ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of December 31, 2016 and 2015
|
F-2
|
Consolidated Statements of Operations for the year ended December 31, 2016 and 2015.
|
F-3
|
Consolidated Statements of Stockholders' Deficit for the year ended December 31, 2016 and 2015.
|
F-4
|
Consolidated Statements of Cash Flows for the year ended December 31, 2016 and 2015.
|
F-5
|
Notes to Consolidated Financial Statements
|
F-6
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mount Tam Biotechnologies, Inc.
We have audited the accompanying consolidated balance sheet of Mount Tam Biotechnologies, Inc. (the "Company") as of December 31, 2016, and 2015, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the two year period ended December 31, 2016. Mount Tam Biotechnologies Inc. management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of, Mount Tam Biotechnologies, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a limited operating history and suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
Larkspur, CA
March 31, 2017
Mount TAM Biotechnologies, Inc.
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
375,499
|
|
|
$
|
5,447
|
|
Prepaid expense
|
|
|
4,171
|
|
|
|
-
|
|
Total Current Assets
|
|
|
379,669
|
|
|
|
5,447
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
379,669
|
|
|
$
|
5,447
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
593,421
|
|
|
$
|
406,361
|
|
Accounts payable and accrued liabilities- related parties
|
|
|
9,308
|
|
|
|
253,884
|
|
Notes payable
|
|
|
17,501
|
|
|
|
17,500
|
|
Convertible debenture, net of discount
|
|
|
-
|
|
|
|
108,411
|
|
Total Current Liabilities
|
|
|
620,230
|
|
|
|
786,156
|
|
|
|
|
|
|
|
|
|
|
Long Term Debt:
|
|
|
|
|
|
|
|
|
Convertible debenture, non-current, net of discount
|
|
|
553,640
|
|
|
|
-
|
|
Total Long Term Debt
|
|
|
553,640
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,173,870
|
|
|
|
786,156
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000
shares authorized; 47,846,984 and 43,171,300 shares
issued and outstanding
|
|
|
4,784
|
|
|
|
4,317
|
|
Stock subscription payable
|
|
|
(45)
|
|
|
|
(45)
|
|
Stock to be issued
|
|
|
57,895
|
|
|
|
42,500
|
|
Additional paid in capital
|
|
|
3,676,871
|
|
|
|
1,525,653
|
|
Accumulated deficit
|
|
|
(4,533,706)
|
|
|
|
(2,353,134)
|
|
Total Stockholders' Deficit
|
|
|
(794,201)
|
|
|
|
(780,709)
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
379,669
|
|
|
$
|
5,447
|
|
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc.
|
Consolidated Statements of Operations for the Year Ended
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating Expenses
|
|
|
|
|
|
|
Research and development
|
|
$
|
329,397
|
|
|
$
|
455,950
|
|
General and administrative
|
|
|
1,749,364
|
|
|
|
1,631,303
|
|
Total operating expenses
|
|
|
2,078,762
|
|
|
|
2,087,253
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,078,762
|
)
|
|
|
(2,087,253
|
)
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(14,331
|
)
|
|
|
(5,418
|
)
|
Amortization of debt discount
|
|
|
(87,479
|
)
|
|
|
(2,658
|
)
|
Total other expenses
|
|
|
(101,810
|
)
|
|
|
(8,076
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,180,571
|
)
|
|
$
|
(2,095,329
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares – basic and diluted
|
|
|
44,492,590
|
|
|
|
31,286,876
|
|
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc.
|
Consolidated Statement of Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Additional Paid in
Capital
|
|
|
Stock to be issued
|
|
|
Stock subscription
Payable
|
|
|
|
|
|
Total Stockholders'
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
|
24,000,000
|
|
|
$
|
2,400
|
|
|
$
|
(674
|
)
|
|
$
|
-
|
|
|
$
|
(50
|
)
|
|
$
|
(257,805
|
)
|
|
$
|
(256,129
|
)
|
Stock subscription received
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
5
|
|
Common stock retained by the TabacaleraYsidron shareholder in connection with the merger agreement
|
|
|
44,533,750
|
|
|
|
4,453
|
|
|
|
(72,001
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(67,548
|
)
|
Common stock issued on note conversion
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
999,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Common stock cancelled by the TabacaleraYsidron shareholder in connection with the merger agreement
|
|
|
(28,533,125
|
)
|
|
|
(2,853
|
)
|
|
|
(21,847
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,700
|
)
|
Common stock to be issued to Buck
|
|
|
-
|
|
|
|
-
|
|
|
|
(97
|
)
|
|
|
42,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,403
|
|
Common stock issued for cash
|
|
|
200,000
|
|
|
|
20
|
|
|
|
99,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Common stock issued for services
|
|
|
970,675
|
|
|
|
97
|
|
|
|
485,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
485,338
|
|
Beneficial conversion feature on the convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
35,251
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,251
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,095,329
|
)
|
|
|
(2,095,329
|
)
|
Balance as of December 31, 2015
|
|
|
43,171,300
|
|
|
$
|
4,317
|
|
|
$
|
1,525,653
|
|
|
$
|
42,500
|
|
|
$
|
(45
|
)
|
|
$
|
(2,353,134
|
)
|
|
$
|
(780,709
|
)
|
Shares issued to Buck
|
|
|
1,009,016
|
|
|
|
101
|
|
|
|
42,399
|
|
|
|
(42,500
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common stock to be issued to Buck
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,895
|
|
|
|
|
|
|
|
|
|
|
|
57,895
|
|
Buck settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
274,247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,247
|
|
Fair value of options
|
|
|
-
|
|
|
|
-
|
|
|
|
648,188
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
648,188
|
|
Beneficial conversion feature on the convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
119,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119,250
|
|
Common stock from private placement
|
|
|
3,666,668
|
|
|
|
366
|
|
|
|
1,067,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,067,500
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,180,571
|
)
|
|
|
(2,180,571
|
)
|
Balance as of December 31, 2016
|
|
|
47,846,984
|
|
|
$
|
4,784
|
|
|
$
|
3,676,871
|
|
|
$
|
57,895
|
|
|
$
|
(45
|
)
|
|
$
|
(4,533,706
|
)
|
|
$
|
(794,201
|
)
|
The accompanying notes are integral to these consolidated financial statements.
