NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Business Organization, Nature of Operations and Basis of Presentation
Provectus
Biopharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, “Provectus” or the “Company”),
is a clinical-stage biotechnology company developing immunotherapy medicines based on an entire, wholly-owned, family of small
molecules called halogenated xanthenes (“HXs”). The Company’s lead HX molecule is proprietary current
Good Manufacturing Practice (“cGMP”) rose bengal disodium (“RBD”).
|
●
|
Oncology:
PV-10®, an investigational autolytic cancer immunotherapy administered
by intralesional (“IL”) injection and an injectable formulation of cGMP RBD,
is undergoing clinical study for adult solid tumor cancers, such as melanoma and gastrointestinal
(“GI”) tumors (including hepatocellular carcinoma (“HCC”), colorectal
cancer metastatic to the liver (“mCRC”), neuroendocrine tumors (“NET”)
metastatic to the liver (“mNET”), and uveal melanoma metastatic to the liver
(“mUM”), among others). Orphan drug designation status has been granted to
IL PV-10 by the U.S. Food and Drug Administration (the “FDA”) for metastatic
melanoma in 2006, HCC in 2011, and ocular melanoma (including uveal melanoma) in 2019.
Oral
formulations of cGMP RBD are also undergoing preclinical study as prophylactic and therapeutic
treatments for high-risk adult solid tumor cancers, such as head and neck, breast, pancreatic,
liver, and colorectal cancers.
|
|
|
|
|
●
|
Pediatric
Oncology: IL PV-10 is also undergoing preclinical study for pediatric solid tumor cancers (including neuroblastoma, Ewing
sarcoma, rhabdomyosarcoma, and osteosarcoma). Orphan drug designation status has been granted to IL PV-10 by the FDA for neuroblastoma
in 2018.
|
|
|
|
|
●
|
Hematology:
Oral formulations of cGMP RBD are undergoing preclinical study for pediatric blood cancers (including leukemia).
|
|
|
|
|
●
|
Virology:
Systemically-administered formulations of cGMP RBD are undergoing preclinical study for the novel strain of coronavirus
(“CoV”), severe acute respiratory syndrome (“SARS”) CoV 2 (“SARS-CoV-2”).
|
|
|
|
|
●
|
Microbiology:
Different formulations of cGMP RBD are undergoing preclinical study as potential treatments for multi-drug resistant (“MDR”)
bacteria, such as Gram-negative bacteria.
|
|
|
|
|
●
|
Ophthalmology:
Topical formulations of cGMP RBD are undergoing preclinical study as potential treatments for diseases of the eye, such
as infectious keratitis.
|
|
|
|
|
●
|
Dermatology:
PH-10®, an investigational immuno-dermatology agent administered as a topical gel and formulation
of cGMP RBD, is undergoing clinical study for inflammatory dermatoses (including psoriasis and atopic dermatitis).
|
To
date, the Company has not generated any revenues or profits from planned principal operations. The Company’s activities
are subject to significant risks and uncertainties, including failing to successfully develop and license or commercialize the
Company’s prescription drug candidates.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements
and should be reviewed in conjunction with the Company’s audited consolidated financial statements included in the Company’s
Form 10-K for the year ended December 31, 2019 filed with the SEC on March 5, 2020. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2020.
SARS-CoV-2
was reportedly first identified in late-2019 and subsequently declared a global pandemic by the World Health Organization on March
11, 2020. As a result of the SARS-CoV-2 pandemic, many companies have experienced disruptions of their operations and the markets
they serve. The Company has taken several temporary precautionary measures intended to help ensure the well-being of its employees
and contractors and to minimize business disruption. The Company considered the impact of SARS-CoV-2 pandemic on its business
and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results
of operations and financial position at September 30, 2020.
The
full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is uncertain. The
Company has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could
have a material adverse impact on the Company’s business and financial results, including the timing and ability of the
Company to raise capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials; disrupt
the Company’s regulatory activities; and/or have other adverse effects on the Company’s clinical development.
