CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
NOTE
1 -
ORGANIZATION AND NATURE OF OPERATIONS
OncBioMune
Pharmaceuticals, Inc. (the “Company,” “we,” “us” or “our”) is a biotechnology
company specializing in innovative cancer treatment therapies. The Company has proprietary rights to a breast and prostate patent
vaccine, as well as a process for the growth of cancer tumors. The Company’s mission is to improve the overall patient condition
through innovative bio immunotherapy with proven treatment protocols, to lower deaths associated with cancer and reduce the cost
of cancer treatment. The Company’s technology is safe, and utilizes clinically proven research methods of treatment to provide
optimal success of patient recovery.
On
August 19, 2016, the Company and Vitel Laboratorios, S.A. de C.V., a Mexican variable stock corporation (“Vitel”)
entered into a Shareholders’ Agreement related to the launch of Oncbiomune México, S.A. De C.V. (“Oncbiomune
Mexico”) for the purposes of developing and commercializing the Company’s PROSCAVAX vaccine technology and cancer
technologies in México, Central and Latin America (“MALA”). Under the terms of the Shareholders Agreement,
the Company agreed to assign to Oncbiomune Mexico limited patent and intellectual property rights and trademarks related to its
OVCAVAX, PROSCAVAX vaccine technology and cancer technologies and future developments related to these technologies. Through March
10, 2017, the Company and Vitel each owned 50% of Oncbiomune Mexico and Oncbiomune Mexico was treated as an equity-method investee
for accounting purposes. Oncbiomune Mexico had minimal activity in 2016 and through March 10, 2017. On March 10, 2017, Oncbiomune
Mexico became a wholly owned subsidiary of the Company.
On
March 10, 2017 (the “Closing Date”), the Company completed the acquisition of 100% of the issued and outstanding capital
stock of Vitel from its shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel
Stockholders”) pursuant to the terms and conditions of a Contribution Agreement to the Property of Trust F/2868 entered
into among the Company and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”). Vitel is a revenue-stage
Mexico-based pharmaceutical company that sells generic drugs in MALA. The Company acquired Vitel for the purpose of commercializing
the Company’s PROSCAVAX vaccine technology and cancer technologies in MALA and to utilize Vitel’s distribution network
and customer and industry relationships.
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and
Oncbiomune México due to disputes with the original Vitel Stockholders and resulting loss of operational control of the
assets and operations of Vitel and OncBiomune Mexico. Accordingly, Vitel and Oncbiomune México were treated as a discontinued
operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (See Note 3).
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principles of consolidation
The
Company’s consolidated financial statements include the financial statements of OncBioMune Pharmaceuticals, Inc. and its
wholly-owned subsidiaries, OncBioMune, Inc. (for all periods presented) and, Vitel and Oncbiomune México, S.A. De C.V.
(from March 10, 2017 to December 31, 2017). All significant intercompany accounts and transactions have been eliminated in consolidation.
Management
acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements
which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement
of its financial position and the results of its operations for the periods presented. The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation
S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year
as a whole. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S.
GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not
include all the information and notes necessary for comprehensive financial statements These unaudited condensed consolidated
financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated
financial statements for the years ended December 31, 2017 and 2016 of the Company which were included in the Company’s
annual report on Form 10-K as filed with the Securities and Exchange Commission on May 31, 2018.
Going
concern
These
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying unaudited condensed
consolidated financial statements, the Company had net loss from operations of $789,784 and $1,500,402 for the six months ended
June 30, 2018 and 2017, respectively. The net cash used in operations were $672,786 and $1,285,330 for the six months ended June
30, 2018 and 2017, respectively. Additionally, the Company had an accumulated deficit of $19,047,144 and $23,655,989 at June 30,
2018 and December 31, 2017, respectively, had a stockholders’ deficit of $9,803,197 and $14,808,978 at June 30, 2018 and
December 31, 2017, respectively, and had a working capital deficit of $9,815,070 at June 30, 2018, had no revenues from continuing
operations since inception, and is currently in default on certain convertible debt instruments. Management believes that these
matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance
date of this report.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for the fiscal year ending December 31, 2018. The Company will seek to raise capital through
additional debt and/or equity financings to fund its operations in the future.
Although
the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance
that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in
the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
Use
of estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates during the six months ended June 30, 2018 and 2017 include the valuation
of assets and liabilities of discontinued operations, useful life of property and equipment, assumptions used in assessing impairment
of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash
equity transactions, the valuation of derivative liabilities, and the fair value of assets acquired and liabilities assumed in
the business acquisition.
Concentrations
Generally,
the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products.
Any production shortfall that impairs the supply of the antigen in ProscaVax to the Company could have a material adverse effect
on the Company’s business, financial condition and results of operations. If the Company is unable to obtain a sufficient
quantity of antigen, there could be a substantial delay in successfully developing a second source supplier.
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC
820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company
on June 30, 2018 and December 31, 2017. Accordingly, the estimates presented in these financial statements are not necessarily
indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy
of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level
1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2- Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or
corroborated by observable market data.