|
|
|
Mount TAM Biotechnologies, Inc.
|
Consolidated Statement of Cash Flows For The Year Ended
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,180,571
|
)
|
|
$
|
(2,095,329
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Fair value of options
|
|
|
648,188
|
|
|
|
-
|
|
Stock based compensation
|
|
|
57,895
|
|
|
|
527,741
|
|
Amortization of debt discount
|
|
|
87,479
|
|
|
|
2,658
|
|
Expenses paid by the note holder
|
|
|
-
|
|
|
|
66,004
|
|
Amortization of prepaid expenses
|
|
|
20,854
|
|
|
|
20,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(25,025
|
)
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
216,732
|
|
|
|
411,696
|
|
Net cash used in operating activities
|
|
|
(1,174,448
|
)
|
|
|
(1,067,230
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from loans
|
|
|
477,000
|
|
|
|
971,791
|
|
Proceeds from issuance of common stock
|
|
|
1,067,500
|
|
|
|
100,005
|
|
Net cash provided by financing activities
|
|
|
1,544,500
|
|
|
|
1,071,796
|
|
|
|
|
|
|
|
|
|
|
Net Increase in cash
|
|
|
370,052
|
|
|
|
4,566
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
5,447
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
375,499
|
|
|
$
|
5,447
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Waiver of payable-related parties transferred to additional paid in capital
|
|
$
|
274,247
|
|
|
$
|
-
|
|
Debt discount due to beneficial conversion feature on note
|
|
$
|
119,250
|
|
|
$
|
35,251
|
|
Shares issued as part of stock to be issued
|
|
$
|
45,000
|
|
|
$
|
-
|
|
Accrual of finance fees
|
|
$
|
-
|
|
|
$
|
30,000
|
|
Common stock issued for reverse merger recapitalization
|
|
$
|
-
|
|
|
$
|
67,548
|
|
Common stock issued for conversion of convertible notes
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
Common stock cancelled on reverse merger
|
|
$
|
-
|
|
|
$
|
24,700
|
|
Common stock to be issued to consultant due to recapitalization
|
|
$
|
-
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc.
Consolidated Financial Statements
For the year ended December 31, 2016
Note 1 – Nature of the Business
The terms "we," "us," "our," "registrant," and the "Company" refer to Mount Tam Biotechnologies, Inc., a Nevada corporation, and, where applicable, Mount Tam Biotechnologies, Inc., a Delaware corporation and our wholly-owned subsidiary ("Mount Tam"). The Company is an early-stage life sciences and technology company pursuing the development of bio-pharmaceuticals to treat autoimmune diseases. The Company intends to optimize and bring to market a portfolio of products focused on improving the health and wellbeing of individuals afflicted with autoimmune diseases. The Company is headquartered in the San Francisco Bay Area, and may go to market both vertically and horizontally by product/technology specialties and provide our customers with treatment options.
On August 13, 2015, Mount Tam entered into a Share Exchange and Conversion Agreement (the "Exchange Agreement") with the Company and certain other persons party thereto. Immediately following the effective time of the Exchange Agreement, Mount Tam's stockholders (as of immediately prior to the transactions contemplated by the Exchange Agreement (such transactions, the "Share Exchange")) owned approximately 57.14% of the Company's outstanding common stock and the Company's stockholders (as of immediately prior to the Share Exchange) owned approximately 42.86% of the Company's outstanding common stock. Additionally, following the Share Exchange, the business conducted by Mount Tam became the primary the business conducted by the Company.
As a result of the Share Exchange, Mount Tam became a wholly-owned subsidiary of the Company. However, the former stockholders of Mount Tam acquired a majority of the outstanding shares of the Company's common stock. In connection with the Share Exchange, a former shareholder of the Company agreed to surrender all of his shares of the Company's common stock in exchange for $30,000, and all of the issued and outstanding shares of Epicurean Cigars, Inc., which at the time was a wholly-owned subsidiary of the Company which had a nominal remaining net liability. The shares were returned to the Company, and the $30,000 due to the shareholder has been accrued as of December 31, 2015
.
Effective on August 31, 2015, the Company changed its name from TabacaleraYsidron, Inc. to Mount TAM Biotechnologies, Inc. The name change was effected through a parent/subsidiary short-form merger of Mount TAM Biotechnologies, Inc., our wholly-owned Nevada subsidiary which we formed solely for the purpose of the name change, with and into the Company, with the Company as the surviving corporation. With the exception of the name change, there were no changes to the Company's Articles of Incorporation or Bylaws. There will be no mandatory exchange of stock certificates. The Company's trading symbol on the OTC Markets (OTC Pink) marketplace was changed to "MNTM" from "TQBY".
Mount Tam Biotechnologies, Inc., the Company's wholly-owned legal subsidiary, was the "accounting acquirer," and for accounting purposes, the TYI was deemed as having been "acquired" in the Merger. The board of directors and officers that managed and operated Mount Tam immediately prior to the effective time of the Merger became the Company's board of directors and officers.
To meet its business objectives, Mount Tam formed a strategic partnership with the Buck Institute for Research on Aging ("Buck Institute"), an independent research facility focused on understanding the connection between aging and chronic disease. As part of the partnership, Mount Tam signed an exclusive worldwide licensing and collaboration agreement with the Buck Institute that includes many of the Buck Institute's intangible research and development assets in the area of autoimmune disorders. The initial focus of Mount Tam's research and development efforts will be a pre-clinical stage compound for the treatment and diagnosis of systemic lupus erythematosus, a common form of lupus. Mount Tam has not produced any revenues from the intangible research and development assets it acquired from Buck Institute and it has not commenced its planned principal operations.