2.
Liquidity and Going Concern
The
Company’s cash and cash equivalents were $986,522 at September 30, 2020. The Company continues to incur significant operating
losses. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s
business plan and develop and market its products. These circumstances raise substantial doubt about the Company’s ability
to continue as a going concern within one year after the date that these condensed consolidated financial statements are
issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s
ability to develop IL PV-10, topical PH-10, and/or any other halogenated xanthene-based drug products, and to raise additional
capital.
During
the nine months ended September 30, 2020, the Company entered into additional related party 2020 Notes in the aggregate principal
amount of $100,000. Also, during the nine months ended September 30, 2020, the Company entered into additional non-related party
2020 Notes in the aggregate principal amount of $3,000,000. See Note 4 – Convertible Notes Payable.
During
the nine months ended September 30, 2020, warrant holders exercised warrants to purchase an aggregate of 6,905,062 shares of common
stock at an exercise price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds
of $368,041.
During
the nine months ended September 30, 2020, the Company received a loan of $62,500 under the Paycheck Protection Program (“PPP”)
(see Note 4) and received a grant of $3,000 from the Economic Injury Disaster Loan (“EIDL”) under the CARES Act. The
grant was recognized as other income during the nine months ended September 30, 2020.
Subsequent
to September 30, 2020, the Company received an aggregate $37,310 in connection with warrant exercises. See Note 11 –
Subsequent Events.
The
Company plans to access capital resources through possible public or private equity offerings, including the 2020 Financing (as
defined in Note 4), exchange offers, debt financings, corporate collaborations or other means. In addition, the Company continues
to explore opportunities to strategically monetize its lead drug candidates, IL PV-10 and topical PH-10, through potential
co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans.
The Company has historically been able to raise capital through debt and equity offerings, although no assurance can be
provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital through the
2020 Financing or otherwise, it will not be able to pay its obligations as they become due.
The
primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, the Company
cannot assure you that it will be successful in developing further, co-developing, licensing, and/or commercializing IL PV-10,
topical PH-10, and/or any other halogenated xanthene-based drug products of the Company, or entering into any commercial
financial transaction. Moreover, even if the Company is successful in improving its current cash flow position, the Company nonetheless
plans to seek additional funds to meet its long-term requirements in 2020 and beyond. The Company anticipates that these funds
will otherwise come from the proceeds of private placement transactions, including the 2020 Financing, the exercise of existing
warrants and outstanding stock options, or public offerings of debt or equity securities. While the Company believes that it has
a reasonable basis for its expectation that it will be able to raise additional funds, the Company cannot assure you that it will
be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution
to stockholders.
3.
Critical Accounting Policies
Since
the date the Company’s December 31, 2019 consolidated financial statements were issued in its 2019 Annual Report, there
have been no material changes to the Company’s significant accounting policies, except as disclosed below.
Recently
Issued Accounting Standards
In
March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”). There are seven issues
addressed in this update. Issues 1 – 5 were clarifications and codifications of previous updates. Issue 3 relates only to
depository and lending institutions and therefore would not be applicable to the Company. Issue 6 was a clarification on determining
the contractual term of a net investment in a lease for purposes of measuring expected credit losses, an issue not applicable
to the Company. Issue 7 relates to the regaining control of financial assets sold and the recordation of an allowance for credit
losses. The amendment related to issues 1, 2, 4 and 5 became effective immediately upon adoption of the update. Issue 3 becomes
effective for fiscal years beginning after December 15, 2019. Issues 6 and 7 become effective on varying dates that relate to
the dates of adoption of other updates. Management’s initial analysis is that it does not believe the new guidance will
substantially impact the Company’s financial statements. The Company adopted certain provisions which have become effective
during fiscal 2020 within ASU 2020-03 and its adoption did not have a material impact on the Company’s condensed consolidated
financial statements and financial statement disclosures. The Company is currently evaluating the effect that adopting the remaining
new accounting guidance will have on its condensed consolidated financial statements and related disclosures.