Level
3- Inputs are unobservable inputs that reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
The
carrying amounts reported in the consolidated balance sheets for cash, due to related parties, prepaid expenses, , convertible
debt, accounts payable and accrued liabilities, approximate their fair market value based on the short-term maturity of these
instruments. The Company accounts for certain instruments at fair value using level 3 valuation.
|
|
At June 30, 2018
|
|
|
At December 31, 2017
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
6,430,365
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,966,760
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
Derivative Liabilities
|
|
Balance at December 31, 2017
|
|
$
|
11,966,760
|
|
Initial valuation of derivative liabilities included in debt discount
|
|
|
569,779
|
|
Initial valuation of derivative liabilities included in derivative income (expense)
|
|
|
57,747
|
|
Reclassification of derivative liabilities to gain on debt extinguishment upon conversion of debt
|
|
|
(235,555
|
)
|
Reclassification of derivative liabilities to gain on debt extinguishment upon cashless exercise of warrants
|
|
|
(514,938
|
)
|
Change in fair value included in derivative income (expense)
|
|
|
(5,413,428
|
)
|
Balance at June 30, 2018
|
|
$
|
6,430,365
|
|
ASC
825-10 “
Financial Instruments
”
,
allows entities to voluntarily choose to measure certain financial assets
and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and
is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and
losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply
the fair value option to any outstanding instruments.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents. At June 30, 2018 and December 31,
2017, the Company did not have any cash equivalents.
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There
were no balances in excess of FDIC insured levels as of June 30, 2018 and December 31, 2017. The Company has not experienced any
losses in such accounts through June 30, 2018.
Property
and equipment
Property
are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three
to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal
terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect
the fact that their recorded value may not be recoverable.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the six months
ended June 30, 2018 and 2017, the Company did not record any impairment loss.
Derivative
liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates
all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires
that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance
sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair
value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective
derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount
is reclassified to other income or expense as part of gain or loss on extinguishment.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Revenue
recognition
In
May 2014, FASB issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting
Standards Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). ASU
2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard
to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the
Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing
of, and presentation and disclosure of revenue recognition from customers.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Through
March 31, 2018, pursuant to ASC 505-50 –
“Equity-Based Payments to Non-Employees”
, all share-based payments
to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation
expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a
Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions
are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the
consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07,
Improvements to Nonemployee Share-Based
Payment Accounting,
which simplifies several aspects of the accounting for nonemployee share-based payment transactions by
expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring
goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including
interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new
revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption
did not have any impact on its consolidated financial statements.
Income
taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets
and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The
Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates
is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740
“Income Taxes
”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of June 30, 2018 and December 31, 2017, the Company
had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax years that remain
subject to examination are the years ending on and after December 31, 2011. The Company recognizes interest and penalties related
to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of June 30, 2018.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Basic
and diluted loss per share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially
dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method) and shares issuable
for convertible debt (using the as-if converted method). These common stock equivalents may be dilutive in the future. Potentially
dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact
on the Company’s net losses and consisted of the following:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Stock warrants
|
|
|
162,620,304
|
|
|
|
12,098,194
|
|
Convertible debt
|
|
|
139,295,905
|
|
|
|
15,216,038
|
|
Stock options
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
The
following table presents a reconciliation of basic and diluted net income per share:
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Income (loss) per common share - basic:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
4,608,845
|
|
|
$
|
(2,784,662
|
)
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
(243,827
|
)
|
Net income (loss)
|
|
$
|
4,608,845
|
|
|
$
|
(3,028,489
|
)
|
Weighted average common shares outstanding - basic
|
|
|
213,305,947
|
|
|
|
106,363,694
|
|
Net income (loss) per common share – basic:
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.02
|
|
|
|
(0.03
|
)
|
From discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
Net income (loss) per common share - basic
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share - diluted:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
4,608,845
|
|
|
$
|
(2,784,662
|
)
|
Add: interest of convertible debt
|
|
|
595,064
|
|
|
|
-
|
|
Less: derivative income and debt settlement income
|
|
|
(6,106,174
|
)
|
|
|
-
|
|
Numerator for loss from continuing operations per common share - diluted
|
|
|
(902,265
|
)
|
|
|
(2,784,662
|
)
|
Numerator for loss from discontinuing operations per common share - diluted
|
|
|
-
|
|
|
|
(243,827
|
)
|
Net loss per common share – diluted
|
|
$
|
(902,265
|
)
|
|
$
|
(3,082,489
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
213,305,947
|
|
|
|
106,363,694
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
-
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding – diluted
|
|
|
213,305,947
|
|
|
|
106,363,694
|
|
Net loss per common share – diluted:
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.02
|
)
|
|
|
(0.03
|
)
|
From discontinued operations
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Net loss per common share - diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
Research
and development
Research
and development costs incurred in the development of the Company’s products are expensed as incurred. For the six months
ended June 30, 2018 and 2017, research and development costs were $84,781 and $68,232, respectively, and are included in operating
expenses on the accompanying consolidated statements of operations.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Foreign
currency translation
The
reporting currency of the Company is the U.S. dollar. The functional currency of the parent company and its U.S. subsidiary is
the U.S. dollar and the functional currency of the Company’s subsidiaries located in Mexico is the Mexican Peso (“Peso”).