The production and marketing of the Company's products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration under the Food, Drug and Cosmetic Act. In addition, the Company's success will depend in part on its ability to obtain and maintain patents, exploit its product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries.
The following reflects the Company's current, post-merger corporate structure (State of Incorporation):
Mount Tam Biotechnologies, Inc., formerly TabacaleraYsidron, Inc. (Nevada)
Mount Tam Biotechnologies, Inc. (Delaware)
The Company is a publicly-traded biotechnology company dedicated to speeding the delivery of new treatment options to patients affected by autoimmune diseases through the development and application of highly specialized drug targeting platforms and formulation expertise. The Company focuses on underserved patient populations where it can have the greatest potential impact. Mount Tam's clinical division advances clinical-stage product candidates towards marketing approval and commercialization.
The Company is subject to a number of risks, including: the need to raise capital through equity and/or debt financings; the uncertainty whether the Company's research and development efforts will result in successful commercial products; competition from larger organizations; reliance on licensing proprietary technology of others; dependence on key personnel; uncertain patent protection; and dependence on corporate partners and collaborators. See the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K.
History
The Company was established in November 2011 under the name TabacaleraYsidron. Mount Tam was incorporated on August 13, 2014 (date of inception). On August 13, 2014, Mount Tam issued 9,000,000 shares of common stock, $0.0001 par value, for $900.
On August 13, 2015, Mount Tam and the Company entered into the Exchange Agreement as described above.
The Share Exchange was treated as a reverse acquisition of the Company, a public shell company at the time, by Mount Tam for financial accounting and reporting purposes. As such, Mount Tam was treated as the acquirer for accounting and financial reporting purposes while the Company is treated as the acquired entity for accounting and financial reporting purposes. As a result of the Share Exchange, $50,048 account payable and $17,500 note payable of the Company was brought forward at their book values and no goodwill has been recognized. Prior to the Share Exchange, the Company was a non-operating public shell company with nominal operations and nominal assets.
Note 2 – Summary of Significant Accounting Policies
The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2016 are applied consistently in these consolidated financial statements.
Basis of Presentation
The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States. All intercompany accounts have been eliminated.
The Company's 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. Through December 31, 2016, the Company had accumulated losses of approximately $4,533,706 and a working capital deficit of $240,561. Management expects to incur further losses for the foreseeable future. The Company plans to continue to review strategic partnerships, collaborations and potential equity sales as a potential means to fund its preclinical and clinical programs in the future. Until the Company can generate sufficient levels of cash from its operations, the Company expects to continue to finance future cash needs primarily through proceeds from equity or debt financings, loans and collaborative agreements with corporate partners or through a business combination with a company that has such financing in order to be able to sustain its operations until the Company can achieve profitability and positive cash flows, if ever.
On August 13, 2015, upon the closing of the Share Exchange (as discussed further in Note 1, Business, and Note 6, Issuance of Common Stock), Mount Tam's stockholders exchanged each share of Mount Tam's common stock into 2.67 shares of the Company's common stock. Therefore, all shares of common stock are reported in these consolidated financial statements on a post-Share Exchange basis.
Management plans to seek additional debt and/or equity financing for the Company through private or public offerings or through a business combination or strategic partnership, but it cannot assure that such financing or transaction will be available on acceptable terms, or at all. The uncertainty of this situation raises substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the failure to continue as a going concern.
Use of Estimates
The preparation of the 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 liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amount on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and it does not believe it is exposed to any significant credit risk. As of December 31, 2016 and 2015 the Company had cash and cash equivalents of $375,499 and $5,447, respectively.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments including cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities and note payable approximate fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
Income Taxes
The Company utilizes FASB ASC 740, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is "more likely-than-not" that a deferred tax asset will not be realized.
The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company's realization of the net operating loss carry forward prior to its expiration.
We utilize the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statements and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need for valuation allowances we consider projected future taxable income and the availability of tax planning strategies. If in the future we determine that we would not be able to realize our recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.
We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is greater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that bas full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained no tax benefit bas been recognized in the consolidated financia1 statements.
Research and Development costs
The Company follows Accounting Standards Codification Subtopic ("ASC") 730-10, "Research and Development," in which research and development costs are charged to the statement of operations as incurred. During the year ended December 31, 2016 and 2015 the Company incurred $329,397 and $455,950, respectively of expenses related to research and development costs.
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under ASC 260-10, "Earnings Per Share". Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the "treasury stock" method), unless their effect on net loss per share is anti-dilutive. There were no potentially dilutive shares for the year ended December 31, 2016.
The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Options to purchase common stock
|
|
6,465,000
|
|
|
|
-
|
|
Convertible notes
|
|
|
2,647,933
|
|
|
|
-
|
|
Potential equivalent shares excluded
|
|
|
9,112,933
|
|
|
|
-
|
|
Accounts Payable
Accounts payable and accrued expenses include the following as of December 31, 2016 and 2015:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Accounts payable
|
|
$
|
335,249
|
|
|
$
|
277,719
|
|
Accounts payable to related parties
|
|
|
9,308
|
|
|
|
253,884
|
|
Accrued legal fees
|
|
|
145,279
|
|
|
|
65,383
|
|
Accrued interest
|
|
|
19,897
|
|
|
|
-
|
|
Accrued salary
|
|
|
92,996
|
|
|
|
56,970
|
|
Other current liabilities
|
|
|
-
|
|
|
|
6,289
|
|
Total accounts payable and accrued expenses
|
|
$
|
602,729
|
|
|
$
|
660,245
|
|
Fair Value Measurements
The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
For the year ended December 31, 2016, the Company has determined that there we no assets or liabilities measured at fair value on a recurring basis.
