthermore, historically our common stock has experienced
greater price volatility than the stock market as a whole.
We
do not intend to pay cash dividends on our common stock in the foreseeable future.
We
have never declared or paid cash dividends on our capital stock. We are not currently profitable. To the extent, we become profitable,
we intend to retain any future earnings to fund the development and growth of our business and do not currently anticipate paying
any cash dividends in the foreseeable future. Accordingly, our stockholders will not realize a return on their investment unless
and until they sell shares after the trading price of our shares appreciates from the price at which the shareholder purchased.
As
an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements
We
qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely
on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required
to:
|
●
|
have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
|
|
|
|
|
●
|
comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial
statements (i.e., an auditor discussion and analysis);
|
|
|
|
|
●
|
submit
certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”;
and
|
|
|
|
|
●
|
disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the chief executive officer’s compensation to median employee compensation.
|
In
addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,
an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an “emerging growth company” until (i) the last day of the fiscal year of the Company during which it
had total annual gross revenues of $1,070,000,000 or more; (ii) the last day of the fiscal year of the Company following the fifth
anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement
under the Securities Act of 1933; (iii) the date on which the Company has, during the previous three year period, issued more
than $1,000,000,000 in non-convertible debt; or (iv) the date on which the Company is deemed to be a large accelerated filer,
as defined in Rule 12b-2.
Until
such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
Trading
on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for
our stockholders to resell their shares.
Our
common stock is quoted on the OTC Pink tier of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized
by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the
trading of securities listed on a quotation system like NASDAQ or a stock exchange like the New York Stock Exchange. These factors
may result in investors having difficulty reselling any shares of our common stock.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Our
principal executive offices at 11441 Industriplex Blvd, Suite 190, Baton Rouge, LA 70809 is leased from a third party. The lease
is for a period of 60 months commencing in September 2015 and expiring in August 2020. Pursuant to the lease agreement, the lease
requires the Company to pay a monthly base rent of $3,200 plus a pro rata share of operating expenses.
We
believe our facilities are adequate for our current and future needs.
ITEM
3. LEGAL PROCEEDINGS
We
know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered
or beneficial shareholder holding more than 5% of our shares, is an adverse party or has a material interest adverse to
our interest.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS
Organization
OncBioMune
Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company engaged in the development of
novel cancer immunotherapy products, with a proprietary vaccine technology that is designed to stimulate the immune system to
attack its own cancer while not attacking the patient’s healthy cells. The Company has proprietary rights to an immunotherapy
platform with an initial focus on prostate and breast cancers but that may be used to fight any solid tumor. The Company is also
developing targeted therapies. Our mission is to improve overall patient condition through innovative bio-immunotherapy with proven
treatment protocols, to lower deaths associated with cancer and to reduce the cost of cancer treatment. We believe our technology
is safe, and utilizes clinically proven research methods of treatment to provide optimal likelihood of patient recovery.
On
March 10, 2017 (the “Closing Date”), the Company completed the acquisition of 100% of the issued and outstanding capital
stock of Vitel Laboratorios, S.A. de C.V., a Mexican variable stock corporation (“Vitel”) from its shareholders Manuel
Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”) pursuant to the terms
and conditions of a Contribution Agreement to the Property of Trust F/2868 entered into among the Company and the Vitel Stockholders
on the Closing Date (the “Contribution Agreement”). The Company acquired Vitel for the purpose of commercializing
the Company’s ProscaVax™ vaccine technology and cancer technologies in Mexico, Central and Latin America and to utilize
Vitel’s distribution network and customer and industry relationships.
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and
OncBioMune México due to disputes with the original Vitel Stockholders and resulting loss of operational control of the
assets and operations of Vitel and OncBioMune Mexico. Accordingly, Vitel and OncBioMune México were treated as a discontinued
operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (see Note 3). The Company expects to terminate
the Contribution Agreement and Trust Agreement during 2020.
On
April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 9). The Company’s 1,520,000,000 authorized
shares consisted of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock,
par value $0.0001 per share.
On
August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 1,500,000,000 shares to 5,000,000,000 shares (see Note 9). The Company’s 5,020,000,000 authorized
shares consist of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock
at $0.0001 per share par value.
On
August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s
issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which
became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized
shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A
Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of
the common and preferred stock. All share and per share amounts in the accompanying historical
consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock
Split (see Note 9).
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principals of consolidation
The
Company’s consolidated financial statements include the financial statements of OncBioMune Pharmaceuticals, Inc. and its
wholly-owned subsidiaries, OncBioMune, Inc. for all periods presented. Vitel and Oncbiomune México, S.A. De C.V. (from
March 10, 2017 to December 31, 2017) were treated as a discontinued operation through December 31, 2017 and were deconsolidated
effective January 1, 2018 (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Going
concern
The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying consolidated
financial statements, the Company had net income (loss) of $(9,402,244) and $6,468,325 for the years ended December 31, 2019 and
2018, respectively, however the net income in 2018 resulted primarily from the change in fair value of derivative liabilities.
The net loss from operations were $1,768,569 and $1,777,973 for the years ended December 31, 2019 and 2018, respectively. The
net cash used in operations were $1,171,131 and $1,679,406 for the years ended December 31, 2019 and 2018, respectively. Additionally,
the Company had an accumulated deficit of $26,589,908 and $17,187,664, at December 31, 2019 and 2018, respectively, had a stockholders’
deficit of $15,937,452 at December 31, 2019, had a working capital deficit of $15,969,504 at December 31, 2019. The Company had
no revenues from continuing operations for the years ended December 31, 2019 and 2018, and we defaulted on our debt. Management
believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve
months from the issuance date of this report.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to
raise capital through additional debt and/or equity financings to fund its operations in the future and is seeking potential candidates
for a merger or acquisition.
Although
the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance
that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in
the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
Use
of estimates
The preparation of the consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during
the years ended December 31, 2019 and 2018 include the valuation of liabilities of discontinued operations, useful life of property
and equipment, valuation of operating lease right-of-use (“ROU”) assets and liabilities, assumptions used in assessing
impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair
value of non-cash equity transactions and the valuation of derivative liabilities.
Concentrations
Generally,
the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products.
Any production shortfall that impairs the supply of the antigen in ProscaVax™ to the Company could have a material adverse
effect on the Company’s business, financial condition and results of operations. If the Company is unable to obtain a sufficient
quantity of antigen, there could be a substantial delay in successfully developing a second source supplier.
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires
disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures
about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2019.
Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be
realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether
the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level
3 measurement).
The
three levels of the fair value hierarchy are as follows:
|
Level
1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
|
|
|
|
Level
2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and
inputs derived from or corroborated by observable market data.
|
|
|
|
Level
3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the
market participants would use in pricing the asset or liability based on the best available information.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts
payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
Assets
or liabilities measured at fair value or a recurring basis included embedded conversion options in convertible debt and included
warrants (see Note 6 and Note 9) and were as follows at December 31, 2019 and 2018:
|
|
At
December 31, 2019
|
|
|
At
December 31, 2018
|
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
9,320,052
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,364,032
|
|
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
For
the Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Balance
at beginning of year
|
|
$
|
3,364,032
|
|
|
$
|
11,966,760
|
|
Initial
valuation of derivative liabilities included in debt discount
|
|
|
552,473
|
|
|
|
2,039,143
|
|
Initial
valuation of derivative liabilities included in derivative income (expense)
|
|
|
22,546
|
|
|
|
1,811,617
|
|
Reclassification
of derivative liabilities to gain (loss) on debt extinguishment upon conversion of debt
|
|
|
(357,355
|
)
|
|
|
(422,835
|
)
|
Reclassification
of derivative liabilities to gain (loss) on debt extinguishment upon cashless exercise of warrants
|
|
|
—
|
|
|
|
(666,756
|
)
|
Reclassification
of derivative liabilities to gain (loss) on debt extinguishment for debt settlement
|
|
|
—
|
|
|
|
(1,323,111
|
)
|
Change
in fair value included in derivative income (expense)
|
|
|
5,738,356
|
|
|
|
(10,040,786
|
)
|
Balance
at end of year
|
|
$
|
9,320,052
|
|
|
$
|
3,364,032
|
|
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents. At December 31, 2019 and 2018, the
Company did not have any cash equivalents.
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There
were no balances in excess of FDIC insured levels as of December 31, 2019 and 2018. The Company has not experienced any losses
in such accounts through December 31, 2019.
Property
and equipment
Property
are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three
to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal
terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect
the fact that their recorded value may not be recoverable.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the years ended
December 31, 2019 and 2018, the Company did not record any impairment loss.
Derivative
liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises and certain warrants. The
Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those
contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging
– Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives
be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded
as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income
or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion,
repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or
loss on debt extinguishment.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to
outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the consolidated balance
sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first
quarter of 2019, and the adoption did not have any impact on its consolidated financial statement and there was no cumulative
effect adjustment.
Revenue
recognition
In
May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers.
ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new
standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to
retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have
on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for,
timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
The Company does not have revenues from continuing operations for the years ended December 31, 2019 and 2018.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Through
March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including
grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period
of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the
Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns
with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements
accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which
simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based
compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees.
ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual
periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC
606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its
consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Income
taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities
using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records
a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that
some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of December 31, 2019, and 2018, the Company had no
uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes
interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were
recorded as of December 31, 2019.
Research
and development
Research
and development costs incurred in the development of the Company’s products are expensed as incurred. For the years ended
December 31, 2019 and 2018, research and development costs were $166,720 and $204,562, respectively, and are included in operating
expenses on the accompanying consolidated statements of operations.
Basic
and diluted loss per share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially
dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible
notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive
equity securities outstanding as of December 31, 2019 and 2018 were not included in the computation of dilutive loss per common
share because the effect would have been anti-dilutive:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock
warrants
|
|
|
73.443.404
|
|
|
|
190,913
|
|
Convertible
debt
|
|
|
59,751,203
|
|
|
|
—
|
|
Stock
options
|
|
|
41,600
|
|
|
|
29,600
|
|
Series
A preferred stock
|
|
|
1,333
|
|
|
|
—
|
|
Series
B preferred stock
|
|
|
3,856
|
|
|
|
—
|
|
|
|
|
133,241,396
|
|
|
|
220,513
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
following table presents a reconciliation of basic and diluted net loss per share:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Income
(loss) per common share — basic:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(9,402,244
|
)
|
|
$
|
6,468,325
|
|
Weighted
average common shares outstanding — basic
|
|
|
494,843
|
|
|
|
311,811
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share — basic:
|
|
$
|
(19.00
|
)
|
|
$
|
20.66
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share — diluted:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(9,402,244
|
)
|
|
$
|
6,468,325
|
|
Add:
interest on debt
|
|
|
1,795,398
|
|
|
|
2,130,838
|
|
Less:
derivative income and debt settlement income
|
|
|
5,838,277
|
|
|
|
(10,343,503
|
)
|
Less:
gain on foreign currency transactions
|
|
|
—
|
|
|
|
(33,633
|
)
|
Numerator
for loss from continuing operations per common share — diluted
|
|
|
(1,768,569
|
)
|
|
|
(1,777,973
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding — basic
|
|
|
494,843
|
|
|
|
311,811
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Preferred
shares
|
|
|
—
|
|
|
|
11,857
|
|
Warrants
|
|
|
—
|
|
|
|
61,293
|
|
Convertible
notes payable
|
|
|
—
|
|
|
|
323,743
|
|
Weighted
average common shares outstanding – diluted
|
|
|
494,843
|
|
|
|
708,704
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share — diluted:
|
|
$
|
(19.00
|
)
|
|
$
|
9.09
|
|
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The
updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the
updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue
guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
On
January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before
the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain
leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is
based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of
the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease
liabilities for short-term leases that have a term of 12 months or less.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Operating
lease ROU assets represents the right to use the leased asset for the lease term
and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease
term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based
on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum
lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses
in the consolidated statements of operations.
Recent
accounting pronouncements
In
August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments
in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The Company does not believe this will have any material impact on the Company’s consolidated financial
statements.
Removals.
The following disclosure requirements were removed from Topic 820:
|
1.
|
The
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
|
|
|
|
|
2.
|
The
policy for timing of transfers between levels
|
|
|
|
|
3.
|
The
valuation processes for Level 3 fair value measurements
|
|
|
|
|
4.
|
For
nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair
value measurements held at the end of the reporting period.
|
Modifications.
The following disclosure requirements were modified in Topic 820:
|
1.
|
In
lieu of a roll forward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and
out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
|
|
|
|
|
2.
|
For
investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation
of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated
the timing to the entity or announced the timing publicly.
|
|
|
|
|
3.
|
The
amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement
as of the reporting date.
|
Additions.