In
August 2020, FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in Entity’s Own Equity” (“ASU 2020-06”). Under ASU 2020-06, the embedded conversion features are no longer
separated from the host contract for convertible instruments with conversion features that are not required to be accounted for
as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently,
a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other
features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied
for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years, with early adoption permitted. Adoption of the standard requires using either a modified retrospective
or a full retrospective approach. The Company is currently evaluating the effect of the adoption of ASU 2020-06 will have on its
condensed consolidated financial statements and related disclosures.
The
CARES Act
On
March 27, 2020, President Trump signed the CARES Act into law. The CARES Act, among other things, includes provisions relating
to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods,
alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to
tax depreciation methods for qualified improvement property. Under ASC 740 of GAAP, the effects of new legislation are recognized
upon enactment. Accordingly, the CARES Act is effective beginning in the quarter ended March 31, 2020. The adoption of the CARES
Act provisions did not have a material impact on the Company’s condensed consolidated financial statements.
4.
Convertible Notes Payable
2020
Financing
On
December 31, 2019, the Board approved a Definitive Financing Term Sheet (the “2020 Term Sheet”), which sets forth
the terms under which the Company will use its best efforts to arrange for financing of a maximum of $20,000,000 (the “2020
Financing”). The 2020 Financing will be in the form of secured convertible loans (“Loans”) from investors that
will be evidenced by convertible promissory notes (the “2020 Notes”). Subject to the terms and conditions of the 2020
Term Sheet, the Company will use its best efforts to arrange for the 2020 Financing, which amounts will be obtained in several
tranches. The proceeds from the 2020 Financing will be used to fund the Company’s clinical development program, as currently
constituted and envisioned, and to fund the Company’s general and administrative expenses.
Since
the 2020 Financing was launched and through September 30, 2020, the Company had received aggregate Loans of $3,200,000.
The
Series D Preferred Stock
As
of September 30, 2020, and through the date of filing, the Series D Preferred Stock had not been designated by the Board. Per
the terms of the notes issued in connection with the 2017 and 2020 Financings, if the Company has not designated the Series D
Preferred Stock or if an insufficient number of Series D Preferred shares exist upon a conversion by a note holder, then the outstanding
loans will continue to accrue interest at a rate of 8% per annum until which time the Company has designated a sufficient number
of Series D Preferred shares. As a result, the Company did not analyze the notes for a potential beneficial conversion feature
as the definition of a firm commitment has not been met since the notes were not convertible as of their respective dates of issuance
or as of September 30, 2020.
Convertible
Notes Payable – Related Parties
During
the nine months ended September 30, 2020, the Company entered into additional related party 2020 Notes in the aggregate principal
amount of $100,000. As of September 30, 2020, the Company had borrowed $100,000 under these notes.
Convertible
Notes Payable – Non-Related Parties
During
the nine months ended September 30, 2020, the Company entered into additional non-related party 2020 Notes in the aggregate principal
amount of $3,000,000. As of September 30, 2020, the Company had borrowed $3,100,000 under these notes.
5.
Notes Payable
Notes
Payable
On
April 20, 2020, the Company received a $62,500 loan under the CARES Act PPP (the “PPP Loan”). The PPP provides for
loans to qualifying businesses for amounts of up to 2.5 times certain of the borrower’s average monthly payroll expenses.
The loan principal and accrued interest are forgivable, as long as the borrower uses loan proceeds for eligible uses during a
specified period following disbursement, such as payroll, benefits, rent, and utilities, and maintains specified headcount and
payroll thresholds. If any portion of a PPP Loan is not forgiven, the unforgiven portion is payable over two years at an interest
rate of 1%, with a deferral of payments for the first seven months. The Company intends to use PPP Loan proceeds in a manner that
it believes presently qualifies for full forgiveness. We cannot provide assurance that the PPP Loan will be forgiven in full.