For the subsidiaries whose functional currencies are the Peso, results of operations and cash flows are translated at average
exchange rates during the period, assets and liabilities are translated at the spot exchange rate at the end of the period, and
equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements
of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments
resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining
comprehensive loss. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the
exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
Additionally, transactions denominated in foreign currencies are translated into the functional currency at the exchange rates
prevailing on the transaction dates. The Company did not enter into any material transactions in foreign currencies. Transaction
gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset
and liability accounts at June 30, 2018 were translated at 19.9126 Pesos to $1.00, which was the exchange rates on the balance
sheet date. Equity accounts were translated at their historical rate. The average translation rates applied to the statements
of operations for the six months ended June 30, 2018 was 19.0623 Pesos to $1.00. Cash flows from the Company’s operations
are calculated based upon the local currencies using the average translation rate.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent
accounting pronouncements
On
February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The
accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease
assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement
of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying
asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize
lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018 and early adoption is permitted. The Company is currently assessing the impact of the guidance
on its consolidated financial statements and notes to its consolidated financial statements.
In
July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope Exception.
The ASU allows companies to exclude a down round
feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s
own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required
to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered
and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an
entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available
to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing
down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized
to earnings. The guidance in ASU 2017-11is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach.
The Company is evaluating the impact of the revised guidance and believes that this will have a significant impact on its consolidated
financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
NOTE
3 –
DECONSOLIDATION AND DISCONTINUATION OF OPERATIONS OF VITEL AND ONCBIOMUNE MEXICO
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel
and Oncbiomune Mexico due to disputes with the original Vitel Stockholders and resulting loss of operational control of the
assets and operations of Vitel and OncBiomune Mexico. Accordingly, as of December 31, 2017, the Company presented Vitel and
Oncbiomune Mexico as discontinued operations and effective January 1, 2018 has deconsolidated these wholly-owned subsidiaries
in accordance with ASC 810-10 “Consolidation”. However, at June 30, 2018 and after deconsolidation, the Company
has recorded the liabilities of these subsidiaries that existed at December 31, 2017 as a contingent liability and therefore
reflected liabilities of discontinued operation of $686,547 on the accompanying condensed consolidated balance sheet, which
consist of account payable balances incurred through December 31, 2017.
Pursuant
to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the Oncbiomune Mexico and
Vitel are now considered discontinued operations because of management’s decision of December 29, 2017.
The
assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of
June 30, 2018 and December 31, 2017, and for the six months ended June 30, 2018 and 2017 is set forth below.
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
|
-
|
|
Total current assets
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
686,547
|
|
|
$
|
692,592
|
|
Due to related parties
|
|
|
-
|
|
|
|
432
|
|
Payroll liabilities
|
|
|
-
|
|
|
|
1,972
|
|
Total current liabilities
|
|
|
686,547
|
|
|
|
694,996
|
|
Total liabilities
|
|
$
|
686,547
|
|
|
$
|
694,996
|
|
The
summarized operating result of discontinued operations included in the Company’s consolidated statements of operations is
as follows:
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
160,114
|
|
Cost of revenues
|
|
|
-
|
|
|
|
102,916
|
|
Gross profit
|
|
|
-
|
|
|
|
57,198
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
-
|
|
|
|
99,278
|
|
Consulting – related party
|
|
|
-
|
|
|
|
21,947
|
|
Bad debt expense
|
|
|
-
|
|
|
|
42,246
|
|
General and administrative expenses – related party
|
|
|
-
|
|
|
|
8,206
|
|
Compensation expense
|
|
|
-
|
|
|
|
72,269
|
|
General and administrative expenses
|
|
|
-
|
|
|
|
57,079
|
|
Total operating expenses
|
|
|
-
|
|
|
|
301,025
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
(243,827
|
)
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
NOTE
4 –
CONVERTIBLE DEBT
November
2016 Financing
On
November 23, 2016, the Company entered into and closed on the transaction set forth in an Amended and Restated Securities Purchase
Agreements (the “Securities Purchase Agreements”) it entered into with three institutional investors (the “Purchasers”)
for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the Securities Purchase
Agreement, the Company issued upon closing to the Purchasers for an aggregate subscription amount of $350,000: (i) 14.29% Original
Issue Discount 10% Senior Secured Convertible Notes (the “November 2016 Notes”); and (ii) warrants (the “Warrants”)
to purchase 2,333,334 shares of the Company’s common stock at an initial exercise price of $0.175 (subject to adjustments
under certain conditions as defined in the Warrants) (see below for reduction of warrant exercise price) which are exercisable
for a period of five years from November 23,2016. The aggregate principal amount of the November 2016 Notes was $350,000 and the
Company received $300,000 after giving effect to the original issue discount of $50,000. The November 2016 Notes bear interest
at a rate equal to 10% per annum (which interest rate increased to 24% per annum upon the occurrence of an Event of Default (as
defined in the November 2016 Notes)), had a maturity date of July 23, 2017 and were convertible (principal, and interest) at any
time after the issuance date of the November 2016 Notes into shares of the Company’s Common Stock at an initial conversion
price equal to $0.15 per share (subject to adjustment as provided in the Note) (see below for reduction for reduction of conversion
price), provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured
or remains ongoing, the November 2016 Notes shall be convertible and the Warrants shall be exercisable at 60% of the lowest closing
price during the prior twenty trading days of the Common Stock as reported on the OTCQB or other principal trading market (the
“Default Conversion Price”). Due to non-payment of the November 2016 Notes, an event of default occurred and accordingly,
the November 2016 Notes and Warrants are convertible and exercisable based on the default terms.
On
May 23, 2017, in connection with the November 2016 Notes, the Company entered into forbearance agreements (the “Forbearance
Agreements”) with the Purchases whereby the Purchasers waived any event of default, as defined in the November 2016 Notes.