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
|
1.
|
The
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value
measurements held at the end of the reporting period.
|
|
|
|
|
2.
|
The
range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain
unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu
of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational
method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
|
In
addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote
the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality
is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The Company is evaluating
the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
NOTE 3 – ACQUISITION, DISCONTINUATION
OF OPERATIONS AND DECONSOLIDATION OF VITEL AND ONCBIOMUNE MEXICO
Acquisition of Vitel
In connection with a business acquisition
in 2017, the Company issued 81,544 unregistered shares of its common stock and 6,667 shares of Series B preferred stock which
primarily gives the holder voting rights. The acquired company was deconsolidated on January 1, 2018 (see below).
On February 20, 2019, pursuant to the Certificate
of Designation, the Company exercised its right to redeem all of the 6,667 shares of the Series B Preferred outstanding held by
to Banco Actinver, S.A., in its capacity as Trustee of a Trust Agreement for the benefit of Mr. Cosme and Mr. Alaman equal to
the stated value. The total redemption price equaled $500 which was equal to $0.075 per share of Series B Preferred (see Note
9 “Series B Preferred Shares”).
Discontinuation
of Operations and Deconsolidation of Vitel
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and
OncBioMune Mexico due to disputes with the original Vitel Stockholders and resulting loss of operational control of the assets
and operations of Vitel and OncBioMune Mexico. Accordingly, Vitel and OncBioMune Mexico are now treated as a discontinued operation
for all periods presented in accordance with ASC 205-20. At December 31, 2018 and after deconsolidation, the Company has recorded
the liabilities of these subsidiaries that existed at December 31, 2017 as a contingent liability and therefore reflected liabilities
of discontinued operation of $686,547 on the accompanying consolidated balance sheet, which consist of accounts payable balances
incurred through December 31, 2017.
Pursuant
to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the OncBioMune Mexico and
Vitel are now considered discontinued operations because of management’s decision of December 29, 2017.
The
assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of and
for the fiscal years ended December 31, 2019 and 2018 is set forth below.
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
current assets
|
|
|
—
|
|
|
|
—
|
|
Total
assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
686,547
|
|
|
$
|
692,592
|
|
Due
to related parties
|
|
|
—
|
|
|
|
432
|
|
Payroll
liabilities
|
|
|
—
|
|
|
|
1,972
|
|
Total
current liabilities
|
|
|
686,547
|
|
|
|
694,996
|
|
Total
liabilities
|
|
$
|
686,547
|
|
|
$
|
694,996
|
|
NOTE
4 — PROPERTY AND EQUIPMENT
At
December 31, 2019 and 2018, property and equipment consisted of the following:
|
|
Useful
Life
|
|
2019
|
|
|
2018
|
|
Leasehold
improvements
|
|
5
Years
|
|
$
|
10,976
|
|
|
$
|
10,976
|
|
Furniture
and equipment
|
|
5
Years
|
|
|
13,715
|
|
|
|
13,715
|
|
|
|
|
|
|
24,691
|
|
|
|
24,691
|
|
Less:
accumulated depreciation
|
|
|
|
|
(22,725
|
)
|
|
|
(20,387
|
)
|
Property
and equipment, net
|
|
|
|
$
|
1,966
|
|
|
$
|
4,304
|
|
For
the years ended December 31, 2019 and 2018, depreciation and amortization expense amounted to $2,338 and $2,338, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
NOTE
5 – OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES
In
September 2015, the Company entered into a lease agreement for its corporate facility in Baton Rouge, Louisiana. The lease is
for a period of 60 months commencing in September 2015 and expiring in August 2020. Pursuant to the lease agreement, the lease
requires the Company to initially pay a monthly base rent of $3,067 plus a pro rata share of operating expenses beginning September
2015 and shall increase, beginning September 2018, to a monthly base rent of $3,200 plus a pro rata share of operating expenses.
In
adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit
it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct
costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or
less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $59,216.
For
the year ended December 31, 2019, lease costs amounted to $49,137 which included base lease costs of $38,400 and common area and
other expenses of $10,737, all of which were expensed during the period and included in general and administrative expenses on
the accompanying consolidated statements of operations.
The
significant assumption used to determine the present value of the lease liability was a discount rate of 10% which was based on
the Company’s estimated incremental borrowing rate.
Right-of-use
asset (“ROU”) is summarized below:
|
|
December
31, 2019
|
|
Operating office lease
|
|
$
|
59,216
|
|
Less accumulated
reduction
|
|
|
(35,530
|
)
|
Balance of ROU asset as of December
31, 2019
|
|
$
|
23,686
|
|
Operating
lease liability related to the ROU asset is summarized below:
|
|
December
31, 2019
|
|
Operating
office lease
|
|
$
|
59,216
|
|
Total
lease liabilities
|
|
|
59,216
|
|
Reduction
of lease liability
|
|
|
(35,530
|
)
|
Total
as of December 31, 2019
|
|
|
23,686
|
|
Future
base lease payments under the non-cancelable operating lease at December 31, 2019 are as follows:
Period
ending
|
|
Amount
|
|
August
31, 2020
|
|
|
25,600
|
|
Total
minimum non-cancelable operating lease payments
|
|
|
25,600
|
|
Less:
discount to fair value
|
|
|
(1,914
|
)
|
Total
lease liability at December 31, 2019
|
|
$
|
23,686
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
NOTE
6 – CONVERTIBLE DEBT
November
2016 Financing
On
November 23, 2016, the Company entered into Amended and Restated Securities Purchase Agreements (the “Amended and Restated
Securities Purchase Agreements”) with three institutional investors (the “Purchasers”) for the sale of the Company’s
convertible notes and warrants. Pursuant to the Amended and Restated Securities Purchase Agreements, the Company issued upon closing
to the Purchasers for an aggregate subscription amount of $350,000, (i) 14.29% Original Issue Discount 10% Senior Secured Convertible
Notes (the “November 2016 Notes”) and (ii) warrants (the “Warrants”) to purchase aggregate of 3,111 shares
of the Company’s common stock at an initial exercise price of $131.25 (subject to adjustments under certain conditions as
defined in the Warrants) (see below for reduction of warrant exercise price) which are exercisable for a period of five years
from November 23, 2016. The aggregate principal amount of the November 2016 Notes was $350,000 and the Company received $300,000
after giving effect to the original issue discount of $50,000. The November 2016 Notes bore interest at a rate equal to 10% per
annum (which interest rate increased to 24% per annum upon the occurrence of an Event of Default (as defined in the November 2016
Notes)), had a maturity date of July 23, 2017 and were convertible (principal, and interest) at any time after the issuance date
into shares of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment
as provided in the Note) (see below for reduction for reduction of conversion price), provided, however, that if an event of default
has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November 2016 Notes were convertible
and the November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of
the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Due
to non-payment of the November 2016 Notes, an event of default occurred and accordingly, the November 2016 Notes and Warrants
are convertible and exercisable based on the default terms.
On
May 23, 2017, in connection with the November 2016 Notes, the Company entered into forbearance agreements (the “Forbearance
Agreements”) with the Purchases whereby the Purchasers waived any event of default, as defined in the November 2016 Notes.
The Company failed to make a payment on May 23, 2017 to each of the Holders as required pursuant to the November 2016 Notes which
resulted in an event of default under such Notes. As of result of the event of default, the aggregate amount owing under the November
2016 Notes as of May 23, 2017 was increased to $509,135 with such amount including a mandatory default amount of $141,299 and
accrued interest of $17,836 resulting in debt settlement expense of $141,299 which was recorded in May 2017. The Forbearance Agreements
also provide for the Holders to forbear their right to demand an immediate cash payment of the principal amount due plus accrued
interest as a result of the Company’s failure to satisfy its payment obligations to the Holder on May 23, 2017 so long as
the Company complies with its other obligations under the November 2016 Notes and the other transaction documents. The Forbearance
Agreements did not waive the default interest rate of 24%. In consideration therefore, and as currently set forth in the November
2016 Notes, the Holders shall be entitled to convert such notes from time to time at their discretion in accordance with the terms
of the November 2016 Notes and the November 2016 Notes shall not be subject to repayment unless agreed to by the Holder of such
Note. In connection with the Forbearance Agreements, in May 2017, the Company increased the principal balance of the November
2016 Notes by $159,135, reduced accrued interest payable by $17,836, and recorded debt settlement expense of $141,299. In 2017,
the Company also increased the principal amount of these notes by $42,327 and charged this to interest expense for other default
charges and other expenses.
In
2017, the Purchasers converted $369,423 and $32,878 of outstanding principal and interest, respectively, of the November 2016
Notes into 11,150 shares of common stock.
In
2018, the Purchasers fully converted the remaining outstanding principal and interest of $139,712 and $21,869, respectively, of
the November 2016 Notes into 17,372 shares of the Company’s common stock. The November 2016 Notes had no outstanding balance
as of December 31, 2018.
The
November 2016 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price
could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at
inception; and (ii) default conversion and exercise price provisions where, the November 2016 Notes shall be convertible and the
November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common
stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Subsequent to the
date of these November 2016 Notes, the Company sold stock at a share price of $56.25 per share then $37.50 per share and then
$7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price on the November 2016 Notes were lowered
to $37.50 per share then to $22.50 per share and then to $4.50 per share and the exercise price of the November 2016 Warrants
was lowered to $4.50. Additionally, the total number of November 2016 Warrants were increased on a full ratchet basis from 3,111
warrants to 42,346 warrants, an increase of 39,235 warrants (see Note 9). In September 2017, the Company issued 12,729 shares
of its common stock upon the cashless exercise of 12,099 of these warrants (see Note 9). As of December 31, 2019, there were 30,247
warrants outstanding under the November 2016 Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
June
2017 Financing
On
June 2, 2017, the Company entered into a Securities Purchase Agreement (the “Second Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Second Securities Purchase Agreement, the Company issued the Purchasers for an aggregate subscription amount of $233,345:
(i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “June 2017 Notes”); and (ii) warrants
(the “June 2017 Warrants”) to purchase an aggregate of 2,074 shares of the Company’s common stock at an initial
exercise price of $131.25 (subject to adjustments under certain conditions as defined in the June 2017 Warrants) and exercisable
for five years after the issuance date.
The
aggregate principal amount of the June 2017 Notes was $233,345 and the Company received $190,000 after giving effect to the original
issue discount of $33,345 and $10,000 of offering costs. The June 2017 Notes bear interest at a rate equal to 10% per annum (which
interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the June 2017 Notes)), have
a maturity date of February 2, 2018 and are convertible (principal and interest) at any time after the issuance date, into shares
of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment as provided
in the June 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the June 2017 Notes shall be convertible and the June 2017 Warrants shall be exercisable at
60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal
trading market (the “Default Conversion Price”). The June 2017 Notes are currently in default. The June 2017 Notes
provide for two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization
payment being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash
then the payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the eight-month amortization
payments are made in cash then the payment is an amount equal to 125% of the applicable amortization payment. The June 2017 Notes
may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding
principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three
months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the June 2017 Notes and accrued and
unpaid interest during months four through six following the Original Issue Date. In order to prepay the June 2017 Notes, the
Company shall provide 20 Trading Days prior written notice to the Holder, during which time the Holder may convert the June 2017
Notes in whole or in part at the Conversion Price. During the nine months ended June 30, 2018, the Company also increased the
principal amount of these notes by $2,268 for other default charges and other expenses. In 2018, the Purchasers converted $118,786
and $7,036 outstanding principal and interest, respectively, of the June 2017 Notes into 19,819 shares of the Company’s
common stock. In addition, pursuant a securities purchase agreement dated September 24, 2018, the Company purchased back from
one Purchaser, a June 2017 Note with $37,814 and $4,534 of outstanding principal and interest, respectively, (see-Puritan Settlement
Agreement below). During the year ended December 31, 2019, the Purchasers converted $77,782, $13,593 and $36,134 outstanding
principal, interest and default interest, respectively, of the June 2017 Notes into 32,180 shares of the Company’s common
stock. As of December 31, 2019, the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively.