As of September 30, 2020, the Company had not applied for forgiveness of the PPP Loan. Once an amount is forgiven
under the PPP Loan, the Company intends to recognize a gain on forgiveness of note payable in the period in which it obtained
forgiveness.
6.
Related Party Transactions
During
the three and nine months ended September 30, 2020, the Company paid Capital Strategists (Mr. Bruce Horowitz) consulting
fees of $127,200 and $190,800, respectively, for services rendered. During the three and nine months ended September 30,
2019, the Company paid Capital Strategists consulting fees of $63,600 and $234,800, respectively, for services rendered.
As
of September 30, 2020, and September 30, 2019, accrued director fees for Mr. Horowitz were $187,500 and $112,500, respectively.
Mr.
Horowitz serves as both COO and as a Director of the Company.
See
Note 4 and Note 8 for details of other related party transactions.
7.
Short-term receivables
The
following table summarizes the receivables at September 30, 2020 and December 31, 2019:
|
|
September
30, 2020
|
|
|
|
Tax
Credit
|
|
|
Legal
Fees
|
|
|
Settlement
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provectus
Australia Tax Credit
|
|
$
|
5,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,930
|
|
Gross
receivable
|
|
|
-
|
|
|
|
455,500
|
|
|
|
1,649,043
|
|
|
|
2,104,543
|
|
Reserve
for uncollectibility
|
|
|
-
|
|
|
|
(455,500
|
)
|
|
|
(1,649,043
|
)
|
|
|
(2,104,543
|
)
|
Net
receivable
|
|
$
|
5,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,930
|
|
|
|
December
31, 2019
|
|
|
|
Tax
Credit
|
|
|
Legal
Fees
|
|
|
Settlement
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provectus
Australia Tax Credit
|
|
$
|
55,058
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,058
|
|
Gross
receivable
|
|
|
-
|
|
|
|
455,500
|
|
|
|
1,649,043
|
|
|
|
2,104,543
|
|
Reserve
for uncollectibility
|
|
|
-
|
|
|
|
(455,500
|
)
|
|
|
(1,649,043
|
)
|
|
|
(2,104,543
|
)
|
Net
receivable
|
|
$
|
55,058
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,058
|
|
8.
Stockholders’ Deficiency
Common
Stock
During
the nine months ended September 30, 2020, the Company issued an aggregate of 62,500 shares of immediately vested restricted common
stock to a consultant and advisory board members with an issuance date fair value of an aggregate of $3,963, which was recognized
immediately. Subsequent to September 30, 2020, the Company issued an aggregate of 1,000,000 shares of immediately vested
restricted common stock to an employee, consultant, and directors. See Note 11 – Subsequent Events.
Warrants
During
the nine months ended September 30, 2020, warrant holders exercised warrants to purchase an aggregate of 6,905,062 shares of common
stock at an exercise price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds
of $368,041 and issued 6,905,062 shares of common stock to the holders. Subsequent to September 30, 2020, the Company received
an aggregate $37,310 in connection with warrant exercises. See Note 11 – Subsequent Events.
During
the three months ended September 30, 2020, the Company issued three-year immediately vested warrants to purchase an aggregate
of 37,500 shares of common stock with an exercise price of $0.2862 per share to advisory board members. The warrants had an issuance
date fair value of an aggregate of $865, which was recognized immediately and is included in general and administrative expenses
on the condensed consolidated statements of operations.
In
applying the Black-Scholes option pricing model to warrants issued, the Company used the following assumptions:
|
|
For
the Three Month Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Expected
terms (years)
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
3.00-5.00
|
|
Expected
volatility
|
|
|
93-95
|
%
|
|
|
131
|
%
|
|
|
93-95
|
%
|
|
|
129-131
|
%
|
Risk
free interest rate
|
|
|
0.11-0.15
|
%
|
|
|
1.82
|
%
|
|
|
0.11-0.15
|
%
|
|
|
1.82-2.23
|
%
|
Expected
dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Subsequent
to September 30, 2020, the Company issued three-year immediately vested warrants to purchase an aggregate of 25,000 shares
of common stock with an exercise price of $0.2862 per share to a strategic advisory board member.