The Company failed to make a payment on May 23, 2017 to each of the Holders as required pursuant to the November 2016 Notes which
resulted in an event of default under such Notes. As of result of the event of default, the aggregate amount owing under the November
2016 Notes as of May 23, 2017 was increased to $509,135 with such amount including a mandatory default amount of $141,299 and
accrued interest of $17,836 resulting in debt settlement expense of $141,299 which was recorded in May 2017. The Forbearance Agreement
also provides for the Holders to forbear their right to demand an immediate cash payment of the principal amount due plus accrued
interest as a result of the Company’s failure to satisfy its payment obligations to the Holder on May 23, 2017 so long as
the Company complies with its other obligations under the November 2016 Notes and the other transaction documents. The Forbearance
Agreements did not waive the default interest rate of 24%. In consideration therefore, and as currently set forth in the November
2016 Notes, the Holders shall be entitled to convert such notes from time to time at their discretion in accordance with the terms
of the November 2016 Notes and the November 2016 Notes shall not be subject to repayment unless agreed to by the Holder of such
Note. In connection with the Forbearance Agreement, in May 2017, the Company increased the principal balance of the November 2016
Notes by $159,135, reduced accrued interest payable by $17,836, and recorded debt settlement expense of $141,299.
In
2017, the Company also increased the principal amount of these notes by $42,327 for other default charges and other expenses.
During
the six months ended June 30, 2018, the Company issued 13,028,779 shares of common share for the conversion of principal balance
of $139,712, accrued interest of $21,869 and recorded additional default interest expense of $8,892
The
November 2016 Notes and related Warrants include a down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception.
Subsequent to the date of these November 2016 Notes, the Company sold stock at a share price of $0.075 per share then to $0.05
per share and then $0.01 per share. Accordingly, pursuant to these ratchet provisions, the conversion price on the November 2016
Notes were lowered to $0.05 per share then to $0.03 per share and then to $0.006 per share and the exercise price of the November
2016 Warrants was lowered to $0.006. Additionally, the total number of November 2016 Warrants were increased on a full ratchet
basis from 2,333,334 warrants to 13,611,114 warrants (see Note 7). In September 2017, the Company issued 9,547,087 shares of its
common stock upon the cashless exercise of 9,074,076 of these warrants (see Note 7). The remaining 4,537,038 warrants were then
ratcheted to 22,685,192 warrants based on the new ratcheted down $0.006 per share exercise price.
June
2017 Financing
On
June 2, 2017, the Company entered into a 2
nd
Securities Purchase Agreement (the “2
nd
Securities Purchase
Agreement”) with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms
provided for in the 2
nd
Securities Purchase Agreement, the Company issued upon closing to the Purchasers for an aggregate
subscription amount of $233,345: (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “June 2017
Notes”); and (ii) warrants (the “June 2017 Warrants”) to purchase 1,555,633 shares of the Company’s common
stock, par value $0.001 per share at an initial exercise price of $0.175 (subject to adjustments under certain conditions as defined
in the June 2017 Warrants) and exercisable for five years after the issuance date.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
The
aggregate principal amount of the June 2017 Notes is $233,345 and the Company received $200,000 after giving effect to the original
issue discount of $33,345. The June 2017 Notes bear interest at a rate equal to 10% per annum (which interest rate is increased
to 24% per annum upon the occurrence of an Event of Default (as defined in the June 2017 Notes)), have a maturity date of February
2, 2018 and are convertible (principal, and interest) at any time after the issuance date of issuance into shares of the Company’s
common stock at an initial conversion price equal to $0.15 per share (subject to adjustment as provided in the June 2017 Notes),
provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains
ongoing, the June 2017 Note shall be convertible at 60% of the lowest closing price during the prior twenty trading days of the
common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The June
2017 Notes provide for two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with
each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization payment
is made in cash then the payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the
eight-month amortization payments are made in cash then the payment is an amount equal to 125% of the applicable amortization
payment.
In
2018, the Company also increased the principal amount of these notes by $2,268 for other default charges and other expenses.
The
June 2017 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115%
of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through
the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the June 2017 Notes and
accrued and unpaid interest during months four through six following the Original Issue Date. In order to prepay the June 2017
Notes, the Company shall provide 20 Trading Days prior written notice to the Holder, during which time the Holder may convert
the June 2017 Notes in whole or in part at the Conversion Price.
The
June 2017 Notes and related Warrants include a down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception.
Subsequent to the date of these June 2017 Notes, the Company sold stock at a share price of $0.05 per share and then $.01 per
share. Accordingly, pursuant to these ratchet provisions, the conversion price of the notes were lowered to $0.006 per shares
and the exercise price of the June 2017 Warrants were lowered to $0.006 per share and the total number of June 2017 Warrants were
increased on a full ratchet basis from 1,555,632 warrants to 45,372,600 warrants, an increase of 43,816,968 warrants. During the
six months ended June 30, 2018, the Company issued 6,893,145 shares of its common stock upon the cashless exercise of 9,074,520
of these warrants and cancelled 6,049,680 warrants related to a change in the estimate of the number warrants reflected as issued
previously calculated in connection with the full ratchet adjustment terms of the warrant.