The
June 2017 Notes and related June 2017 Warrants includes; (i) down-round provision under which the conversion price and exercise
price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts
at inception; and (ii) default conversion and exercise price provisions where, the June 2017 Notes shall be convertible and the
June 2017 Warrants shall be exercisable at Default Conversion Price as defined above. Subsequent to the date of these June 2017
Notes, the Company sold stock at a share price of $37.50 per share and then $7.50 per share. Accordingly, pursuant to these ratchet
provisions, the conversion price of the notes were lowered to $4.50 per shares and the exercise price of the June 2017 Warrants
were lowered to $4.50 per share and the total number of June 2017 Warrants were increased on a full ratchet basis from 2,074 warrants
to 60,497 warrants, an increase of 58,423 warrants (see Note 9). In 2018, the Company issued 11,332 shares of its common stock
upon the cashless exercise of 12,099 of the June 2017 Warrants and 8,066 of these warrants were purchased back from the lender
(see-Puritan Settlement Agreement below). As of December 31, 2019, there were 40,331 warrants outstanding under the June
2017 Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
July
2017 Financing
On
July 26, 2017, the Company entered into a Securities Purchase Agreement (the “Third Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Third Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $300,000:
(i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,883 (the “July
2017 Notes”); and (ii) warrants (the “July 2017 Warrants”) to purchase an aggregate of 6,359 shares of the Company’s
common stock at an exercise price of $75.00 per share (subject to adjustments under certain conditions as defined in the Warrants).
The July 2017 Notes were issued on July 26, 2017. The July 2017 Notes bear interest at a rate equal to 5% per annum (which interest
rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the July 2017 Notes)), have a maturity
date of March 25, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s
common stock at a conversion price equal to $52.50 per share (subject to adjustment as provided in the July 2017 Notes), provided,
however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at 60% of the lowest closing price during
the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default
Conversion Price”). The July 2017 Notes are currently in default. The July 2017 Notes provide for three amortization payments
on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of
the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount
equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made
in cash then the payment is an amount equal to 115% of the applicable amortization payment. The July 2017 Notes may be prepaid
at any time until the 210th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance
of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following
the Original Issue Date, and (ii) 120% of outstanding principal balance of the July 2017 Notes and accrued and unpaid interest
during months four through seven following the Original Issue Date. In order to prepay the July 2017 Notes, the Company shall
provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the July 2017 Notes
in whole or in part at the Conversion Price. During the year ended December 31, 2018, the Purchasers converted $111,295, $11,414
and $47,028 of outstanding principal, accrued interest and default interest, respectively, of the July 2017 Notes into 31,053
shares of common stock. In addition, pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased
back, from one Purchaser, a July 2017 Note with $155,812 and $38,395 of outstanding principal and interest, respectively (see-Puritan
Settlement Agreement below).
On
June 5, 2018, the original purchaser of the July 2017 Notes entered into an Assignment Agreement (“First Note Assignment”)
with the assignee (“First Assignee”) for the sale of a portion of the July 2017 Notes (“First Assigned Note”)
with outstanding principal of $111,295 and accrued interest of $29,180. In connection with the First Note Assignment, a default
interest in the amount of $53,733 was charged, which was included in the sale price and updated principal of the First Assigned
Note totaling $194,208.
On
October 16, 2018, the First Assignee, in turn entered into an Assignment Agreement (“Second Note Assignment”) with
another assignee (“Second Assignee”) for the sale of the First Assigned Note with outstanding principal of $194,208
and accrued interest of $3,204. In connection with the Second Note Assignment, a prepayment premium of $49,353 was charged which
was included in the sale price and updated principal of $246,765. In 2018, the Purchasers converted $17,500 of the outstanding
principal of the new Note (“Second Assigned Note”), into 4,818 shares of common stock.
During
the quarter ended September 30, 2019, the default interest charged on June 2018 of $53,733 and prepayment premium charged on October
2018 of $49,535, an aggregate penalty of $103,268, was contested by the Company and the penalties related to these note assignments
were removed from the outstanding principal balance of the Second Assigned Note. In addition, certain amounts of the accrued liabilities
had been previously included in the principal balance of $32,384 was reversed and a new accrued interest based in the agreed upon
principal balance was accrued which totaled $30,612. During the year ended December 31, 2019, the Purchaser converted $65,140
of outstanding principal, of the Second Assigned Note, into 106,622 shares of common stock. As of December 31, 2019, the Second
Assigned Note (July 2017 Notes) had an outstanding principal balance of $28,655 and accrued interest of $32,372.
The
July 2017 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception;
and (ii) default conversion and exercise price provisions where, the July 2017 Notes shall be convertible and the July 2017 Warrants
shall be exercisable at the Default Conversion Price as define above. Subsequent to the date of these July 2017 Notes, the Company
sold stock at a share price of $37.50 per share and then at $7.50 per share. Accordingly, pursuant to these ratchet provisions,
the conversion price of the July 2017 Notes was lowered to $4.50 per share and the exercise price of the July 2017 Warrants was
lowered to $4.50 per share and the total number of July 2017 Warrants was increased on a full ratchet basis from 6,359 warrants
to 105,994 warrants, an increase of 99,635 warrants (see Note 9). In 2018, the Company issued 32,289 shares of its common stock
upon the cashless exercise of 35,332 of these warrants. As of December 31, 2019, there were 70,662 warrants outstanding under
the July 2017 Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
January
2018 Financing
On
January 29, 2018, the Company entered into a Securities Purchase Agreement (the “Fourth Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Fourth Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $333,333:
(i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “January
2018 Notes”); and (ii) 5 year warrants (the “January 2018 Warrants”) to purchase an aggregate of 11,111 shares
of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions
as defined in the Warrants). The closing under the Fourth Securities Purchase Agreement occurred on January 29, 2018. The aggregate
principal amount of the January 2018 Notes is $333,333 and the Company received $295,000 after giving effect to the original issue
discount of $33,333 and offering costs of $5,000. These January 2018 Notes bear interest at a rate equal to 5% per annum (which
interest rate is increased to 18% per annum upon the occurrence of an Event of Default (as defined in the January 2018 Notes)),
have a maturity date of September 29, 2018 and are convertible (principal, and interest) at any time after the issuance date into
shares of the Company’s common stock at a conversion price equal to $22.50 per share (subject to adjustment as provided
in the January 2018 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable
at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other
principal trading market (the “Default Conversion Price”). The January 2018 Notes are currently in default. The January
2018 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the original issue
date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization
payment is made in cash, then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month
or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization
payment. The January 2018 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount
equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original
Issue Date through the five months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the January
2018 Notes and accrued and unpaid interest during the six month following the Original Issue Date. In order to prepay the January
2018 Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may
convert the January 2018 Notes in whole or in part at the Conversion Price. Pursuant to a securities purchase agreement dated
September 24, 2018, the Company purchased back, from one Purchaser, a January 2018 Note with $111,111 and $98,031 outstanding
principal and interest, respectively (see-Puritan Settlement Agreement below). During year ended December 31, 2019, the
Purchasers converted $8,945 of outstanding principal into 47,119 shares of the Company’s common stock. As of December 31,
2019, the January 2018 Notes had outstanding principal and accrued interest of $213,277 and $67,185, respectively.
The
January 2018 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price
could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at
inception; and (ii) default conversion and exercise price provisions where, the January 2018 Notes shall be convertible and the
January 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of January 2018
Warrants were increased on a full ratchet basis from 11,111 warrants to 4,367,376, an aggregate increase of 4,356,265 warrants
(see Note 9). Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser,
warrants to purchase 10,078 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreement
below). As of December 31, 2019, there were 4,357,298 warrants outstanding under the January 2018 Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
March
2018 Financing
On
March 13, 2018, the Company entered into a Securities Purchase Agreement (the “Fifth Securities Purchase Agreement”)
securities with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided
for in the Fifth Purchase Agreement, the Company issued for an aggregate subscription amount of $333,333: (i) 10% Original Issue
Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “March 2018 Notes”)
and (ii) warrants (the “March 2018 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common
stock at an exercise price of $30.00 per share. The aggregate principal amount of the March 2018 Notes is $333,333 and as of the
date the Company received $61,000 after giving effect to the original issue discount of $33,333 and offering costs of $10,000
which are treated as a debt discount, the payment of legal and accounting fees of $29,000 not related to March 2018 Notes and
the funding of an escrow account held by an escrow agent of $200,000. The March 2018 Notes bear interest at a rate of 5% per year
(which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2018
Notes)), have a maturity date of November 13, 2018 and the principal and interest are convertible at any time at a conversion
price equal to $15.00 per share (subject to adjustment as provided in the March 2018 Notes); provided, however, that if an event
of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2018 Notes shall
be convertible and the March 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading
days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”).
The March 2018 Notes are currently in default. The March 2018 Notes provide for amortization payments on each of the six-month
anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment
being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization
payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month
or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization
payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions.
The March 2018 Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i)
115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue
date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest from the fifth month anniversary
of the issue date through the six month anniversary of the issue date. In order to prepay the March 2018 Notes, the Company shall
provide 20 trading days prior written notice to the holders, during which time a holder may convert its March 2018 Notes in whole
or in part at the conversion price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased
back, from one Purchaser, a convertible note with $111,111 and $97,383 outstanding principal and accrued interest, respectively
(see-Puritan Settlement Agreement below). During the year ended December 31, 2019, the Purchasers converted $69,444 and
$612 outstanding principal and accrued interest, respectively, of the March 2017 Notes into 21,779 shares of the Company’s
common stock. As December 31, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $46,463,
respectively.
The
March 2018 Notes and related March 2018 Warrants includes; (i) down-round provision under which the conversion price and exercise
price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts
at inception; and (ii) default conversion and exercise price provisions where, the March 2018 Notes shall be convertible and shall
be exercisable at the Default Conversion Price as defined above. Pursuant to a securities purchase agreement dated September 24,
2018, the Company purchased back, from one Purchaser, warrants to purchase 15,117 (post anti-dilution) of the Company’s
common stock (see-Puritan Settlement Agreement below). The total number of March 2018 Warrants was increased, during the
year ended December 31, 2019, on a full ratchet basis from 16,667 warrants to 6,551,066, an aggregate increase of 6,534,399 warrants.
As of December 31, 2019, there were 6,535,948 warrants outstanding under the March 2018 Warrants (see Note 9).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
July
2018 Financing
On
July 25, 2018, the Company entered into a securities purchase agreement (the “Sixth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $150,000 (the “July
2018 Note”). The July 2018 Note bears interest at 8% per year and matures on July 24, 2019. The July 2018 Note is convertible
into common stock at a 25% discount to the average of the closing prices of the common stock for the prior five trading days including
the date upon which a notice of conversion is received by the Company or its transfer agent. The holder will not have the right
to convert any portion of its note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the
number of shares of common stock outstanding immediately after giving effect to its conversion. The July 2018 Note may be prepaid
at the Company’s option at a 105% premium between 30 days and 180 days after issuance, and at a 110% premium between 180
days after issuance and the maturity date. Upon certain events defined in the note as “sale events”, the holder may
demand repayment of the note for 125% of the principal plus accrued but unpaid interest. The note also includes certain penalties
upon the occurrence of an event of default, including an increase in the principal and reduction in the conversion rate, as further
described in the July 2018 Note. The Company agreed to use its best efforts to file a proxy statement and take all necessary corporate
actions in order to obtain shareholder approval to increase its authorized shares of common stock or effect a reverse split to
allow for reserving sufficient shares of common stock to allow for full conversion of the July 2018 Note. As of December 31, 2019,
the July 2018 Note is in default, and accruing interest at 24% and had outstanding principal and accrued interest of $150,000
and $26,342, respectively.
September
2018 Financing
On
September 24, 2018, the Company entered into a securities purchase agreement (the “Seventh Purchase Agreement” and
together with the Amended and Restated Purchase Agreements and the Second, Third, Fourth, Fifth and Sixth Purchase Agreement,
the “Securities Purchase Agreements”) with four accredited investors (the “Seventh Round Purchasers” and
together with the Purchasers, the “Note Purchasers”) for the sale of the Company’s convertible notes and warrants.
Pursuant to the Seventh Purchase Agreement, the Company issued to the Seventh Round Purchasers for an aggregate subscription amount
of $1,361,111; (i) 10% Original Issue Discount 5% Senior Convertible Notes in the aggregate principal amount of $1,361,111 (the
“September 2018 Notes”) and (ii) 5 year warrants (the “September 2018 Warrants”) to purchase an aggregate
of 68,056 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain
conditions as defined in the September 2018 Warrants). The Company received $1,181,643 in aggregate net proceeds from the sale,
net of $136,111 original issue discount and $43,357 in legal fees. The September 2018 Notes bear interest at a rate of 5% per
year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September
2018 Notes)), had a maturity date of May 24, 2019 and the principal and interest are convertible at any time at a conversion price
equal to $15.00 per share (subject to adjustment as provided in the September 2018 Notes); provided, however, that if an event
of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2018 Notes
shall be convertible and the September 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior
twenty trading days (the “Default Conversion Price”). The September 2018 Notes are currently in default. The September
2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of
the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and
all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay
the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made
in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option
to receive the amortization payments in common stock subject to certain equity conditions. The Notes may be prepaid at any time
until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the note
and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance
of the notes and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay
the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert
its note in whole or in part at the conversion price. During the year ended December 31, 2019, the Purchasers converted $58,073
and $28,234 outstanding principal and accrued interest, respectively, of the September 2018 Notes into 39,934 shares of the Company’s
common stock. As of December 31, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038 and
$149,283, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the September 2018 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The September 2018 Warrants are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants. Accordingly, pursuant to the default provisions, the September 2018 Notes shall be convertible
and the September 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of September
2018 Warrants was increased, during the year ended December 31, 2019, on a full ratchet basis from 68,056 warrants to 40,032,680,
an aggregate increase of 39,964,624 warrants (see Note 9). As of December 31, 2019, there were 40,032,680 warrants outstanding
under the September 2018 Warrants.