The Company believes the carrying amounts of Cash and cash equivalents, other current assets, accounts payable, accrued expenses salaries, wages and payroll taxes, and other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
Going Concern
The Company's financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has no significant operating history and had a cumulative net loss from inception (August 13, 2014) to December 31, 2016 of $4,533,706. The Company has a working capital deficit (current liabilities minus current assets) of $240,561 as of December 31, 2016. Since inception, the Company has been funded through debt and equity financings. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying financial statements for the period ended December 31, 2016, have been prepared assuming the Company will continue as a going concern. The Company believes its cash resources are insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and clinical trials and commercialization of its product candidates. In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management's plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business. Since its inception, the Company has funded its operations primarily through debt financings and it expects that it will continue to fund its operations through a mix of equity and debt financings. If the Company secures additional financing by issuing equity securities, its existing stockholders' ownership will be diluted. The Company also expects to pursue non-dilutive financing sources. However, obtaining such financing would require significant efforts by the Company's management team, and such financing may not be available, and if available, could take a long period of time to obtain. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. For the periods presented, comprehensive loss did not differ from net loss.
Collaborative Arrangements
The Company and its collaborative partners are active participants in the collaborative arrangements and both parties are exposed to significant risks and rewards depending on the commercial success of the activity. The Company records all expenses related to collaborative arrangements as research and development expense in the consolidated statements of operations as incurred.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Going Concern ("ASU 2014-15"). ASU 2014-15 provides GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard did not have a material impact on the Company's financial statements..
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest – Imputation of Interest: Simplifying the presentation of Debt Issuance Costs ("ASU 2015-03"). The standard requires entities to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset, and the amortization is reported as interest expense. The result of application of this guidance would be to reduce the deferred financing costs balance, with a corresponding reduction to the long term liabilities to which the debt issuance costs relate in the balance sheets. The standard does not affect recognition and measurement of debt issuance costs. The Company expects to adopt ASU 2015-03 on January 1, 2016.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory: Simplifying the Measurement of Inventory ("ASU 2015-11"). The standard requires inventory within the scope of the ASU to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using LIFO or retail inventory method, and are intended to more clearly articulate the requirements for the measurement and disclosure of inventory and to simplify the accounting for inventory by eliminating the notions of replacement cost and net realizable value less a normal profit margin. The standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company does not believe the adoption of this standard will have a significant impact on the Company's financial statements.
ASC 915, "Development Stage Entities", is being superseded by FASB ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810 Consolidation ("ASU 2014-10"). The amendments made by ASU 2014-10 are effective for public companies for annual reporting periods beginning after December 15, 2014 and interim period therein. For private entities, the amendments are effective for annual reporting periods beginning after December 15, 2014, and for interim reporting periods beginning after December 15, 2015. The future adoption of ASU 2014-10 is not expected to have a material impact on the Company's financial statements.
Recent Accounting Pronouncements Issued But Not Adopted as of December 31, 2016
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Clarifying the Definition of a Business
("ASU 2017-01"). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on the Company's consolidated financial statements if it enters into future business combinations.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Simplifying the Test for Goodwill Impairment
("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18,
Restricted Cash (a consensus of the FASB Emerging Issue Task Force)
("ASU 2016-18"). This new standard addresses the diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within the year of adoption, with early adoption permitted. The Company does not expect that the adoption of ASU 2016-18 will have a material impact on its consolidated financial statements.
In August, 2016, the FASB issued Accounting Standards Update No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
("ASU 2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230,
Statement of Cash Flows
. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas of simplification apply only to nonpublic entities. For public business entities, the amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
(Topic 842) ("ASU 2016-02"). ASU 2016-02 addresses the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation allowance against the Company's net deferred tax assets.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard is not expected to have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement," which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
In April 2015, the FASB issued guidance related to a customer's accounting for fees paid in a cloud computing arrangement. This standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015, and early adoption is permitted. The Company will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a material impact on its financial position, results of operations or cash flows.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, "Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)," effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. The adoption of ASU 2014-16 will not have a significant impact on the Company's financial position or results of operations.
In November 2014, the FASB issued ASU 2014-16, "Derivatives and Hedging (Topic 815)." Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-16 will not have a significant impact on the Company's financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This standard provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for annual reporting periods ending after December 15, 2016, and early adoption is permitted. The Company expects to adopt this guidance on January 1, 2017. The Company is currently evaluating the potential impact, if any, the adoption of ASU 2014-15 will have on footnote disclosures, however, the Company does not expect the adoption of this guidance to have any impact on its financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," on revenue recognition. This guidance provides that an entity should 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. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date. As a result, we expect to adopt this guidance on January 1, 2018. The Company has not yet determined its approach to adoption or the impact the adoption of this guidance will have on its financial position, results of operations or cash flows, if any.
In the second quarter of 2014, the FASB issued guidance applicable to revenue recognition that will be effective for the Company for the year ending December 31, 2018. The new guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance applies a more principles-based approach to recognizing revenue. The Company expects to adopt this new guidance in the first quarter of 2018 using the modified retrospective method. The adoption may have a material effect on the Company's financial statements. The Company's revenues are derived primarily from license and collaboration agreements. The consideration the Company is eligible to receive under these agreements includes upfront payments, research and development funding, milestone payments, and royalties. Each collaboration agreement is unique and will need to be assessed separately under the five-step process under the new standard. The new guidance differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments. Under the current accounting policy, the Company recognizes milestone revenue using the milestone method specified in ASC 605-28, which generally results in the recognition of the milestone payment as revenue in the period that the milestone is achieved. However, under the new accounting standard, it is possible to start to recognize milestone revenue before the milestone is achieved, subject to management's assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
Note 3 - Income Taxes
Deferred tax assets (liabilities) are comprised of the following at December 31:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
1,268,187
|
|
|
$
|
717,737
|
|
Stock compensation
|
|
|
228,141
|
|
|
|
210,199
|
|
Change in fair value
|
|
|
218,343
|
|
|
|
-
|
|
Debt discount
|
|
|
34,843
|
|
|
|
-
|
|
Accrued interest
|
|
|
40,734
|
|
|
|
307
|
|
Start up expense
|
|
|
7,972
|
|
|
|
8,436
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,798,220
|
|
|
|
936,679
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(1,798,220
|
)
|
|
|
(936,679
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2016 and 2015, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2016, net operating loss carryforwards were approximately $3.1 million for federal and state tax purposes that expire at various dates from 2034
Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the "change in ownership" provisions of the Internal Revenue Code Sections 382 and 383. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.