July
2017 Financing
On
July 26, 2017, the Company entered into and closed on a 3
rd
Securities Purchase Agreement (the “3
rd
Securities Purchase Agreement”) with three institutional investors (the “Purchasers”) for the sale of the Company’s
convertible notes and warrants. Pursuant to the terms provided for in the 3
rd
Securities Purchase Agreement, the Company
issued upon closing to the Purchasers for an aggregate subscription amount of $300,000: (i) 10% Original Issue Discount 5% Senior
Secured Convertible Notes in the aggregate principal amount of $333,883 (the “July 2017 Notes”); and (ii) warrants
(the “July 2017 Warrants”) to purchase 4,769,763 shares of the Company’s common stock at an exercise price of
$0.10 per share (subject to adjustments under certain conditions as defined in the Warrants). The closing under the 3
rd
Securities Purchase Agreement occurred on July 26, 2017. These Notes bear interest at a rate equal to 5% per annum (which interest
rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the Notes)), have a maturity date
of March 25, 2018 and are convertible (principal, and interest) at any time after the issuance date of these Notes into shares
of the Company’s Common Stock at a conversion price equal to $0.07 per share (subject to adjustment as provided in the Note),
provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains
ongoing, the July 2017 Notes shall be convertible at 60% of the lowest closing price during the prior twenty trading days of the
Common Stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”) and the exercise
price of the July 2017 Warrants shall be 60% of the Default Conversion Price. These Notes provide for three amortization payments
on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one third of
the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment is an amount
equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments are made
in cash then the payment is an amount equal to 115% of the applicable amortization payment. These Notes may be prepaid at any
time until the 210th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal balance of
the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following the
Original Issue Date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest during months
four through seven following the Original Issue Date.
In
order to prepay these Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time
the Purchaser may convert the Notes in whole or in part at the Conversion Price.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
The
July 2017 Notes and related Warrants include a down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception.
Subsequent to the date of these July 2017 Notes, the Company sold stock at a share price of $0.05 per share and then at $0.01
per share. Accordingly, pursuant to these ratchet provisions, the conversion price of the notes were lowered to $0.006 per share
and the exercise price of the July 2017 Warrants were lowered to $0.006 per share and the total number of July 2017 Warrants were
increased on a full ratchet basis from 4,769,763 warrants to 79,496,050 warrants, an increase of 74,726,287 warrants (see Note
7). During the six months ended June 30, 2018, the Company issued 15,845,290 shares of its common stock upon the cashless exercise
of 19,874,013 of these warrants and cancelled 6,624,670 warrants related to a change in the estimate of the number warrants reflected
as issued previously calculated in connection with the full ratchet adjustment terms of the warrant.
January
2018 Financing
On
January 29, 2018, the Company entered into and closed on a 4
th
Securities Purchase Agreement (the
“4
th
Securities Purchase Agreement”) with three institutional investors (the “Purchasers”)
for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in the 4
th
Securities Purchase Agreement, the Company issued upon closing to the Purchasers for an aggregate subscription amount of
$333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333
(the “January 2018 Notes”); and (ii) 5 year warrants (the “January 2018 Warrants”) to purchase
8,333,333 shares of the Company’s common stock par value $0.001 per share at an exercise price of $0.04 per share
(subject to adjustments under certain conditions as defined in the Warrants). The closing under the 4
th
Securities
Purchase Agreement occurred on January 29, 2018. The aggregate principal amount of the January 2018 Notes is $333,333 and the
Company received $295,000 after giving effect to the original issue discount of $33,333 and offering costs of $5,000. These
Notes bear interest at a rate equal to 5% per annum (which interest rate is increased to 24% per annum upon the occurrence of
an Event of Default (as defined in the Notes)), have a maturity date of September 29, 2018 and are convertible (principal,
and interest) at any time after the issuance date of these Notes into shares of the Company’s Common Stock at a
conversion price equal to $0.03 per share (subject to adjustment as provided in the Note), provided, however, that if an
event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the
January 2018 Notes shall be convertible at 60% of the lowest closing price during the prior twenty trading days of the Common
Stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”) and the
exercise price of the January 2018 Warrants shall be 60% of the Default Conversion Price. The January 2018 Notes and related
Warrants include a down-round provision under which the conversion price and exercise price could be affected by future
equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to
the date of these January 2018 Notes, the Company defaulted on these Notes. Accordingly, pursuant to the default provisions,
the conversion price of the notes were lowered to 60% of the lowest closing price during the prior twenty trading days of the
Common Stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”) and the
exercise price of the January 2018 Warrants shall be 60% of the Default Conversion Price and the total number of January 2018
Warrants were increased on a full ratchet basis from 8,333,334 warrants to 22,675,740, an increase of 14,342,406 warrants
(see Note 7).
These
Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the original issue
date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization
payment is made in cash, then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month
or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization
payment. These Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i)
115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue Date
through the five months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the Notes and accrued
and unpaid interest during the six month following the Original Issue Date. In order to prepay these Notes, the Company shall
provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the Notes in whole
or in part at the Conversion Price.