November
2018 Financing
On
November 13, 2018, the Company entered into a securities purchase agreement (the “Eighth Purchase Agreement”) with
an institutional accredited investor (the “Eighth Round Purchaser”) for the sale of the Company’s convertible
notes and warrants. Pursuant to the Eighth Purchase Agreement, the Company issued to the Eighth Round Purchasers for an aggregate
subscription amount of $127,778: (i) 10% Original Issue Discount 5% Senior Convertible Note in the aggregate principal amount
of $127,778 (the “November 2018 Note”) and (ii) 5 year warrants (the “November 2018 Warrants”) to purchase
an aggregate of 6,389 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments
under certain conditions as defined in the November 2018 Warrants). The Company received $112,500 in aggregate net proceeds from
the sale, net of $12,778 Original Issue Discount and $2,500 of legal fees. The November 2018 Note bears interest at a rate of
5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in
the November 2018 Note)), has a maturity date of July 13, 2019 and the principal and interest are convertible at any time at a
conversion price equal to $15.00 per share (subject to adjustment as provided in the November 2018 Note); provided, however, that
if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November
2018 Note shall be convertible and the November 2018 Warrants shall be exercisable at 60% of the lowest closing price during the
prior twenty trading days (the “Default Conversion Price”). The November 2018 Note provides for amortization payments
on each of the six-month anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with
each amortization payment being one third of the total outstanding principal and all interest accrued as of the payment date.
If the six-month amortization payment is made in cash then the Company shall pay the holder 110% of the applicable amortization
payment and if the seven-month or the maturity date amortization payments are made in cash then the Company shall pay the holder
115% of the applicable amortization payment. The holder may elect at its option to receive the amortization payments in common
stock subject to certain equity conditions. The Note may be prepaid at any time until the 180th day following the original issue
date at an amount equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest through the five
month anniversary of the issue date, and (ii) 120% of outstanding principal balance of the Note and accrued and unpaid interest
during month six following the original issuance date of the notes. In order to prepay the notes, the Company shall provide 20
trading days prior written notice to the holders, during which time a holder may convert its note in whole or in part at the conversion
price. As of December 31, 2019, the November 2018 Note is in default and had outstanding principal and accrued interest of $127,778
and $17,287, respectively.
The
initial exercise price of the November 2018 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The November 2018 Warrants are exercisable for cash at any time and is exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrant in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly,
pursuant to the default provisions, the November 2018 Warrant shall be exercisable at the Default Conversion Price as defined
above. The total number of November 2018 Warrants was increased on a full ratchet basis from 6,389 warrants to 3,758,170, an aggregate
increase of 3,751,781 warrants. As of December 31, 2019, there were 3,758,170 warrants outstanding under the November 2018 Warrants
(see Note 9).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
January
2019 Financing
On
January 18, 2019, the Company entered into a securities purchase agreement (the “Ninth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $146,875 (the “January
2019 Note I”). The closing occurred on January 22, 2019, with the Company receiving net proceeds of $125,000, net of 12,500
OID and $9,375 of legal fees. The January 2019 Note I had an interest rate of 5% per annum and matures on January 18, 2020. During
the first six months the January 2019 Note I may be converted, all or a portion, of the outstanding principal into shares of the
Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion
price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day
upon which a notice of conversion is received). The January 2019 Note I may not be converted to the extent that such conversion
would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued
and outstanding common stock. If the Company prepays the January 2019 Note I within 150 days of its issuance, the Company must
pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st
day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day
following the issuance of the January 2019 Note I, there shall be no further right of prepayment. During the year ended December
31, 2019, the Purchaser converted $61,955 and $1,852 of outstanding principal and accrued interest, respectively, into 256,262
shares of the Company’s common stock. As of December 31, 2019, the January 2019 Note I was in default and had outstanding
principal and accrued interest of $84,920 and $8,257, respectively.
On
January 18, 2019, the Company entered into a securities purchase agreement (the “Tenth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $88,125 (the “January
2019 Note II”). The closing occurred on January 29, 2019, with the Company receiving net proceeds of $75,000, net of $7,500
OID and $5,625 of legal fees. The January 2019 Note II had an interest rate of 5% per annum and matures on January 18, 2020. During
the first six months the January 2019 Note II is in effect, the purchaser may convert all or a portion of the outstanding principal
of the January 2019 Note II into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting
on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during
the 20 prior trading days (including the day upon which a notice of conversion is received). The purchaser may not convert the
January 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates
of more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note II
within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued
interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%,
in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note II, there shall be no further
right of prepayment. During the year ended December 31, 2019, the Purchasers converted $15,000 and $16 outstanding principal and
accrued interest, respectively, into 3,708 shares of the Company’s common stock. As of December 31, 2019, the January 2019
Note II was in default and had outstanding principal and accrued interest of $73,125 and $10,445, respectively.
March
2019 Financing
On
March 25, 2019, the Company entered into a securities purchase agreement (the “Eleventh Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Eleventh Purchase Agreement, the Company issued to
the Eleventh Round Purchaser for an aggregate subscription amount of $50,000: (i) 10% Original Issue Discount and 5% Senior Convertible
Notes in the aggregate principal amount of $55,556 (the “March 2019 Note”) and (ii) 5 year warrants (the “March
2019 Warrants”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $30.00
per share (subject to adjustments under certain conditions as defined in the March 2019 Warrants). The Company received $50,000
in net proceeds from the sale, net of $5,556 OID. The March 2019 Note bears an interest rate of 5% per year (which interest rate
shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2019 Note)), shall mature
on November 25, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share
(subject to adjustment as provided in the March 2019 Note); provided, however, that if an Event of Default has occurred, regardless
of whether such Event of Default has been cured or remains ongoing, the March 2019 Note shall be convertible and the March 2019
Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market,
during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the March 2019
Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more than
9.9% of the Company’s issued and outstanding common stock. The March 2019 Note may be prepaid at any time until the 180th
following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2019 Note and accrued
and unpaid interest during the period from the original issue date through the five months following the original issue date,
and (ii) 120% of the outstanding principal balance of the March 2019 Note and accrued and unpaid interest during month six following
the original issue date. In order to prepay the March 2019 Note, the Company shall provide twenty trading days prior written notice
to the lender, during which time the purchaser may convert the March 2019 Note in whole or in part at the conversion price. As
of December 31, 2019, the March 2019 Note was in default (under provision Section 7(a)(i) of the note) and had outstanding principal
and accrued interest of $55,556 and $6,512, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the March 2019 Warrants was $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The March 2019 Warrants are exercisable for cash at any time and are exercisable on a
cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). Accordingly,
pursuant to the default provisions, the March 2019 Warrants shall be convertible shall be exercisable at the Default Conversion
Price as defined above. The total number of March 2019 Warrants was increased, during the year ended December 31, 2019, on a full
ratchet basis from 2,778 warrants to 1,633,987, an aggregate increase of 1,631,209 warrants. As of December 31, 2019, there were
1,633,987 warrants outstanding under the March 2019 Warrants (see Note 9).
April
2019 Financings
On
April 1, 2019, the Company entered into a securities purchase agreement (the “Twelfth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Twelfth Purchase Agreement, the Company issued to
the Twelfth Round Purchaser a Note (“April 2019 Note I”) for a principal amount of $27,778 with 10% OID and 5 year
warrants (the “April 2019 Warrants I”) to purchase an aggregate of 1,389 shares of the Company’s common stock
at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants
I). The Company received net proceeds of $25,000, net of $2,778 OID. The April 2019 Note I bears an interest rate of 5% per year
(which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019
Note I)), shall mature on December 2, 2019 and the principal and interest are convertible at any time at a conversion price equal
to $15.00 per share (subject to adjustment as provided in the April 2019 Note I); provided, however, that if an event of default
has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Note I shall be convertible
and the April 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal
trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert
the April 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates
of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Note I may be prepaid at any time
until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April
2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the
original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Note I and accrued and unpaid interest
during month six following the original issue date. In order to prepay the April 2019 Note I, the Company shall provide twenty
trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Note I in whole or
in part at the conversion price. As of December 31, 2019, the April 2019 Note I was in default (under provision Section 7(a)(i)
of the note) and had outstanding principal and accrued interest of $27,778 and $3,225, respectively.
The
initial exercise price of the April 2019 Warrants I was $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The April 2019 Warrants I are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
April 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of April 2019 Warrants I was increased on a full ratchet basis, during the year ended December 31, 2019, from 1,389 warrants
to 816,994, an aggregate increase of 815,605 warrants. As of December 31, 2019, there were 816,994 warrants outstanding under
the April 2019 Warrants I (see Note 9).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
On
April 29, 2019, the Company entered into a securities purchase agreement (the “Thirteenth Purchase Agreements”) for
the sale of the Company’s convertible notes and warrants. Pursuant to the Thirteenth Purchase Agreements, the Company issued
to the Thirteenth Round Purchasers a note (the “April 2019 Notes II”) for an aggregate principal amount of $205,279
with 10% Original Issue Discount and five-year warrants (the “April 2019 Warrants II”) to purchase an aggregate of
10,264 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain
conditions as defined in the April 2019 Warrants II). The Company received $185,450 in aggregate net proceeds from the sale, net
of $19,829 OID. The April 2019 Notes II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per
year upon the occurrence of an Event of Default (as defined in the April 2019 Notes II)), shall mature on December 29, 2019 and
the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment
as provided in the April 2019 Notes II); provided, however, that if an event of default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the April 2019 Notes II shall be convertible and the April 2019 Warrants II
shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the
prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the April 2019 Notes II
to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of
the Company’s issued and outstanding common stock. The April 2019 Notes II may be prepaid at any time until the 180th following
the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Notes II and accrued
and unpaid interest during the period from the original issue date through the five months following the original issue date,
and (ii) 120% of the outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during month six
following the original issue date. In order to prepay the April 2019 Notes II, the Company shall provide twenty trading days prior
written notice to the lender, during which time the purchaser may convert the April 2019 Notes II in whole or in part at the conversion
price. As of December 31, 2019, the April 2019 Notes II were in default and had outstanding principal and accrued interest of
$205,279 and $23,076, respectively.
The
initial exercise price of the April 2019 Warrants II is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The April 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
April 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of April 2019 Warrants II was increased on a full ratchet basis, during the year ended December 31, 2019, from 10,264 warrants
to 6,037,582, an aggregate increase of 6,027,318 warrants. As of December 31, 2019, there were 6,037,582 warrants outstanding
under the April 2019 Warrants II (see Note 9).
May
2019 Financing
On
May 29, 2019, the Company entered into a securities purchase agreement (the “Fourteenth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Fourteenth Purchase Agreement, the Company issued
to the Fourteenth Round Purchasers a note (the “May 2019 Notes”) for an aggregate principal of $10,000 with 10% OID
and five-year warrants (the “May 2019 Warrants”) to purchase an aggregate of 500 shares of the Company’s common
stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the May 2019 Warrants).
The Company received $9,000 in aggregate net proceeds from the sale, net of $1,000 OID. The May 2019 Notes bears an interest rate
of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined
in the May 2019 Notes)), shall mature on January 29, 2020 and the principal and interest are convertible at any time at a conversion
price equal to $15.00 per share (subject to adjustment as provided in the May 2019 Notes); provided, however, that if an event
of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the May 2019 Notes shall
be convertible and the May 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or
other principal trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser
may not convert the May 2019 Notes to the extent that such conversion would result in beneficial ownership by a purchaser and
its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The May 2019 Notes may be prepaid
at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance
of the May 2019 Notes and accrued and unpaid interest during the period from the original issue date through the five months following
the original issue date, and (ii) 120% of the outstanding principal balance of the May 2019 Notes and accrued and unpaid interest
during month six following the original issue date. In order to prepay the May 2019 Notes, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the May 2019 Notes in whole or in part at
the conversion price. As of December 31, 2019, the May 2019 Notes were in default and had outstanding principal and accrued interest
of $10,000 and $905, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the May 2019 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The May 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless
basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants.