The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2016 and 2015) to income taxes as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Tax benefit computed at 34%
|
|
$
|
(741,000
|
)
|
|
$
|
(712,000
|
)
|
State taxes, net of federal effect
|
|
|
(126,427
|
)
|
|
|
(121,483
|
)
|
Other
|
|
|
5,885
|
|
|
|
513,804
|
|
Valuation allowance
|
|
|
861,542
|
|
|
|
319,679
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
ASC 740 clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold, measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Under ASC 740, we are required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. There were no unrecognized tax benefits recorded as of December 31, 2016, and 2015. Furthermore, substantially all of the Company's tax years, from 2014, remain open to federal and state tax examinations.
Note 4 – Loans
In 2014, the Company executed an agreement with a third-party investor whereby the Company issued $53,209 in a convertible promissory note. This convertible note bears an interest rate of 8% per year and was set to mature on November 26, 2015. The Company subsequently received an advance of $50,000 from the same party. The proceeds from these loans were used for working capital purposes. During the year ended December 31, 2015, both of these loans were consolidated into a new convertible note (see Note 5).
As a result of the Share Exchange, the Company assumed an obligation to a former note holder in the amount of $17,500. The unsecured promissory note in the amount of $15,000 is to an unrelated party. Pursuant to the terms of the note, the note is interest bearing at 3.5% and is due on demand. As of December 31, 2016, the Company has accrued interest of $1,744. Another unsecured promissory note is of $2,500 to an unrelated party. Pursuant to the terms of the note, the note is non-interest bearing and is due on demand. The Company is currently assessing how to revise the terms of this note.
Note 5 – Convertible Notes
On January 2, 2015, the Company issued a convertible promissory note in the principal amount of $400,000 to a third party investor, which included $53,209 in principal amount for a previously issued note (see Note 4) at a conversion price of $0.50. Such note bears an interest rate of 1% per year and matures on September 2, 2015. On August 13, 2015, this note was fully converted into 800,000 shares of common stock.
On March 19, 2015, the Company issued a convertible promissory note in the principal amount of $600,000 at a conversion price of $0.50. This note bears an interest rate of 1% per year and matures on December 31, 2015. On August 13, 2015, this note was fully converted into 1,200,000 shares of common stock.
In connection with the above convertible note, the Company accrued $60,000 for finance fees to be amortized over the life of the note. As of December 31, 2015, $60,000 of the finance fees was expensed.
On November 9, 2015, the Company borrowed $66,004 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015, the Company had principal outstanding in the promissory note of $66,004 and accrued interest of $282. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $16,501. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $1,733.
On November 15, 2015, the Company borrowed $25,000 from the Lender through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015, the Company had principal outstanding in the promissory note of $25,000 and accrued interest of $86. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $6,250. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $541.
On December 17, 2015, the Company borrowed $50,000 from the Lender through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015, the Company had principal outstanding in the promissory note of $50,000 and accrued interest of $57. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $12,500. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $383.
During the year ended December 31, 2015, the Company in total borrowed $141,004 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock.
During the year ended December 31, 2016, the Company borrowed $477,000 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock.
The initial fair value of the beneficial conversion feature of the note on the date of issuance was determined to be $154,501. Out of this amount, $119,250 pertains to the notes issued during the twelve months ended December 31, 2016. The value of beneficial conversion feature is being amortized over the life of the loan. For the twelve months ended December 31, 2016, the Company amortized the debt discount of $87,478, respectively. The unamortized debt discount as of December 31, 2016 and 2015 is $64,365 and $32,593 respectively.
On March 23, 2016, all of the previous loans provided by the Lender were consolidated into the Secured Note (defined below) which amends, restates and modifies the terms of the previous loans to the terms set forth in the Secured Note and contains other terms and conditions as described in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 31, 2016.
On June 13, 2016, the Company and the Lender entered into an amended agreement regarding the aggregate principal amount of indebtedness and maturity date, which may be outstanding pursuant to that certain Secured Convertible Promissory Note issued by the Lender to the Company effective as of November 9, 2015 (the "Secured Note"). On June 13, 2016 the Secured Note was amended, as described in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2016.
The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. The Lender and the Company agreed that the aggregate principal amount of all outstanding loans made under the Secured Note shall not exceed $5,000,000 at any time, and the maturity was extended to March 18, 2018. Terms of the Secured Note include the obligation to convert the loan at a financing with gross proceeds to the Company (if such financing is led by an institutional investor or contains commercially reasonable terms and conditions for an early stage biopharmaceutical company) of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing.
As of December 31, 2015 the Company had principal outstanding on this Secured Note of $141,004 and accrued interest of $426.
As of December 31, 2016, the Company had principal outstanding on this Secured Note of $618,004 and accrued interest of $13,723. Total interest expenses for the twelve months ended December 31, 2016 was $13,297.
Note 6 – Capital Stock
Share Exchange
Pursuant to the Exchange Agreement, upon consummation of the Share Exchange, each share of Mount Tam's capital stock issued and outstanding immediately prior to the Share Exchange was exchanged for 2.67
shares of the Company's common stock, par value $0.0001 per share. As a condition to the closing of the Share Exchange, the former shareholder described in Note 1 agreed to cancel 28,533,125 certain shares of common stock of the Company and the then-current Company stockholders retained an aggregate of 16,000,625 shares of common stock. As a result of the Share Exchange, the Company issued a total of 26,000,000 shares of common stock to the shareholders and existing note holders of Mount Tam.
Common Stock
The Company has authority to issue up to 100,000,000 shares, par value $0.0001 per share. As of December 31, 2016, there were 47,846,984 shares of the Company's common stock issued and outstanding.