Stock
Options
Subsequent
to September 30, 2020, pursuant to the Company’s 2017 Equity Compensation Plan (the “Compensation Plan”), the
Company issued five year immediately vested stock options to purchase an aggregate of 100,000 shares of common stock with an exercise
price of $0.2862 per share to a board member. The Company also
issued five -year immediately vested stock options to purchase an aggregate of 2,425,000 shares of common stock
with an exercise price of $0.12 per share to an officer/board member. See Note 11 – Subsequent Events.
9.
Leases
The
Company currently leases 4,500 square feet of corporate office space in Knoxville, Tennessee through an operating lease agreement
for a term of five years ending on June 30, 2022. Payments range from approximately $7,300 to $7,800 per month.
Total
operating lease expense for the three months ended September 30, 2020 was $24,446, of which, $16,297 was included within research
and development and $8,149 was included within general and administrative expenses on the condensed consolidated statement of
operations. Total operating lease expense for the three months ended September 30, 2019 was $22,622, of which, $15,081 was included
within research and development and $7,541 was included within general and administrative expenses on the condensed consolidated
statement of operations.
Total
operating lease expense for the nine months ended September 30, 2020 was $68,080, of which, $45,387 was included within research
and development and $22,693 was included within general and administrative expenses on the condensed consolidated statement of
operations. Total operating lease expense for the nine months ended September 30, 2019 was $79,756, of which, $53,171 was included
within research and development and $26,585 was included within general and administrative expenses on the condensed consolidated
statement of operations.
As
of September 30, 2020, the Company had no leases that were classified as a financing lease. As of September 30, 2020, the Company
did not have additional operating and financing leases that have not yet commenced.
A
summary of the Company’s right-of-use assets and liabilities is as follows:
|
|
For
The Nine Months Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating
cash flows used in operating leases
|
|
$
|
67,774
|
|
|
$
|
66,952
|
|
|
|
|
|
|
|
|
|
|
Right-of-use
assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
-
|
|
|
$
|
265,550
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Remaining Lease Term
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
1.75
Years
|
|
|
|
2.75
Years
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Discount Rate
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
Future
minimum payments under the Company’s non-cancellable lease obligations as of September 30, 2020 were as follows:
Years
Ending December 31
|
|
Amount
|
|
|
|
|
|
2020
(remainder)
|
|
$
|
22,892
|
|
2021
|
|
|
92,471
|
|
2022
|
|
|
46,687
|
|
Total
future minimum lease payments
|
|
|
162,050
|
|
Less:
amount representing imputed interest
|
|
|
(13,405
|
)
|
Total
lease liability
|
|
$
|
148,645
|
|
10.
Commitments, Contingencies and Litigation
Culpepper
Travel Expenses and Related Collection Efforts
On
December 27, 2016, the then-Board of Directors (the “then-Board”) unanimously voted to terminate then-interim Chief
Executive Officer, then-Chief Operating Officer, and former Chief Financial Officer, Peter Culpepper (“Culpepper”),
effective immediately, from all positions he held with the Company and each of its subsidiaries, “for cause,” in accordance
with the terms of the Amended and Restated Executive Employment Agreement entered into by Culpepper and the Company on April 28,
2014 (the “Culpepper Employment Agreement”), based on the results of the investigation conducted by the Audit Committee
of the then-Board regarding improper expense reimbursements to Culpepper.