The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
May 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of May 2019 Warrants was increased on a full ratchet basis, during the year ended December 31, 2019, from 500 warrants
to 294,118, an aggregate increase of 293,618 warrants. As of December 31, 2019, there were 294,118 warrants outstanding under
the May 2019 Warrants (see Note 9).
June
2019 Financing
On
June 3, 2019, the Company entered into a securities purchase agreement (the “Fifteenth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Fifteenth Purchase Agreement, the Company issued to
the Fifteenth Round Purchasers a note (the “June 2019 Note I”) with an aggregate principal of $129,167 with 10% OID
and five- year warrants (the “June 2019 Warrants I”) to purchase an aggregate of 6,458 shares of the Company’s
common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the June
2019 Warrants I). The Company received $116,250 in aggregate net proceeds from the sale, net of $12,917 OID. The June 2019 Note
I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event
of Default (as defined in the June 2019 Note I)), shall mature on February 3, 2020 and the principal and interest are convertible
at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the June 2019 Note I); provided,
however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the June 2019 Note I shall be convertible and the June 2019 Warrants I shall be exercisable at 60% of the lowest closing price,
as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion
Price”). The purchaser may not convert the June 2019 Note I to the extent that such conversion would result in beneficial
ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The
June 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of
outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five
months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during
month six following the original issue date. In order to prepay the June 2019 Note I, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note I in whole or in part
at the conversion price. As of December 31, 2019, the June 2019 Note I was in default and had outstanding principal and accrued
interest of $129,167 and $11,600, respectively.
The
initial exercise price of the June 2019 Warrants I is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The June 2019 Warrants I are exercisable for cash at any time and are exercisable on a
cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
June 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of June 2019 Warrants I was increased, during the year ended December 31, 2019, on a full ratchet basis from 6,458 warrants
to 3,799,020, an aggregate increase of 3,792,562 warrants. As of December 31, 2019, there were 3,799,020 warrants outstanding
under the June 2019 Warrants I (see Note 9).
ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
and 2018
On
June 26, 2019, the Company entered into a securities purchase agreement (the “Sixteenth Purchase Agreement”) for the
sale of the Company’s convertible note and warrants. Pursuant to the Sixteenth Purchase Agreement, the Company issued to
the Sixteenth Round Purchaser a note (the “June 2019 Note II”) with a principal amount of $55,556 with 10% OID and
five- year warrants (the “June 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s
common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the June
2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount.
The June 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence
of an Event of Default (as defined in the June 2019 Note II)), shall mature on February 26, 2020 and the principal and interest
are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the June 2019
Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured
or remains ongoing, the June 2019 Note II shall be convertible and the June 2019 Warrants II shall be exercisable at 60% of the
lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default
Conversion Price”). The purchaser may not convert the June 2019 Note II to the extent that such conversion would result
in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common
stock. The June 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to
(i) 115% of outstanding principal balance of the June 2019 Note I and accrued and unpaid interest during the period from the original
issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the
June 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the June
2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser
may convert the June 2019 Note II in whole or in part at the conversion price. As of December 31, 2019, the June 2019 Note II
was in default and had outstanding principal and accrued interest of $55,556 and $4,815, respectively.
The
initial exercise price of the June 2019 Warrants II is $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The June 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
June 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of June 2019 Warrants II was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants
to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding
under the June 2019 Warrants II (see Note 9).
July
2019 Financing
On
July 2, 2019, the Company closed a securities purchase agreement (the “Seventeenth Purchase Agreement”), dated June
26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventeenth Purchase Agreement,
the Company issued to the Seventeenth Round Purchaser a note (the “July 2019 Note I”) for a principal amount of $55,556
with 10% OID and five- year warrants (the “July 2019 Warrants I”) to purchase an aggregate of 5,556 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the July 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue
discount. The July 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon
the occurrence of an Event of Default (as defined in the July 2019 Note I)), shall mature on February 26, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the July 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the July 2019 Note I shall be convertible and the July 2019 Warrants I shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note I to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The July 2019 Note I may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the July 2019 Note I and accrued and unpaid interest during month six following the original issue date.
In order to prepay the July 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the July 2019 Note I in whole or in part at the conversion price. As of December 31, 2019,
the July 2019 Note I was in default and had outstanding principal and accrued interest of $55,556 and $4,769, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the July 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The July 2019 Warrants I are exercisable for cash at any time and are exercisable on a
cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
July 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of July 2019 Warrants I was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants
to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding
under the July 2019 Warrants I (see Note 9).
On
July 8, 2019, the Company closed a securities purchase agreement (the “Eighteenth Purchase Agreement”), dated June
26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighteenth Purchase Agreement, the
Company issued to the Eighteenth Round Purchaser a note (the “July 2019 Note II”) for principal amount of $55,556
with 10% OID and five-year warrants (the “July 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the July 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue
discount. The July 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year
upon the occurrence of an Event of Default (as defined in the July 2019 Note II)), shall mature on February 26, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the July 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the July 2019 Note II shall be convertible and the July 2019 Warrants II shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note II to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The July 2019 Note II may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the July 2019 Note II and accrued and unpaid interest during month six following the original issue date.
In order to prepay the July 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the July 2019 Note II in whole or in part at the conversion price. As of December 31, 2019,
the July 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $4,723, respectively.
The
initial exercise price of the July 2019 Warrants II is $15.00 per share, subject to adjustment as described below and are exercisable
for five years after the issuance date. The July 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
July 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”). The total
number of July 2019 Warrants II was increased, during the year ended December 31, 2019, on a full ratchet basis from 5,556 warrants
to 1,633,987, an aggregate increase of 1,628,431 warrants. As of December 31, 2019, there were 1,633,987 warrants outstanding
under the July 2019 Warrants II (see Note 9).
August
2019 Financing
On
August 19, 2019, the Company closed a securities purchase agreement (the “Nineteenth Purchase Agreement”), dated July
30, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Nineteenth Purchase Agreement, the
Company issued to the Nineteenth Round Purchaser a note (the “August 2019 Note I”) for principal amount of $27,778
with 10% OID and five-year warrants (the “August 2019 Warrants I”) to purchase an aggregate of 2,778 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the August 2019 Warrants I). The Company received $25,000 in aggregate net proceeds from the sale, net of $2,778 original issue
discount. The August 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year
upon the occurrence of an Event of Default (as defined in the August 2019 Note I)), shall mature on March 30, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the August 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the August 2019 Note I shall be convertible and the August 2019 Warrants I shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the August 2019 Note I to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The August 2019 Note I may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the August 2019 Note I and accrued and unpaid interest during month six following the original issue date.
In order to prepay the August 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the August 2019 Note I in whole or in part at the conversion price. As of December 31, 2019,
the August 2019 Note I was in default and had outstanding principal and accrued interest of $27,778 and $510, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the August 2019 Warrants I was $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The August 2019 Warrants I are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
August 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants. As of December 31, 2019, there were 2,778
warrants outstanding under the August 2019 Warrants I (see Note 9).
On
August 28, 2019, the Company entered into a securities purchase agreement (the “Twentieth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $29,700 (the “August
2019 Notes II”). The Company received net proceeds of $25,000, net of OID and legal fees of $4,700. The August 2019 Note
II has an interest rate of 5% per annum and matures on August 27, 2020. During the first six months the August 2019 Note II may
be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion
price of $7.50 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest closing
bid price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received).
The August 2019 Note II may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser
and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note II
can be prepaid during the first 180 days for a redemption price equal to 140% of the sum of the outstanding principal and accrued
interest and shall forfeit the right of prepayment after the 180th day following the issuance date. As of December 31, 2019, the
August 2019 Note II was in default and had outstanding principal and accrued interest of $29,700 and $509, respectively.
September
2019 Financing
On
September 27, 2019, the Company closed a securities purchase agreement dated September 25, 2019 (the “Twenty-first Purchase
Agreement”), for the sale of the Company’s convertible notes and warrants. Pursuant to the Twenty-first Purchase Agreement,
the Company issued to the Twenty-first Round Purchaser a note (the “September 2019 Note”) for principal amount of
$166,667 with 10% OID and five-year warrants (the “September 2019 Warrants”) to purchase an aggregate of 16,667 shares
of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions
as defined in the September 2019 Warrants). The Company received $150,000 in net proceeds, net of $16,667 OID. The September 2019
Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event
of Default (as defined in the September 2019 Note)), shall mature on May 27, 2020 and the principal and interest are convertible
at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the September 2019 Note); provided,
however, that if an Event of Default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the September 2019 Note shall be convertible and the September 2019 Warrants shall be exercisable at 60% of the lowest closing
price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion
Price”). The purchaser may not convert the September 2019 Note to the extent that such conversion would result in beneficial
ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The
September 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115%
of outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five
months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during
month six following the original issue date. The Company shall provide twenty trading days prior written notice to the lender,
during which time the purchaser may convert the September 2019 Note in whole or in part at the conversion price. As of December
31, 2019, the September 2019 Note was in default and had outstanding principal and accrued interest of $166,667 and $2,100,
respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the September 2019 Warrants is $15.00 per share, subject to adjustment as described below, and is exercisable
for five years after the issuance date. The September 2019 Warrants is exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants. In an Event of Default, pursuant to the
default provision, the September 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. As of December
31, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 9).
November
2019 Financing
On
November 15, 2019, the Company entered into a securities purchase agreement (the “Twenty-second Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty-second Purchase Agreement, the Company
issued to the Twenty-second Round Purchaser a note (the “November 2019 Note I”) with a principal amount of $55,500
with 10% OID and five- year warrants (the “November 2019 Warrants I”) to purchase an aggregate of 277,500 shares of
the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined
in the November 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original
issue discount. The November 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18%
per year upon the occurrence of an Event of Default (as defined in the November 2019 Note I)), shall mature on August 30, 2020
and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment
as provided in the November 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the November 2019 Note I shall be convertible and the November 2019 Warrants
I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during
the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the November 2019 Note
I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9%
of the Company’s issued and outstanding common stock. The November 2019 Note I may be prepaid at any time until the 180th
following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the November 2019 Note I
and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the November 2019 Note I and accrued and unpaid interest during
month six following the original issue date. In order to prepay the November 2019 Note I, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the November 2019 Note I in whole or in part
at the conversion price. As of December 31, 2019, the November 2019 Note I was in default and had outstanding principal
and accrued interest of $55,500 and $350, respectively.
The
initial exercise price of the November 2019 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The November 2019 Warrants I are exercisable for cash at any time and are exercisable
on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying
the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and
distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default
provision, the November 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price
of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower
than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants I (see Note 9).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
On
November 15, 2019, the Company entered into a securities purchase agreement (the “Twenty-third Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- third Purchase Agreement, the Company
issued to the Twenty- third Round Purchaser a note (the “November 2019 Note II”) with a principal amount of $55,500
with 10% OID and five- year warrants (the “November 2019 Warrants II”) to purchase an aggregate of 277,500 shares
of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as
defined in the November 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500
original issue discount. The November 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased
to 18% per year upon the occurrence of an Event of Default (as defined in the November 2019 Note II)), shall mature on August
30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to
adjustment as provided in the November 2019 Note II); provided, however, that if an event of default has occurred, regardless
of whether such Event of Default has been cured or remains ongoing, the November 2019 Note II shall be convertible and the November
2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading
market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the November
2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more
than 9.9% of the Company’s issued and outstanding common stock. The November 2019 Note II may be prepaid at any time until
the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the November 2019
Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the November 2019 Note II and accrued and unpaid interest during
month six following the original issue date. In order to prepay the November 2019 Note II, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the November 2019 Note II in whole or in
part at the conversion price. As of December 31, 2019, the November 2019 Note II was in default and had outstanding principal
and accrued interest of $55,500 and $350, respectively.
The
initial exercise price of the November 2019 Warrants II is $0.20 per share, subject to adjustment as described below, and are
exercisable for five years after the issuance date. The November 2019 Warrants I are exercisable for cash at any time and are
exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock
underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default
provision, the November 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price
of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower
than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
As of December 31, 2019, there were 277,500 warrants outstanding under the November 2019 Warrants II (see Note 9).