Mount Tam has an agreement with The Buck Institute as further detailed in Note 7 to maintain a certain common stock equity interest in the Company. As of December 31, 2016 and 2015 the Company owed to the Buck Institute 192,983 and 1,009,016 shares respectively, as a result of the Share Exchange and subsequent issuances of common stock. In 2016, the 192,983 shares were treated as issued for services and valued at $57,895. Out of the 1,009,016 shares to be issued in 2015, 957,928 shares were treated as a component of the recapitalization of the Company, while the balance of 51,088 shares were treated as issued for service and valued at $42,403.
During the year ended December 31, 2016, the Company issued 1,009,016 shares of common stock to The Buck Institute for stock to be issued which were accounted in prior period.
During the year ended December 31, 2016, the Company reached a settlement agreement with The Buck Institute to waive of $274,247 of balance payable by the Company, which was credited to additional paid in capital.
On August 3, 2016 the Company entered into a Placement Agent Agreement with Colorado Financial Services Corporation ("CFSC") for a best efforts private placement of its common stock to investors (the "Offering"). The term of the engagement is 12 months. Either party may terminate the engagement earlier upon 10 days prior written notice. In connection with this engagement, the Company shall pay CFSC a cash fee of ten percent (7.5%) of gross proceeds from sales of Securities placed by CFSC in the Offering and two and half percent (2.5%) of gross proceeds of investors introduced by Company. As additional compensation for services, the Company will, upon consummation of the Offering (ie $5,000,000), issue to CFSC warrants to purchase a number of shares of common stock of the Company equal to 500,000 shares at an exercise price of $0.50 per share. The warrants will have a term of 3 years from the date of issuance and have such other terms and conditions as shall be mutually agreed upon, including a cashless exercise feature.
On August 5, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 2,000,000 shares of the Company's common stock for an aggregate purchase price of $1,000,000. The Company incurred $25,000 as cash fee expenses towards the placement agent. In November 2016 the Company lowered the offering price of the common shares being offered in a private placement to $0.30 per share to attract additional investors. The Company has agreed to issue 1,333,333 additional shares to the investor who invested $1,000,000 on August 5, 2016, which adjust its purchase price to $0.30 per share. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
In connection with the above sales of shares the Company paid a cash fees of 2.5% ie $25,000 since it was not directly introduced by the placement agent. Also the offering of $5,000,000 was not completed hence the Company is not liable to issue any warrants
On November 2, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 166,666 shares of the Company's common stock for an aggregate purchase price of $50,000. The Company incurred $3,750 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
On December 10, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 166,666 shares of the Company's common stock for an aggregate purchase price of $50,000. The Company incurred $3,750 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
In connection with the above sales of shares the Company paid a cash fees of 7.5% ie $7,500 since the offering of $5,000,000 was not completed hence the Company is not liable to issue any warrants.
On September 19, 2015 the Company sold an additional 200,000 shares of common stock at a price of $0.50 to an accredited investor for cash of $100,000. As of December 31, 2015, these shares have been issued. The issuance was exempt from registration pursuant to Regulation D under the Securities Act of 1933, as amended.
The Company has agreement with third party for consulting service provided. As of December 31, 2015 the Company issued 890,675 shares of common stock valued at $445,338. The fair value of the shares issued was based on the price the Company sold common shares to third-party investors.
The Company has an agreement with the third party for consulting service provided. As of December 31, 2015 the Company issued 80,000 shares of its common stock valued at $40,000.
Stock Options
The Company's Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the "2016 Plan") on May 12, 2016. A majority of the stockholders approved the 2016 Plan by written consent on June 27, 2016. A copy of the 2016 Plan is included as Exhibit A to the Company's Information Statement filed with the SEC on July 11, 2016.
On May 2, 2016, the Company granted options to purchase up to 6,330,000 shares of Common Stock under the Plan in the aggregate, with an exercise price of $0.59 per share. Options will vest as per below table
Name
|
Number of Stock Options
|
Vesting Schedule
|
Richard Marshak (CEO)
|
4,200,000
|
Options Vesting over 4 years, 25% (1,050,000 options) per year
|
Tim Powers (CSO)
|
1,120,000
|
Options Vesting over 3 years. 33.33% (373,333 options) per year
|
Jim Stapleton (CFO)
|
750,000
|
Options vesting over 4 years, 25% (187,500 options) per year
|
Brian Kennedy (Chairman)
|
250,000
|
Options vesting over 4 years, 25% (62,500) per year
|
Juniper Pennypacker (consultant - assistant to Brian Kennedy)
|
10,000
|
Options vesting over 4 years, 25% (2,500 options) per year
|
On October 2, 2016, the Company granted options to purchase up to 135,000 shares of Common Stock under the Plan in the aggregate, with an exercise price of $0.40 per share. Options will vest as per below table
Name
|
Number of Stock Options
|
Vesting Schedule
|
Bryan Cox (consultant)
|
100,000
|
Options Vesting over 4 years, 25% (25,000 options) per year
|
Jim Stolzenbach (consultant)
|
35,000
|
Options vesting over 4 years, 25% (8,750) per year
|
Stock-based compensation expense related to vested options was $648,188 for the twelve months ended December 31, 2016. The Company determined the value of share-based compensation using the Black-Scholes fair value option-pricing model using the following weighted average assumptions for options granted during the year ended December 31, 2016.
|
|
Date of Grant
|
|
Expected term (years)
|
|
|
10
|
|
Expected volatility
|
|
|
131%-153
|
%
|
Risk-free interest rate
|
|
|
1.26%-1.32
|
%
|
Dividend yield
|
|
|
0
|
%
|
As summary of option activity under the 2016 Plan as of December 31, 2016, and changes during the period then ended is presented below:
Options
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
6,465,000
|
|
|
|
0.59
|
|
|
|
9.35
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
6,465,000
|
|
|
$
|
0.59
|
|
|
|
9.35
|
|
|
$
|
-
|
|
Exercisable at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
As of December 31, 2016, there was $3,065,529 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years.
Note 7 – Commitments & Contingencies
From time to time Mount Tam may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company's financial position or results of operations.