The
Company took the position that under the terms of the Culpepper Employment Agreement, Culpepper is owed no severance payments
as a result of his termination “for cause” as that term is defined in the Culpepper Employment Agreement. Furthermore,
Culpepper is no longer entitled to the 2:1 credit under the Stipulated Settlement Agreement and Mutual Release in the Kleba Derivative
Lawsuit Settlement (the “Derivative Lawsuit Settlement”) such that the total $2,240,000 owed by Culpepper pursuant
to the Derivative Lawsuit Settlement plus Culpepper’s proportionate share of the litigation cost in the amount of $227,750,
less the amount that he repaid as of December 31, 2016, is immediately due and payable. The Company sent Culpepper a notice of
default in January 2017 for the total amount he owes the Company and is in the process of pursuing these claims in accordance
with the alternative dispute resolution provision of the Culpepper Employment Agreement. The Company has established a reserve
of $2,104,543 as of September 30, 2020 and December 31, 2019, which amount represents the amount the Company currently believes
Culpepper owes to the Company under the Derivative Lawsuit Settlement (excluding the amount of attorneys’ fees incurred
in enforcing the terms of the Derivative Lawsuit Settlement), while the Company pursues collection of this amount.
Culpepper
disputed that he was terminated “for cause” under the Culpepper Employment Agreement. On June 28, 2017, pursuant to
the alternative dispute resolution provisions of that agreement, the Company and Culpepper participated in a mediation of their
dispute. Having reached no resolution during the mediation, the parties participated in arbitration under the commercial rules
of the American Arbitration Association, arbitrating Culpepper’s claim against the Company for severance and the Company’s
claims against Culpepper for improper expense reimbursements and amounts Culpepper owed the Company under the Derivative Lawsuit
Settlement. On September 12, 2018, the arbitrator issued his final award in favor of the Company.
On
October 4, 2018, the Company filed a petition with the Chancery Court for Davidson County, Tennessee to confirm the arbitration
award. On January 23, 2019, the Chancery Court entered an order confirming the arbitrator’s award. On February 20, 2019,
Culpepper filed a motion to alter or amend the Chancery Court’s judgment. On March 22, 2019, the Chancery Court upheld the
arbitration award in favor of the Company.
On
April 16, 2019, Culpepper filed a Notice of Appeal with the Tennessee Court of Appeals regarding the Chancery Court’s judgment.
The Company and Culpepper submitted their respective court of appeal briefs on November 12, 2019 and December 3, 2019, respectively.
Oral arguments were held on January 7, 2020. On April 14, 2020, the Court of Appeals affirmed the Chancery Court’s judgment
and awarded court costs to the Company.
On
June 16, 2020, Culpepper filed an application to the Supreme Court of Tennessee for permission to appeal the Court of Appeals’
final decision. On June 30, 2020, the Company filed an answer to the Supreme Court in opposition to Culpepper’s application
for permission to appeal. On August 5, 2020, the Supreme Court denied Culpepper’s application. On November 5, 2020, Culpepper
filed a petition for writ of certiorari to the United States Supreme Court which has not been acted upon at this time.
11.
Subsequent Events
Exercise
of Warrants
Subsequent
to September 30, 2020, warrant holders exercised warrants to purchase an aggregate of 700,000 shares of common stock at $0.0533
per share. In connection with this exercise, the Company received aggregate cash proceeds of $37,310.
Common
Stock
Subsequent
to September 30, 2020, the Company issued an aggregate of 1,000,000 shares of immediately vested restricted common stock
to an employee, consultant, and board members with an issuance date fair value of an aggregate of $65,125.
Warrants
Subsequent
to September 30, 2020, the Company issued three-year immediately vested warrants to purchase an aggregate of 25,000 shares
of common stock with an exercise price of $0.2862 per share to a board member. The warrants had an issuance date fair value of
an aggregate $507.
Stock
Options
Subsequent
to September 30, 2020, pursuant to the Compensation Plan, the Company issued five year immediately vested stock options to purchase
an aggregate of 100,000 shares of common stock with an exercise price of $0.2862 per share to a board member. The stock options
had an issuance date fair value of an aggregate $1,414. The Company also issued five -year immediately vested stock options to
purchase an aggregate of 2,425,000 shares of common stock with an exercise price of $0.12 per share to an officer/board member.
The stock options had an issuance date fair value of an aggregate $62,880.