December
2019 Financing
On
December 23, 2019, the Company entered into a securities purchase agreement (the “Twenty-fourth Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- fourth Purchase Agreement, the Company
issued to the Twenty- fourth Round Purchaser a note (the “December 2019 Note I”) with a principal amount of $55,500
with 10% OID and five- year warrants (the “December 2019 Warrants I”) to purchase an aggregate of 277,500 shares of
the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined
in the December 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500 original
issue discount. The December 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18%
per year upon the occurrence of an Event of Default (as defined in the December 2019 Note I)), shall mature on September 30, 2020
and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment
as provided in the December 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the December 2019 Note I shall be convertible and the December 2019 Warrants
I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during
the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the December 2019 Note
I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9%
of the Company’s issued and outstanding common stock. The December 2019 Note I may be prepaid at any time until the 180th
following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the December 2019 Note I
and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the December 2019 Note I and accrued and unpaid interest during
month six following the original issue date. In order to prepay the December 2019 Note I, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the December 2019 Note I in whole or in part
at the conversion price. As of December 31, 2019, the December 2019 Note I was in default and had outstanding principal
and accrued interest of $55,500 and $61, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the December 2019 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The December 2019 Warrants I are exercisable for cash at any time and are exercisable
on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying
the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and
distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default
provision, the December 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price
of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower
than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants I (see Note 9).
On
December 23, 2019, the Company entered into a securities purchase agreement (the “Twenty-fifth Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- fifth Purchase Agreement, the Company
issued to the Twenty- fifth Round Purchaser a note (the “December 2019 Note II”) with a principal amount of $55,500
with 10% OID and five- year warrants (the “December 2019 Warrants II”) to purchase an aggregate of 277,500 shares
of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as
defined in the December 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,500
original issue discount. The December 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased
to 18% per year upon the occurrence of an Event of Default (as defined in the December 2019 Note II)), shall mature on September
30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to
adjustment as provided in the December 2019 Note II); provided, however, that if an event of default has occurred, regardless
of whether such Event of Default has been cured or remains ongoing, the December 2019 Note II shall be convertible and the December
2019 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading
market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the December
2019 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more
than 9.9% of the Company’s issued and outstanding common stock. The December 2019 Note II may be prepaid at any time until
the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the December 2019
Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the December 2019 Note II and accrued and unpaid interest during
month six following the original issue date. In order to prepay the December 2019 Note II, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the December 2019 Note II in whole or in
part at the conversion price. As of December 31, 2019, the December 2019 Note II was in default and had outstanding principal
and accrued interest of $55,500 and $61, respectively.
The
initial exercise price of the December 2019 Warrants II is $0.20 per share, subject to adjustment as described below, and are
exercisable for five years after the issuance date. The December 2019 Warrants I are exercisable for cash at any time and are
exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock
underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default
provision, the December 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price
of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower
than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
As of December 31, 2019, there were 277,500 warrants outstanding under the December 2019 Warrants II (see Note 9).
The
June 2017, July 2017, January 2018, March 2018, July 2018, September 2018, November 2018, January 2019, March 2019, April 2019,
May 2019, June 2019, July 2019, August 2019, September 2019 Notes, November 2019 Notes and December 2019 Notes (collectively,
the “Notes”) contain certain covenants such as default provisions, restrictions on the incurrence of indebtedness,
creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Notes
also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination,
recapitalization or similar transactions. The conversion price is also subject to adjustment if the Company issues or sells shares
of its common stock for a consideration per share less than the conversion price then in effect, or issue options, warrants or
other securities convertible or exchange for shares of its common stock at a conversion or exercise price less than the conversion
price of these Notes then in effect. If either of these events should occur, the conversion price is reduced to the lowest price
at which these securities were issued or are exercisable. The Company granted the Note Purchasers certain rights of first refusal
on future offerings by the Company for as long as the Note Purchasers hold the Notes. In addition, subject to limited exceptions,
the Note Purchasers will not have the right to convert any portion of the Notes if the Note Purchaser, together with its affiliates,
would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to its conversion. The Note Purchaser may increase or decrease this ownership limitation to any percentage
not exceeding 9.99% upon 61 days prior written notice to the Company.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
November 2016, June 2017, July 2017, January 2018, March 2018, September 2018, November 2018 and March 2019, April 2019, May 2019,
June 2019, July 2019, August 2019, September 2019, November 2019 and December 2019 Warrants (collectively, the “Warrants”)
are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also
exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock
underlying the Warrants. The exercise price of the Warrants are subject to adjustment in the event of default, certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of
the Warrants are also subject to full ratchet price adjustment if the Company sells or grants any option to purchase, sells or
re-prices any common stock or common stock equivalents, as defined, at an exercise price lower than the then-current exercise
price of the Warrants with the exception for certain exempted issuances and subject to certain limitations on the reduction of
the exercise price as provided in the Warrants in the two years after the issue date of the Warrants. In the event of a fundamental
transaction, as described in these warrants and generally including any reorganization, recapitalization or reclassification of
the common stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets,
the Company’s consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding common
stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding common stock,
the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash
or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction;
provided that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrants
for cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrants or difference between
the cash per share paid in the fundamental transaction and the exercise price per share. The holders of the Warrants will not
have the right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in
excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Warrants.
To
secure the Company’s obligations under each of the June 2017, July 2017, January 2018, March 2018, September 2018 and November
2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund
I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding
permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note
entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in
the related Notes), the Note Purchasers may, among other things, collect or take possession of the Collateral, proceed with the
foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.
During
the year ended December 31, 2019, the Company issued 508,999 shares of its common stock upon the conversion of principal note
balances of $356,339, accrued interest of $44,308 and default interest of $36,134. These shares of common stock had an aggregate
fair value $871,512 and the difference between the aggregate fair value and the aggregate converted amount of $436,281 resulted
in a loss on debt extinguishment of $434,731.
Puritan
Settlement Agreement
On
September 24, 2018, the Company and Puritan Partners LLC (“Puritan”) entered into a securities purchase agreement
(the “Puritan Purchase Agreement”), pursuant to which the Company purchased (using proceeds from the September 2018
Notes) back from Puritan, June 2017, July 2017, January 2018, March 2018 and July 2018 Notes having an aggregate outstanding principal
and accrued but unpaid interest amount of $654,191 and June 2017, January 2018 and March 2018 Puritan Warrants to purchase up
to 33,262 shares of common stock as well as the securities and certain rights associated thereunder for an aggregate purchase
price of $900,000, which was paid on September 26, 2018. In connection with the purchase and extinguishment of the above-mentioned
notes and warrants, the Company paid $245,809 for additional penalties and interest which is reflected in loss on debt extinguishment.
Additionally, the Company revalued the derivative liabilities associated with these notes and warrants and recorded a gain on
debt extinguishment of $1,323,111, during the nine months ended September 30, 2018.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Derivative
Liabilities Pursuant to Notes and Warrants
In
connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain
terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity
offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other
terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives
and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible
instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair
value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and warrant
derivatives were determined using the Binomial valuation model. At the end of each period, on the date that debt was converted
into common shares, and on the date of a cashless exercise of warrants, the Company revalued the embedded conversion option and
warrants derivative liabilities.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to
outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the consolidated balance
sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first
quarter of 2019, and the adoption did not have any impact on its consolidated financial statements and there were no cumulative
effect adjustments as there were other notes and warrants provisions that caused derivative treatment.
In
connection with the issuance of the January 2019 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September
2019, November 2019 and December 2019 Notes and related Warrants, during year ended December 31, 2019, on the initial measurement
date, the fair values of the embedded conversion option derivative and warrants derivative of $575,019 was recorded as derivative
liabilities and was allocated as a debt discount of $552,473 with the remaining $22,546 being recorded as derivative expense.
At
the end of the period, the Company revalued the embedded conversion option and warrant derivative liabilities. In connection with
these revaluations and the initial derivative expense, the Company recorded derivative (expense) income of $(5,760,902) and $8,229,168
for the years ended December 31, 2019 and 2018, respectively.
During
the years ended December 31, 2019 and 2018, the fair value of the derivative liabilities was estimated using the Binomial valuation
model with the following assumptions:
|
|
|
2019
|
|
|
|
2018
|
|
Dividend rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Term (in years)
|
|
|
0.01
to 5.00 years
|
|
|
|
0.01
to 5.00 years
|
|
Volatility
|
|
|
188.9
to 253.7
|
%
|
|
|
188.9
to 197.1
|
%
|
Risk—free interest rate
|
|
|
1.59
to 2.96
|
%
|
|
|
2.07
to 2.96
|
%
|
At
December 31, 2019 and December 31, 2018, the convertible debt consisted of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Principal
amount
|
|
$
|
3,175,655
|
|
|
$
|
2,436,394
|
|
Less:
unamortized debt discount
|
|
|
(260,358
|
)
|
|
|
(1,002,142
|
)
|
Convertible
note payable, net
|
|
$
|
2,915,297
|
|
|
$
|
1,434,252
|
|
For
the years ended December 31, 2019 and 2018, amortization of debt discounts related to this Convertible Note and the Notes amounted
to $1,434,148 and $1,465,057, respectively, which has been included in interest expense on the accompanying consolidated statements
of operations.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Termination
of October 20, 2015 Agreements
On
March 13, 2018, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a termination agreement
(the “Termination Agreement”) pursuant to which the parties terminated (i) the purchase agreement between them dated
October 20, 2015 (the “Equity Line Agreement”) that provided the Company the right to sell to Lincoln Park, at its
sole discretion, up to $10,100,000 of the Company’s common stock and (ii) the related registration rights agreement pursuant
to which the Company had agreed to file a registration statement with the Securities and Exchange Commission covering the shares
issuable under the Equity Line Agreement and related share issuances.
NOTE
7 – NOTES PAYABLE
From
June 2017 to September 2017, the Company entered into loan agreements with several third parties (the “Loans”). Pursuant
to the loan agreements, the Company borrowed an aggregate principal amount of $538,875. The Loans bear interest at an annual rate
of 33.3%, are unsecured and are in default. As of December 31, 2019, and 2018, loan principal due to these third parties amounted
to $538,875 for both periods. At December 31, 2019 and 2018, interest payable related to these Loans amounted to $430,223 and
$250,777, respectively.
NOTE
8 – RELATED PARTY TRANSACTIONS
Due
to related parties
From
time to time, the Company receives advances from and repays such advances to the Company’s former chief executive officer
for working capital purposes and to repay indebtedness. For the years ended December 31, 2019 and 2017, due to related party activity
consisted of the following:
|
|
Total
|
|
Balance
due to related parties at December 31, 2017
|
|
$
|
(261,584
|
)
|
Working capital advances received
|
|
|
(264,185
|
)
|
Repayments made
|
|
|
210,303
|
|
Balance due to related
parties at December 31, 2018
|
|
$
|
(315,466
|
)
|
Working capital advances received
|
|
|
(57,219
|
)
|
Repayments made
|
|
|
—
|
|
Balance
due to related parties at December 31, 2019
|
|
$
|
(372,685
|
)
|
NOTE
9 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 500,000,000
shares to 1,500,000,000 shares (see Note 1). The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares
of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On
August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000
shares to 5,000,000,000 shares (see Note 1). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,000 shares
of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On
August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split of the Company’s
issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the “Reverse Stock Split”), which
became effective on September 12, 2019. In addition, the Company amended the articles to reduce the Company’s authorized
shares to; (i) 6,666,667 shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A
Preferred and 10,523 shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of
the common and preferred stock. All share and per share amounts in the accompanying historical
consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock
Split (see Note 1).
Series
A Preferred Stock
On
August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares
of the authorized 26,667 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500
votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for
the consent of the stockholders of the Company.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent
they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. As of December
31, 2019, of these shares, 667 are held by a former Chief Executive Officer and a current member of our Board of Directors and
666 shares are held by a former member of our Board of Directors.
Series
B Preferred Stock
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 10,523 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series B preferred stock are
entitled to dividends or distributions share for share with the holders of the Common Stock, if, as and when declared from time
to time by the Board of Directors. The holders of shares of Series B preferred stock have the following voting rights:
|
●
|
Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
|
|
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
|
|
|
|
|
●
|
Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
|
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common Stock
and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after
the rights of the holders of the Series A Preferred Stock have been satisfied.
In
March 2017, the Company issued 3,856 shares of Series B Preferred to Jonathan F. Head, Ph. D, the Company’s Chief Executive
Officer and a member of the Board of Directors of the Company as provided for in the Contribution Agreement and was recorded as
compensation expense. In addition, in March 2017 the Company issued 6,667 shares of Series B Preferred to Banco Actinver for the
benefit of the Vitel Stockholders as partial consideration in the exchange for 100% of the issued and outstanding capital stock
of Vitel. (see Note 3).
On
February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series
B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of
Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series B Preferred.
As
of December 31, 2019, and 2018, there were 3,856 and 10,523 shares of Series B Preferred issued and outstanding, respectively.