March
2018 Financing
On
March 13, 2018, the Company entered into a 5
th
Securities Purchase Agreement (the “5
th
Securities
Purchase Agreement”) securities with three institutional investors for the sale of the Company’s convertible notes
and warrants. Pursuant to the terms provided for in the Purchase Agreement, the Company issued for an aggregate subscription amount
of $333,333: (i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333
(the “Notes”) and (ii) warrants (the “Warrants”) to purchase an aggregate of 12,500,000 shares of the
Company’s common stock at an exercise price of $0.04 per share. The aggregate principal amount of the Notes is $333,333
and as of the date the Company received $61,000 after giving effect to the original issue discount of $33,333 and offering costs
of $10,000 which are treated as a debt discount, the payment of legal and accounting fees of $29,000 not related to these Notes,
and the funding of an escrow account held by the escrows agent of $200,000. The Notes bear interest at a rate of 5% per year (which
interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the Notes)), shall
mature eight months from issuance and the principal and interest are convertible at any time at a conversion price equal to $0.02
per share (subject to adjustment as provided in the Notes); provided, however, that if an event of default has occurred, regardless
of whether such Event of Default has been cured or remains ongoing, the March 2018 Notes shall be convertible at 60% of the lowest
closing price during the prior twenty trading days of the Common Stock as reported on the OTCQB or other principal trading market
(the “Default Conversion Price”) and the exercise price of the March 2018 Warrants shall be 60% of the Default Conversion
Price.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
The
initial exercise price of the Warrants is $0.04 per share, subject to adjustment as described below, and the Warrants are exercisable
for five years after the issuance date. The Warrants are exercisable for cash at any time and are exercisable on a cashless basis
at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise
price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock
combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including
cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is also subject to full
ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current exercise price of
the Warrant.
The
March 2018 Notes and related Warrants include a down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception.
Subsequent to the date of these March 2018 Notes, the Company defaulted on these Notes. Accordingly, pursuant to the default provisions,
the conversion price of the notes were lowered to the Default Conversion Price and the exercise price of the March 2018 Warrants
shall be 60% of the Default Conversion Price and the total number of March 2018 Warrants were increased on a full ratchet basis
from 12,500,000 warrants to 34,013,605, an increase of 21,513,605 warrants (see Note 7).
The
Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary of the
issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and all
interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay the
holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made
in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option
to receive the amortization payments in common stock subject to certain equity conditions.
The
Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding
principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120%
of outstanding principal balance of the Notes and accrued and unpaid interest from the fifth month anniversary of the issue date
through the six month anniversary of the issue date. In order to prepay the Notes, the Company shall provide 20 trading days prior
written notice to the holders, during which time a holder may convert its Note in whole or in part at the conversion price.
The
November 2016 Notes, June 2017 Notes, July 2017, January 2018 and March 2018 Notes contain certain covenants, such as restrictions
on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and
the transfer of assets. These Notes also contains certain adjustment provisions that apply in connection with any stock split,
stock dividend, stock combination, recapitalization or similar transactions. The conversion price is also subject to adjustment
if the Company issues or sells shares of its common stock for a consideration per share less than the conversion price then in
effect, or issue options, warrants or other securities convertible or exchange for shares of its common stock at a conversion
or exercise price less than the conversion price of these Notes then in effect. If either of these events should occur, the conversion
price is reduced to the lowest price at which these securities were issued or are exercisable. The Company granted the Purchasers
certain rights of first refusal on future offerings by the Company for as long as the Purchasers hold these Notes. In addition,
subject to limited exceptions, the Purchasers will not have the right to convert any portion of these Note if the Purchaser, together
with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding
immediately after giving effect to its conversion. The Purchaser may increase or decrease this ownership limitation to any percentage
not exceeding 9.99% upon 61 days prior written notice to the Company.
The
November 2016, June 2017, July 2017, January 2018 and March 2018 Warrants are exercisable for shares of the Company’s common
stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis at any time there is no
effective registration statement registering the shares of common stock underlying the Warrants. The exercise price of these Warrants
are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications
or similar events affecting the Common Stock and also upon any distributions of assets, including cash, stock or other property
to the Company’s stockholders. The exercise price of these Warrants are also subject to full ratchet price adjustment if
the Company sells or grants any option to purchase, sells or re-prices any common stock or common stock equivalents, as defined,
at an exercise price lower than the then-current exercise price of these Warrants with the exception for certain exempted issuances
and subject to certain limitations on the reduction of the exercise price as provided in the Warrants. In the event of a fundamental
transaction, as described in these Warrants and generally including any reorganization, recapitalization or reclassification of
the Common Stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets,
the Company’s consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding Common Stock,
the holders of these Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash
or other property that the holders would have received had they exercised these Warrants immediately prior to such fundamental
transaction; provided that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase
these Warrants for cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of these Warrants
or difference between the cash per share paid in the fundamental transaction and the exercise price per share. The holders of
these Warrants will not have the right to exercise any portion of these Warrants if the holder (together with its affiliates)
would beneficially own in excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect
to the exercise, as such percentage ownership is determined in accordance with the terms of these Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
In
connection with the Company’s obligations under the November 2016, June 2017, July 2017, January 2018 and March 2018 Notes,
the Company entered into a Security Agreement, Pledge Agreement and Subsidiary Guaranty with Calvary Fund I LP, as agent, pursuant
to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness
which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note entered into with Regions
Bank in October 2014, for the benefit of the Purchasers, to secure the Company’s obligations under the Notes. Upon an Event
of Default (as defined in the related Notes), the Purchasers may, among other things, collect or take possession of the Collateral,
proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.
During
the six months ended June 30, 2018, the Company issued 38,395,067 shares of its common stock upon the conversion of principal
note balances of $279,359 and accrued interest and penalties of $91,907.