On August 17, 2014, the Company entered into an agreement with Buck Institute for licenses of certain patents held by Buck Institute (the "License Agreement"). In connection with this agreement, Mount Tam agreed to pay Buck Institute for research and development activities. Mount Tam will pay Buck Institute in eight equal installments of $75,000 each for conducting research and development. In March 2015, the payment terms were revised so that Mount Tam still pays the Research Funding amount in eight (8) equal installments of seventy-five thousand dollars ($75,000) each and the installments shall be payable as follows: the first, second and third installments (together $225,000) shall all be payable by April 1, 2015, and each subsequent installment shall be payable three (3) months after the date on which the prior installments was payable, with the fourth installment payable July 1, 2015, three (3) months after the first three payments were made, and the final installments payable fifteen (15) months after the first through third installments were made.
In addition, the Company issued to Buck Institute that number of shares equal to 5% of the Company's total outstanding shares. Buck Institute's equity interest in the Company will not be reduced below 5% of the total aggregate shares of Common Stock until such time that the Company has raised and received a total of $5,000,000 of investment in equity, debt, grants, contributions, or donations. As of December 31, 2016, the Company has issued 2,209,016 shares of the Company's Common Stock to Buck Institute and committed to issue 192,983 shares of the Company Common stock as additional shares. Additionally, the Company agreed to pay one-time milestone payments upon the first occurrence of the corresponding milestone events as set forth in the table below.
Milestone Event
|
|
Milestone
Payment
|
|
Filing of an IND
|
|
$
|
50,000
|
|
Completion of the first Phase I Clinical Trial of a Licensed Product
|
|
$
|
250,000
|
|
Completion of the first Phase II Clinical Trial of a Licensed Product
|
|
$
|
500,000
|
|
Completion of the first Phase III Clinical Trial of a Licensed Product
|
|
$
|
1,000,000
|
|
As of December 31, 2016 none of the milestone events had yet been achieved.
Mount Tam also agreed to pay Buck Institute non-refundable and non-creditable royalties in the amount of 2% of the annual aggregate net sales. For each licensed product for which Mount Tam grants worldwide sublicense rights to a third party, Mount Tam agreed to pay Buck Institute 20% of all sub-license revenues. Please see discussion in Item 1, Business, Intellectual Property and Licenses, for further discussion of recent communication with the Buck Institute regarding our agreement with them.
Within 30 days after the date on which the Company raises and receives a total of $1,000,000 of investment in equity, debt, grants, contributions, or donations, the Company shall reimburse Buck Institute for 100% of the patent expenses for the Product Patents and 50% of the patent expenses for the Program Patents, incurred by Buck Institute as defined in the Licensing Agreement. Per amended agreement dated March 2015, the Company shall reimburse Buck Institute for 100% of the patent expenses for the Product Patents and 50% of the Patent Expenses for the Program Patents, incurred by Buck Institute incurred on or before April 1, 2015.
During the second quarter of 2016 the Company entered into negotiations with the Buck Institute to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease. On July 18, 2016, the Company entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") between the Company and The Buck Institute.
By way of background, and as previously disclosed in the Company's public filings, the Company previously entered into a Research Collaboration and License Agreement (the "Buck Institute License Agreement") with the Buck Institute, which establishes a joint research effort led by Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. The Company agreed to provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the terms of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. (Additional information about the Buck Institute License Agreement, together with prior amendments thereto, may be found in the Company's public filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2015.)
Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.
Additionally, pursuant to the Amendment, the parties agreed to settle past research funding amounts owed by the Company to The Buck Institute. The Company agreed to pay $40,000 within ten days of the execution of the Amendment, and The Buck Institute agreed that once this amount is paid, the Company will be deemed to be in full compliance with the terms of the License Agreement, including its payment obligations. On July 19, 2016, the Company made the $40,000 payment to The Buck Institute. In addition to the $40,000 payment, on June 13, 2016, the Company paid to The Buck Institute $11,706 in connection with costs incurred to further the Company's intellectual property position under the License Agreement. Pursuant to the above amendment The Buck Institute waived $274,247 of payable by the Company.
Moreover, the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders.)
On January 2, 2015, the Company entered into an employment agreement with its former Vice President, Research and Development. The employment agreement requires annual base salary payments of $150,000 per year. In addition, the Company has agreed to grant this executive stock options to purchase up to 360,000 shares of common stock. On August 10, 2015, this employee's employment agreement was amended as a result of his appointment to become the Company's Chief Executive Officer, and to change the number of expected to be granted options to 1,160,000 shares of the Company's Common Stock. As of December 31, 2016 these options were issued.
On January 2, 2015, the Company entered into a license and service agreement with Buck Institute. In connection with the agreement, the Company agreed to pay Buck Institute an annual fee of $24,500 to procure access to certain office space in the facility in order to conduct research and facilitate its research and development program. The agreement was amended in September 2015 to reduce an annual fee to $9,500. This agreement was terminated in February 2017. In 2016 The Buck billed the Company $9,875 for office space fees plus a $2,000 administration fee, for a total of $11,875 for office space and administration services. For the fiscal year ended December 31, 2016, the Company paid $13,199 to the Buck for office space, which includes $2,125 of expense from 2015.
On August 13, 2015, the Company has assumed the employment agreement that Dr. Powers, the previous CEO, had with Mount Tam.
Effective February 8, 2016 Dr. Timothy Powers resigned as Chief Executive Officer of Mount Tam Biotechnologies, Inc. (the "Company"). There were no disagreements between Dr. Powers and the Company on any matter relating to the Company's operations, policies or practices that resulted in his resignation. Dr. Powers will remain a member of the Company's Board of Directors.
In May 2016 Mr. Powers became the Company's Chief Scientific Officer.