Common
Stock
Common
stock issuable for cash
|
●
|
During
the year ended December 31, 2018, the Company had 800 shares of its common stock issuable to an investor for cash proceeds
of $6,000, or $7.50 per share, pursuant to a unit subscription agreement.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Shares
issued for services
|
●
|
During
the year ended December 31, 2018, the Company issued 3,333 shares of its common stock with a grant date value of $52,500 or
$15.75 per share as reported on the OTC Pink on the grant date, in exchange for legal services, pursuant to an agreement.
|
Shares
issued for debt conversion
|
●
|
During
the year ended December 31, 2018, the Company issued 78,175 shares of its common stock upon the conversion of principal note
balances of $387,292, interest of $40,320, and default interest of $55,890.
|
|
|
|
|
●
|
During
the year ended December 31, 2019, the Company issued 508,999 shares of its common stock upon the conversion of principal note
balances of $356,339, accrued interest of $44,308 and default interest of $36,134. These shares of common stock had an aggregate
fair value $871,512 and the difference between the aggregate fair value and the aggregate converted amount of $436,281 resulted
in a loss on debt extinguishment of $434,731.
|
Shares
issued for cashless exercise of warrants
|
●
|
During
the year ended December 31, 2018, the Company issued 43,620 shares of its common stock upon the cashless exercise of 47,431
of its warrants (see Note 6).
|
Warrants
Warrants
issued pursuant to equity subscription agreements
In
2016, in connection with the sale of common stock, the Company issued an aggregate of 1,295 five-year warrants to purchase common
shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of December 31,
2019, and 2018, 1,292 of these warrants were issued and outstanding for both periods.
In
2017, in connection with the sale of common stock, the Company issued an aggregate of 6,169 five-year warrants to purchase common
shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of December 31,
2019, and 2018, 6,169 of these warrants were issued and outstanding for both periods.
Warrants
issued pursuant to Securities Purchase Agreements
The
warrants detailed below, issued pursuant to the Securities Purchase Agreements (see Note 6), have initial exercise price between
$0.20 and $131 (subject to adjustments under certain conditions as defined in the agreements) and includes a down-round provision
under which the exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are
not fixed monetary amounts at inception. It also includes a default provision pursuant to which, these Warrants shall be exercisable
at the Default Conversion Price as defined in the related Notes (see Note 6).
As
of December 31, 2019, there were not enough authorized shares to allow the issuance of common stock if all the warrants need to
be exercised.
Outstanding
warrants as of December 31, 2019, all of which have been accounted for as derivative liabilities, are summarized as follows:
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
|
|
Original
warrants
issued
|
|
|
Cumulative
Anti-dilution
adjustment
|
|
|
Expired,
Cancelled
or
Forfeited
|
|
|
Warrants
purchased
back -
Puritan
Settlement
Agreement
(post anti-
dilution)
|
|
|
Total
warrants
exercised
(Cashless
exercise)
|
|
|
Outstanding
warrants
as of
December 31, 2019
|
|
|
Exercise
price at
December 31, 2019
|
|
Warrants related to the
2016 subscription agreements
|
|
|
1,295
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,292
|
|
|
$
|
225.00
|
|
Warrants related to the 2017 subscription
agreements
|
|
|
6,169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,169
|
|
|
$
|
225.00
|
|
November 2016 Warrants
|
|
|
3,111
|
|
|
|
39,235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,099
|
)
|
|
|
30,247
|
|
|
$
|
4.50
|
|
June 2017 Warrants
|
|
|
2,074
|
|
|
|
58,423
|
|
|
|
—
|
|
|
|
(8,067
|
)
|
|
|
(12,099
|
)
|
|
|
40,331
|
|
|
$
|
4.50
|
|
July 2017 Warrants
|
|
|
6,359
|
|
|
|
99,635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,332
|
)
|
|
|
70,662
|
|
|
$
|
4.50
|
|
January 2018 Warrants
|
|
|
11,111
|
|
|
|
4,356,265
|
|
|
|
—
|
|
|
|
(10,078
|
)
|
|
|
—
|
|
|
|
4,357,298
|
|
|
$
|
0.05
|
|
March 2018 Warrants
|
|
|
16,667
|
|
|
|
6,534,399
|
|
|
|
—
|
|
|
|
(15,117
|
)
|
|
|
—
|
|
|
|
6,535,949
|
|
|
$
|
0.05
|
|
September 2018 Warrants
|
|
|
68,056
|
|
|
|
39,964,625
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,032,681
|
|
|
$
|
0.05
|
|
November 2018 Warrants
|
|
|
6,389
|
|
|
|
3,751,781
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,758,170
|
|
|
$
|
0.05
|
|
March 2019 Warrants
|
|
|
2,778
|
|
|
|
1,631,209
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,633,987
|
|
|
$
|
0.05
|
|
April 2019 Warrants I
|
|
|
1,389
|
|
|
|
815,605
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
816,994
|
|
|
$
|
0.05
|
|
April 2019 Warrants II
|
|
|
10,264
|
|
|
|
6,027,318
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,037,582
|
|
|
$
|
0.05
|
|
May 2019 Warrants
|
|
|
500
|
|
|
|
293,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
294,118
|
|
|
$
|
0.05
|
|
June 2019 Warrants I
|
|
|
6,458
|
|
|
|
3,792,562
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,799,020
|
|
|
$
|
0.05
|
|
June 2019 Warrants II
|
|
|
5,556
|
|
|
|
1,628,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,633,987
|
|
|
$
|
0.05
|
|
July 2019 Warrants I
|
|
|
5,556
|
|
|
|
1,628,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,633,987
|
|
|
$
|
0.05
|
|
July 2019 Warrants II
|
|
|
5,556
|
|
|
|
1,628,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,633,987
|
|
|
$
|
0.05
|
|
August 2019 Warrants
|
|
|
2,778
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,778
|
|
|
$
|
15.00
|
|
September 2019 Warrants
|
|
|
16,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,667
|
|
|
$
|
15.00
|
|
November 2019 Warrants I
|
|
|
277,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
277,500
|
|
|
$
|
0.20
|
|
November 2019 Warrants II
|
|
|
275,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
275,000
|
|
|
$
|
0.20
|
|
December 2019 Warrants I
|
|
|
277,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
277,500
|
|
|
$
|
0.20
|
|
December 2019 Warrants II
|
|
|
277,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
277,500
|
|
|
$
|
0.20
|
|
|
|
|
1,286,233
|
|
|
|
72,249,968
|
|
|
|
(3
|
)
|
|
|
(33,262
|
)
|
|
|
(59,530
|
)
|
|
|
73,443,406
|
|
|
|
|
|
During
the years ended December 31, 2019 and 2018, the Company issued nil and 43,620 shares of its common stock, respectively, upon the
cashless exercise of nil and 47,431 of its warrants, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Warrants
activities for the year ended December 31, 2019 are summarized as follows:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding December
31, 2017
|
|
|
204,203
|
|
|
$
|
15.00
|
|
|
|
4.41
|
|
|
$
|
5,754,600
|
|
Issued in connection with financings
|
|
|
102,222
|
|
|
$
|
30.00
|
|
|
|
4.07
|
|
|
|
—
|
|
Adjustment in connection with default
provision
|
|
|
113,886
|
|
|
$
|
3.75
|
|
|
|
2.09
|
|
|
|
—
|
|
Reduction in warrants related to settlement
of debt
|
|
|
(33,262
|
)
|
|
$
|
9.75
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(47,430
|
)
|
|
$
|
4.50
|
|
|
|
—
|
|
|
|
—
|
|
Balance Outstanding at December 31,
2018
|
|
|
339,619
|
|
|
$
|
15.75
|
|
|
|
3.47
|
|
|
|
—
|
|
Issued in connection with financings
|
|
|
1,165,002
|
|
|
|
0.44
|
|
|
|
4.90
|
|
|
|
—
|
|
Increase in warrants related to default
adjustment
|
|
|
71,938,788
|
|
|
|
0.05
|
|
|
|
3.85
|
|
|
|
—
|
|
Expired
|
|
|
(3
|
)
|
|
|
225.00
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance Outstanding
at December 31, 2019
|
|
|
73,443,406
|
|
|
$
|
0.09
|
|
|
|
3.83
|
|
|
$
|
—
|
|
Exercisable
at December 31, 2019
|
|
|
73,443,406
|
|
|
$
|
0.09
|
|
|
|
3.83
|
|
|
$
|
—
|
|
Stock
options
Effective
February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option
plan is to enhance the long-term stockholder value of our Company by offering opportunities to directors, key employees, officers,
independent contractors and consultants of our Company to acquire and maintain stock ownership in our Company in order to give
these persons the opportunity to participate in our Company’s growth and success, and to encourage them to remain in the
service of our Company. A total of 57 options to acquire shares of our common stock were authorized under the 2011 stock option
plan and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan, by our board of
directors and during each 12 month period thereafter, our board of directors is authorized to increase the amount of options authorized
under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of December 31, 2019.
Stock-option
issued during the year ended December 31, 2018
On
May 8, 2018, the Company granted an aggregate of 23,334 stock options to purchase 23,334 shares of the Company’s common
stock at $10.13 per share as follows: 20,000 options were granted to officers and directors of the Company, 667 options were granted
to an employee, and 2,667 option to the Company’s scientific advisory board. These options vest in one year from the grant
date and expire on May 8, 2028. The fair value of these option grants was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 243%; risk-free
interest rate of 2.81%; and, an estimated term based on the simplified method of 5.5 years. In connection with these options,
the Company valued these options at a fair value of approximately $233,000 and will record stock-based compensation expense over
the vesting term.
Stock-option
issued during the year ended December 31, 2019
On
April 24, 2019 the board of directors of the Company granted an aggregate of 23,130 stock options, outside of the plan, to purchase
shares of the Company’s common stock to Dr. Barnett and three non-employee members of the Board, Daniel S. Hoverman, Charles
L. Rice and Neal Holcomb.
Pursuant
to Dr. Barnett’s employment agreement dated December 26, 2018, Dr. Barnett was granted 11,130 stock options with exercise
price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January
9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the
vesting date (except as otherwise provided for in the employment agreement between the Company and the optionee). The fair value
of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these
options at a grant date fair value of $81,803 which will be expensed over the vesting period as stock-based compensation.
On
November 8, 2019, Dr. Barnett resigned as the Company’s Chief Executive Officer (see Note 12) which resulted in forfeiture
of 11,130 of unvested stock options granted to him on December 26, 2018 (discussed above). The Company reversed $24,995 of stock-based
compensation and $56,808 of the remaining deferred compensation which makes up the grant date fair value of $81,803 initially
recorded as deferred compensation in April 2019.
The
three non-employee members of the Board were each granted 4,000 stock options for a total of 12,000 stock options with exercise
price of $7.50 per share, vest date of April 24, 2020 and expires on April 24, 2030. The stock options vest so long as the optionee
remains a member of the Board on the vesting date. The fair value of this option grant was estimated on the date of grant using
the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $88,200 which will be
expensed over the vesting period as stock-based compensation
During
the years ended December 31, 2019 and 2018, the Company recorded stock-based compensation expense of $140,697 and $276,918 related
to stock options, respectively.
The
Company uses the Black-Scholes pricing model to determine the fair value of its stock options which requires the Company to make
several key judgments including:
|
●
|
the
value of the Company’s common stock;
|
|
●
|
the
expected life of issued stock options;
|
|
●
|
the
expected volatility of the Company’s stock price;
|
|
●
|
the
expected dividend yield to be realized over the life of the stock option; and
|
|
●
|
the
risk-free interest rate over the expected life of the stock options.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
Company’s computation of the expected life of issued stock options was based on the simplified method as the Company does
not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve
in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common
stock.
At
December 31, 2019, there were 41,600 options issued and outstanding out of which 29,600 options were vested and exercisable.
As
of December 31, 2019, there was $35,280 of unvested stock-based compensation expense to be recognized through April 24, 2020.
The
aggregate intrinsic value at December 31, 2019 was $0 which was calculated based on the difference between the quoted share price
on December 31, 2019 and the exercise price of the underlying options.
Stock
option activities for the year ended December 31, 2019 are summarized as follows:
|
|
Number
of
Option
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding at December 31, 2018
|
|
|
29,600
|
|
|
$
|
45.00
|
|
|
|
8.37
|
|
|
|
—
|
|
Granted
|
|
|
23,130
|
|
|
$
|
9.00
|
|
|
|
10.32
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(11,130
|
)
|
|
$
|
9.00
|
|
|
|
—
|
|
|
|
—
|
|
Balance Outstanding at December
31, 2019
|
|
|
41,600
|
|
|
$
|
36,69
|
|
|
|
9.34
|
|
|
$
|
—
|
|
Exercisable at December 31, 2019
|
|
|
29,600
|
|
|
$
|
47.91
|
|
|
|
8.37
|
|
|
$
|
—
|
|
NOTE
10 – INCOME TAXES
The
Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred
tax assets at December 31, 2019 and 2018 consist of net operating loss carryforwards. The net deferred tax asset has been fully
offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.