Derivative
liabilities pursuant to Notes and Warrants
In
connection with the issuance of the November 2016, June 2017, July 2017, January 2018 and March 2018 Notes and Warrants, the Company
determined that the terms of these Note and Warrants contain terms that included a down-round provision under which the conversion
price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not
fixed monetary amounts at inception. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging
– Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments
and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through
earnings at each reporting date. The fair value of the embedded conversion option derivatives and Warrants were determined using
the Binomial valuation model. At the end of each period, on the date that debt was converted into common shares, and on the date
of a cashless exercise of warrants, the Company revalued the embedded conversion option and warrants derivative liabilities.
In
connection with the issuance of the January and March 2018 Notes and Warrants, during the six months ended June 30, 2018, on the
initial measurement date, the fair values of the embedded conversion option derivative and warrant derivative of $627,526 was
recorded as derivative liabilities and was allocated as a debt discount up to the net proceeds of the Convertible Note of $569,779,
with the remainder of $57,747 charged to current period operations as initial derivative expense.
At
the end of the period, the Company revalued the embedded conversion option and warrant derivative liabilities. In connection with
these revaluations and the initial derivative expense, the Company recorded derivative income (expense) of $5,355,681 and $(963,529)
for the six months ended June 30, 2018 and 2017, respectively.
Additional
purchaser rights and company obligations
The
Securities Purchases Agreements also requires the Company to pay counsel for the holders $10,000, satisfy the current public information
requirements under SEC Rule 144(c), refrain from issuing securities for a period of 30 days from closing and provides the holders
with rights of participation in future financings for a period of 12 months from the closing.
During
the six months ended June 30, 2018, the fair value of the derivative liabilities was estimated using the Binomial valuation model
with the following assumptions:
Dividend
rate
|
|
|
0
|
|
Term
(in years)
|
|
|
0.01
to 5.00 years
|
|
Volatility
|
|
|
188.9%
to 197.1
|
%
|
Risk-free
interest rate
|
|
|
2.07%
to 2.94
|
%
|
At
June 30, 2018 and December 31, 2017, the convertible debt consisted of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Principal amount
|
|
$
|
1,230,333
|
|
|
$
|
840,757
|
|
Less: unamortized debt discount
|
|
|
(301,126
|
)
|
|
|
(154,374
|
)
|
Convertible note payable, net
|
|
$
|
929,207
|
|
|
$
|
686,383
|
|
For
the six months ended June 30, 2018 and 2017, amortization of debt discounts related to this Convertible Note and the Notes amounted
to $501,963 and $291,668, respectively, which has been included in interest expense on the accompanying consolidated statements
of operations. The weighted average interest rate during the six months ended June 30, 2018 and 2017 was approximately 14.5% and
10.0%, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Termination
of October 20, 2015 Agreements
On
March 13, 2018, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a termination agreement
(the “Termination Agreement”) pursuant to which the parties terminated (i) the purchase agreement between them dated
October 20, 2015 (the “Equity Line Agreement”) that provided the Company the right to sell to Lincoln Park, at its
sole discretion, up to $10,100,000 of the Company’s common stock and (ii) the related registration rights agreement pursuant
to which the Company had agreed to file a registration statement with the Securities and Exchange Commission covering the shares
issuable under the Equity Line Agreement and related share issuances.
NOTE
5 –
LOANS PAYABLE
From June 2017 to September 2017, the Company
entered into loan agreements with several third parties (the “Loans”). Pursuant to the loan agreements, the Company
borrowed an aggregate of $538,875. The Loans bear interest at an annual rate of 33.3%, are unsecured and are in default.
NOTE
6 –
RELATED-PARTY TRANSACTIONS
Due
to related parties
From
time to time, the Company receives advances from and repays such advances to the Company’s chief executive officer for working
capital purposes.
For
the six months ended June 30, 2018, due to related party activity consisted of the following:
|
|
CEO
|
|
|
Total
|
|
Balance due to related parties at December 31, 2017
|
|
$
|
261,584
|
|
|
$
|
261,584
|
|
Working capital advances received
|
|
|
89,596
|
|
|
|
89,596
|
|
Repayments made
|
|
|
(12,000
|
)
|
|
|
(12,000
|
)
|
Balance due to related parties at June 30, 2018
|
|
$
|
339,180
|
|
|
$
|
339,180
|
|
NOTE
7 –
STOCKHOLDERS’ DEFICIT
Shares
Authorized
On
August 12, 2015, the Company filed amended and restated Articles of Incorporation with the Nevada Secretary of State to authorize
520,000,000 shares of capital stock, of which 500,000,000 shares are common stock, with a par value of $0.0001 per share (“Common
Stock”), and 20,000,000 shares are preferred stock, with a par value of $0.0001 per share (“Preferred Stock”).
Series
A Preferred Stock
On
August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,000,000 shares
of the authorized 20,000,000 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled
to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote
or for the consent of the stockholders of the Company.
The
holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent
they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. On December
31, 2017 and 2016, there were 1,000,000 shares of the Company’s Series A Preferred Stock outstanding. Of these shares, 500,000
are held by our Chief Executive Officer and 500,000 shares are held by a former member of our Board of Directors.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Series
B Preferred Stock
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 7,892,000 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series B preferred stock are
entitled to dividends or distributions share for share with the holders of the Common Stock, if, as and when declared from time
to time by the Board of Directors. The holders of shares of Series B preferred stock have the following voting rights:
|
●
|
Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
|
|
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
|
|
|
|
|
●
|
Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
|
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common Stock
and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after
the rights of the holders of the Series A Preferred Stock have been satisfied.