On March 29, 2016, the Company and Dr. Richard Marshak entered into an Amended and Restated Employment Agreement (the "Marshak Employment Agreement"), which amends and restates the terms of the Employment Agreement dated as of March 22, 2016 by and between the Company and Dr. Marshak, and pursuant to which Dr. Marshak (i) continued his position as the Chief Executive Officer of the Company and (ii) is entitled to be appointed to the Company's Board of Directors promptly thereafter. The initial term of Dr. Marshak's employment expires on March 22, 2019 and thereafter, the Marshak Employment Agreement may be renewed for additional one year terms upon the mutual agreement of the parties, subject in each case to the termination provisions described therein.
The Company will pay Dr. Marshak an aggregate base annual salary of $300,000, payable on a bi-weekly or semi-monthly basis. In addition, Dr. Marshak shall (i) be entitled to three (3) weeks of paid time off, (ii) have the right to participate in the Company's general employee benefit plan(s), (iii) have the right to participate in an executive bonus plan and receive other bonus payments as determined by the Company's Board of Directors and (iv) be entitled to be reimbursed for reasonable business expenses. Subject to the approval of the Board of Directors and the approval of certain other actions, Dr. Marshak received an option to purchase 4,200,000 shares of Common Stock which shall vest and be governed by the terms of the Plan and an award agreement to be entered into by and between the Company and Dr. Marshak. Upon the occurrence of a change of control transaction or the termination of Dr. Marshak's employment by the Company without cause or by Dr. Marshak for good reason, all unvested options or shares of restricted Common Stock shall immediately vest and either be exercisable or no longer subject to any restrictions, as applicable. In addition to other standard and customary payments receivable in connection with the termination of Dr. Marshak's employment, he shall be entitled to receive a severance payment equal to his base salary per month for the lesser of the number of months remaining in the current term of his employment or 18 months.
The Marshak Employment Agreement also prohibits Dr. Marshak from competing with the Company during the term of the Marshak Employment Agreement (with certain limited exceptions) and from soliciting or making known employees of the Company for a period of two (2) years following termination of the Marshak Employment Agreement. The foregoing is qualified in its entirety by reference to the terms of the Marshak Employment Agreement, which is filed as Exhibit 10.4 to our Form 8-K filed with the SEC on March 31, 2016.
On May 2, 2016, the Company entered into an employment agreement with its current Chief Financial Officer, James Stapleton (the "Stapleton Employment Agreement"). The Stapleton Employment Agreement requires annual base salary payments of $175,000 per year. Further, Mr. Stapleton is entitled to a one-time bonus of $40,000 payable upon the Company's achievement of certain financial targets. In addition, the Company granted Mr. Stapleton an option to purchase up to 750,000 shares of Common Stock. The foregoing is qualified in its entirety by reference to the terms of the Stapleton Employment Agreement, which is filed as Exhibit 10.1 to our Form 8-K filed with the SEC on April 26, 2016.
On August 3, 2016 the Company entered into a Placement Agent Agreement with Colorado Financial Services Corporation ("CFSC") for a best efforts private placement of it's common stock to investors. The term of the engagement is 12 months. Either party may terminate the engagement earlier upon 10 days prior written notice. In connection with this engagement, the Company shall pay CFSC a cash fee of ten percent (7.5%) of gross proceeds from sales of Securities placed by CFSC in the Offering and two and half percent (2.5%) of gross proceeds of investors introduced by Company. As additional compensation for services, the Company will, upon consummation of the Offering (ie $5,000,000), issue to CFSC warrants to purchase a number of shares of common stock of the Company equal to 500,000 shares at an exercise price of $0.50 per share. The warrants will have a term of 3 years from the date of issuance and have such other terms and conditions as shall be mutually agreed upon, including a cashless exercise feature.
On February 10, 2017, the Company entered into an office lease agreement for office space in Novato, CA, for a term of six months, effective March 1, 2017, with a monthly lease payment of $818.40.
Note 8 – Related Party Transactions
In November 2014, we entered into a consulting agreement with a services firm, Wells Compliance Group, that is owned by our former interim Chief Financial Officer. As compensation for its services, Wells Compliance Group is to be paid $3,500 per month. As of December 31, 2016 and 2015 our accounts payable to the Wells Compliance Group was $0 and $15,110, respectively. During the year ended December 31, 2016 and 2015, the Company expensed $21,500 and $31,500, respectively, for the services provided by Wells Compliance Group. As of May, 2, 2016, Wells Compliance and the Company terminated the consulting agreement.
Pursuant to our agreements with the Buck Institute and with our Chairman of the Board Brian Kennedy (Professor and Principal Investigator at the Buck Institute), the Buck Institute is deemed a related party. Please see Note 7, Commitments and Contingencies, for discussion of our liabilities and obligations with the Buck Institute. As December 31, 2016 and 2015, the Company expensed $103,524 and $592,470 respectively, for the services provided by Buck Institute, respectively. As of December 31, 2016 the Company owed to the Buck Institute 192,983 shares, as a result of the Share Exchange transaction and subsequent issuances of common stock. The 192,983 shares to be issued were treated as issued for service and valued at $57,895. As of December 31, 2016 and 2015 our accounts payable balance to Buck Institute was $9,308 and $253,884, respectively.
In the year 2016, Buck Institute billed the Company for office space and administration services (Note 7).
See Note 5 for a description of the loans the Company received from 0851229 BC Ltd deemed a related party as a result of owning more than 10% of the Company's common stock.
In December 2015, we entered into an agreement with Lemon Fair Consulting, which is owned by our Chief Executive Officer, Dr. Richard Marshak. The agreement terminated when Dr. Marshak became our CEO on March 29, 2016. During the twelve months ended December 31, 2016, the Company paid $34,390 for the services provided by Lemon Fair Consulting during the first quarter of 2016. As December 31, 2016 our accounts payable to the Lemon Fair Consulting was $0.
Note 9 – Subsequent Events
Private Placement
On February 27, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 833,334 shares of the Company's common stock for an aggregate purchase price of $250,000. On February 28, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. On March 3, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. The Company incurred $7,500 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from these investments for research and development activities, general corporate and working capital purposes.
On February 10, 2017, the Company entered into an office lease agreement for office space in Novato, CA, for a term of six months, effective March 1, 2017, with a monthly lease payment of $818.40.