The
items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for
the years ended December 31, 2019 and 2018 were as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax deduction (benefit)
at U.S. statutory rate of 21%
|
|
$
|
(1,974,471
|
)
|
|
$
|
1,358,348
|
|
Income tax deduction (benefit) –
state
|
|
|
(752,180
|
)
|
|
|
517,466
|
|
Non-deductible (income) expenses
|
|
|
2,254,568
|
|
|
|
(2,523,247
|
)
|
Change in valuation
allowance
|
|
|
472,083
|
|
|
|
647,433
|
|
Total provision
for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company’s approximate net deferred tax asset as of December 31, 2019 and 2018 was as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforward
|
|
$
|
2,605,720
|
|
|
$
|
2,133,637
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
2,605,720
|
|
|
|
2,133,637
|
|
Less: valuation
allowance
|
|
|
(2,605,720
|
)
|
|
|
(2,133,637
|
)
|
Net deferred
tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
gross operating loss carryforward was approximately $8,985,240 at December 31, 2019. The Company provided a valuation allowance
equal to the net deferred income tax asset as of December 31, 2019 because it was not known whether future taxable income will
be sufficient to utilize the loss carryforward. The increase in the valuation allowance was $472,083 in 2019. The potential tax
benefit arising from the net operating loss carryforward of $1,486,204 from the period prior to Act’s effective date will
expire in 2038. The potential tax benefit arising from the net operating loss carryforward of $1,119,516 from the period following
to the Act’s effective date can be carried forward indefinitely within the annual usage limitations.
Additionally,
the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation
as a result of ownership or business changes that occurred in 2019 and may occur in the future. The Company has not conducted
a study to determine the limitations on the utilization of these net operating loss carryforwards. If necessary, the deferred
tax assets will be reduced by any carryforward that may not be utilized or expires prior to utilization as a result of such limitations,
with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain tax
positions or events leading to uncertainty in a tax position. The Company’s 2019, 2018 and 2017 Corporate
Income Tax Returns are subject to Internal Revenue Service examination.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Lease
Effective
September 1, 2015, the Company leases its facilities under a non-cancelable operating lease which expires on August 31, 2020.
The Company has the right to renew certain facility leases for an additional five years. Rent expense is $3,200 base rent per
month plus operating expense and other fees (see Note 5).
NOTE
12 – EMPLOYMENT AGREEMENTS
On
February 2, 2016, the Company entered into an employment agreement with Jonathan F. Head, Ph.D. (“Dr. Head”) to serve
as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February
1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days
prior to the automatic renewal date. The employment agreement with Dr. Head provides that Dr. Head’s salary for calendar
year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment
agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual
salary that was payable by the Company to Dr. Head for the immediately preceding calendar year.
On
February 2, 2016, the Company entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as
the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through
February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than
120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s
salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term
of the employment agreement with Mr. Kucharchuk shall be an amount determined by the Board of Directors, which in no event shall
be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.
The
above executives shall be eligible for an annual target bonus payment in an amount equal to ten percent of his base salary (“Bonus”).
The Bonus is determined based on the achievement of certain performance objectives of the Company as established by the Board
of Directors. The Bonus may be greater or less than the target Bonus, based on the level of achievement of the applicable performance
objectives.
Effective
December 26, 2018, the Company replaced Dr. Jonathan Head and appointed Dr. Brian Barnett as the new Chief Executive Officer.
Dr. Head will continue to serve the Company as the Chairman of the Board of Directors and now as its Chief Scientific Officer
effective December 26, 2018. Dr. Head is still negotiating the terms of his new employment agreement for his new position as the
Chief Scientific Officer, with the Company, as of the date of this report.
On
December 26, 2018, Dr. Barnett entered into an employment agreement with us (“Barnett Employment Agreement”) to serve
as the Company’s Chief Executive Officer for a term of three years (from December 26, 2018 through December 26, 2021) that
renews automatically for one-year periods unless a written notice of termination is provided not less than 180 days prior to the
automatic renewal date. The Barnett Employment Agreement provides that Dr. Barnett’s salary for calendar year 2019 shall
be $250,000 and for each calendar year thereafter during the term of the Barnett Employment Agreement shall be an amount determined
by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Barnett
for the immediately preceding calendar year.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
Dr.
Barnett is also eligible to receive a performance-based bonus of up to $150,000 upon completion of specific metrics established
by the Company’s Board of Directors and is entitled to participate in all medical and other benefits that the Company has
established for its employees. Pursuant to the employment agreement, the Company will also grant options to purchase a number
of shares of the Company’s common stock equal to $100,000 divided by the volume weighted average price of the Company’s
common stock for the ten (10) business days prior to the effective date of the employment agreement. The option grant is subject
to continued employment, and will vest ratably over the first three anniversary dates of the grant date. On April 24, 2019, Dr.
Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020;
(ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long
as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement
between the Company and the optionee) (see Note 9).
Additionally,
upon the closing of a transaction during calendar year 2019 which results in the sale of common stock of the Company on terms
acceptable to the Board that provides net proceeds to the Company of no less than $4,000,000 (a “Qualifying Transaction”),
Dr. Barnett shall be granted options to purchase a number of shares of the Company’s common stock equal to $50,000 divided
by the transaction price of the Company’s common stock in the Qualifying Transaction. The option grant is subject to continued
employment, and will vest ratably over the first three anniversary dates of the date of the closing of the Qualifying Transaction.
On
November 8, 2019, Dr. Barnett resigned as the Company’s Chief Executive Officer (see Note 9) which resulted in forfeiture
of 11,130 of unvested stock options granted to him on December 26, 2018 (discussed above). The Company reversed $24,995 of stock-based
compensation and $56,808 of the remaining deferred compensation which makes up the grant date fair value of $81,803 initially
recorded as deferred compensation in April 2019.
NOTE
13 - SUBSEQUENT EVENTS
On
January 27, 2020, the Company entered into a securities purchase agreement (the “Twenty-sixth Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty- sixth Purchase Agreement, the Company
issued to the Twenty- sixth Round Purchaser a note (the “January 2020 Note I”) with a principal amount of $55,000
with 10% OID and five-year warrants (the “January 2020 Warrants I”) to purchase an aggregate of 275,000 shares of
the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as defined
in the January 2020 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,000 original
issue discount. The January 2020 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per
year upon the occurrence of an Event of Default (as defined in the January 2020 Note I)), shall mature on October 30, 2020 and
the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to adjustment as
provided in the January 2020 Note I); provided, however, that if an event of default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the January 2020 Note I shall be convertible and the January 2020 Warrants
I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during
the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the January 2020 Note
I to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9%
of the Company’s issued and outstanding common stock. The January 2020 Note I may be prepaid at any time until the 180th
following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the January 2020 Note I and
accrued and unpaid interest during the period from the original issue date through the five months following the original issue
date, and (ii) 120% of the outstanding principal balance of the January 2020 Note I and accrued and unpaid interest during month
six following the original issue date. In order to prepay the January 2020 Note I, the Company shall provide twenty trading days
prior written notice to the lender, during which time the purchaser may convert the January 2020 Note I in whole or in part at
the conversion price.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 and 2018
The
initial exercise price of the January 2020 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The January 2020 Warrants I is exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
January 2020 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
On
January 29, 2020, the Company entered into a securities purchase agreement (the “Twenty-seventh Purchase Agreement”)
for the sale of the Company’s convertible note and warrants. Pursuant to the Twenty-seventh Purchase Agreement, the Company
issued to the Twenty- seventh Round Purchaser a note (the “January 2020 Note II”) with a principal amount of $55,000
with 10% OID and five-year warrants (the “January 2020 Warrants II”) to purchase an aggregate of 277,500 shares
of the Company’s common stock at an exercise price of $0.20 per share (subject to adjustments under certain conditions as
defined in the January 2020 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,000
original issue discount. The January 2020 Note II bears an interest rate of 5% per year (which interest rate shall be increased
to 18% per year upon the occurrence of an Event of Default (as defined in the January 2020 Note II)), shall mature on October
30, 2020 and the principal and interest are convertible at any time at a conversion price equal to $0.20 per share (subject to
adjustment as provided in the January 2020 Note II); provided, however, that if an event of default has occurred, regardless of
whether such Event of Default has been cured or remains ongoing, the January 2020 Note II shall be convertible and the January
2020 Warrants II shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading
market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the January
2020 Note II to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more
than 9.9% of the Company’s issued and outstanding common stock. The January 2020 Note II may be prepaid at any time until
the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the January 2020
Note II and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the January 2020 Note II and accrued and unpaid interest during
month six following the original issue date. In order to prepay the January 2020 Note II, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the January 2020 Note II in whole or in part
at the conversion price.
The
initial exercise price of the January 2020 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The January 2020 Warrants II is exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the Warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
January 2020 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
On March 18, 2020,
the Company entered into a securities purchase agreement (the “Twenty-Eight Purchase Agreement”) for the sale of the
Company’s convertible note and warrants. Pursuant to the Twenty- Eight Purchase Agreement, the Company issued to the Twenty-Eight
Round Purchaser a note (the “March 2020 Note I”) with a principal amount of $41,667 with 10% OID and five-year warrants
(the “March 2020 Warrants I”) to purchase an aggregate of 208,333 shares of the Company’s common stock at an
exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the March 2020 Warrants I). The
Company received $37,500 in aggregate net proceeds from the sale, net of $4,167 original issue discount. The March 2020 Note I
bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event
of Default (as defined in the March 2020 Note I)), shall mature on November 18, 2020 and the principal and interest are convertible
at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the March 2020 Note I); provided,
however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the March 2020 Note I shall be convertible and the March 2020 Warrants I shall be exercisable at 60% of the lowest closing price,
as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion
Price”). The purchaser may not convert the March 2020 Note I to the extent that such conversion would result in beneficial
ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The
March 2020 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115%
of outstanding principal balance of the March 2020 Note I and accrued and unpaid interest during the period from the original
issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the
March 2020 Note I and accrued and unpaid interest during month six following the original issue date. In order to prepay the March
2020 Note I, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser
may convert the March 2020 Note I in whole or in part at the conversion price.
The initial exercise price of the March
2020 Warrants I is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance
date. The March 2020 Warrants I is exercisable for cash at any time and are exercisable on a cashless basis at any time there
is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the
Warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock
or other property to the Company’s stockholders. Pursuant to the default provision, the March 2020 Warrants I shall be exercisable
at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet price adjustment
if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants in the two
years after the issue date of the Warrants (“Dilutive Issuances”).
On March 18, 2020,
the Company entered into a securities purchase agreement (the “Twenty-Ninth Purchase Agreement”) for the sale of the
Company’s convertible note and warrants. Pursuant to the Twenty- Ninth Purchase Agreement, the Company issued to the Twenty-Ninth
Round Purchaser a note (the “March 2020 Note II”) with a principal amount of $41,667 with 10% OID and five-year warrants
(the “March 2020 Warrants II”) to purchase an aggregate of 208,333 shares of the Company’s common stock at an
exercise price of $0.20 per share (subject to adjustments under certain conditions as defined in the March 2020 Warrants II).
The Company received $37,500 in aggregate net proceeds from the sale, net of $4,167 original issue discount. The March 2020 Note
II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event
of Default (as defined in the March 2020 Note II)), shall mature on November 18, 2020 and the principal and interest are convertible
at any time at a conversion price equal to $0.20 per share (subject to adjustment as provided in the March 2020 Note II); provided,
however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the March 2020 Note II shall be convertible and the March 2020 Warrants II shall be exercisable at 60% of the lowest closing price,
as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion
Price”). The purchaser may not convert the March 2020 Note II to the extent that such conversion would result in beneficial
ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The
March 2020 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115%
of outstanding principal balance of the March 2020 Note II and accrued and unpaid interest during the period from the original
issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the
March 2020 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the
March 2020 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser
may convert the March 2020 Note II in whole or in part at the conversion price.
The initial exercise price of the March
2020 Warrants II is $0.20 per share, subject to adjustment as described below, and are exercisable for five years after the issuance
date. The March 2020 Warrants II is exercisable for cash at any time and are exercisable on a cashless basis at any time there
is no effective registration statement registering the shares of common stock underlying the warrants. The exercise price of the
Warrants is subject to adjustment in the event of default, certain stock dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock
or other property to the Company’s stockholders. Pursuant to the default provision, the March 2020 Warrants II shall be
exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is also subject to full ratchet
price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of the warrants
in the two years after the issue date of the Warrants (“Dilutive Issuances”).
Subsequent to the year ended December 31, 2019, the lender converted
$2,030 of principal and $107 of accrued interest into 41,903 shares of common stock.