In
March 2017, the Company issued 2,892,000 shares of Series B Preferred to Jonathan F. Head, Ph. D, the Company’s Chief Executive
Officer and a member of the Board of Directors of the Company as provided for in the Contribution Agreement. The Series B preferred
stock issued to Dr. Head and were determined to have nominal value of $289, or $.0001 per shares, and was recorded as compensation
expense. In addition, in March 2017 the Company issued 5,000,000 shares of Series B Preferred to Banco Actinver for the benefit
of the Vitel Stockholders as partial consideration in the exchange for 100% of the issued and outstanding capital stock of Vitel.
(See Note 3). The 5,000,000 shares of Series B preferred stock which primarily gives the holder voting rights and were determined
to have nominal value of $500, or $.0001 per shares. As of June 30, 2018, there are 7,892,000 shares of Series B Preferred issued
and outstanding.
Common
Stock
Shares
issued for cash
In
January 2018, pursuant to a unit subscription agreement, the Company issued 600,000 shares of its unregistered common stock to
an investor for cash proceeds of $6,000, or $0.01 per share.
Common
stock issued for debt conversion
From
January 1, 2018 to June 30, 2018, the Company issued 38,395,067 shares upon conversion of debt of $279,359 and accrued interest
and penalties of $91,907. Upon the conversion of the debt, the Company valued the related derivative liability using the Binomial
valuation model and calculated a fair value of $235,555 which was recorded as a reduction of derivative liabilities and as gain
on debt extinguishment.
Shares
issued for cashless exercise of warrants
During
January through June 2018, the Company issued 22,738,435 shares of its common stock upon the cashless exercise of 28,948,533 of
these warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Warrants
The
November 2016 Warrants include a down-round provision under which the exercise price could be affected by future equity offerings
undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to the date of these November
2016 Warrants, the Company sold stock at a share price of $0.075 per share, $0.05 per share and $0.01 per share. Accordingly,
pursuant to these ratchet provisions, the exercise price of the November 2016 Warrants was lowered to $0.006. Additionally, the
total number of November 2016 Warrants were increased on a full ratchet basis from 2,333,334 warrants to 13,611,114 warrants.
In September 2017, the Company issued 9,547,087 shares of its common stock upon the cashless exercise of 9,074,076 of these warrants.
The remaining 4,537,038 warrants were then ratcheted to 22,685,192 warrants based on the new ratcheted down $0.006 per share exercise
price.
On
June 2, 2017, in connection with the 2
nd
Securities Purchase Agreement (see Note 4), the Company issued the June 2017
Warrants to purchase 1,555,633 shares of the Company’s common stock, par value $0.001 per share at an exercise price of
$0.175 (subject to adjustments under certain conditions as defined in the June 2017 Warrants). The June 2017 Warrants include
a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken
by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to the date of these June 2017 Notes,
the Company sold stock at a share price of $0.05 per share and $0.01 per share. Accordingly, pursuant to these ratchet provisions,
the exercise price of the June 2017 Warrants were lowered to $0.006 per share and the total number of June 2017 Warrants were
increased on a full ratchet basis from 1,555,632 warrants to 45,372,600 warrants, an increase of 43,816,968 warrants. During the
six months ended June 30, 2018, the Company issued 6,893,145 shares of its common stock upon the cashless exercise of 9,074,520
of these warrants and cancelled 6,049,680 warrants related to a full ratchet adjustment.
On
July 26, 2017, in connection with the 3rd Securities Purchase Agreement (see Note 4), the Company issued the July 2017
Warrants to purchase 4,769,763 shares of the Company’s common stock, par value $0.001 per share at an exercise price of
$0.10 (subject to adjustments under certain conditions as defined in the July 2017 Warrants). The July 2017 Notes and related
Warrants include a down-round provision under which the conversion price and exercise price could be affected by future
equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to
the date of these July 2017 Notes, the Company sold stock at a share price of $0.05 per share and $0.01 per share.
Accordingly, pursuant to these ratchet provisions, the exercise price of the July 2017 Warrants were lowered to $0.006 per
share and the total number of July 2017 Warrants were increased on a full ratchet basis from 4,769,763 warrants to 79,496,050
warrants, an increase of 74,726,287 warrants. During the six months ended June 30, 2018, the Company issued 15,845,290 shares
of its common stock upon the cashless exercise of 19,874,013 of these warrants and cancelled 6,624,670 warrants related to a
full ratchet adjustment.
On
January 29, 2018, in connection with the 4
th
Securities Purchase Agreement (see Note 4), the Company issued the January
2018 Warrants to purchase 8,333,334 shares of the Company’s common stock, par value $0.001 per share at an exercise price
of $0.04 (subject to adjustments under certain conditions as defined in the January 2018 Warrants). The January 2018 Notes and
related Warrants include a down-round provision under which the conversion price and exercise price could be affected by future
equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to the
date of the 4
th
Securities Purchase Agreement, the Company defaulted on the Notes. Accordingly, pursuant to the default
provisions, the exercise price of the January 2018 Warrants became 60% of the Default Conversion Price and the total number of
January 2018 Warrants were increased on a full ratchet basis from 8,333,334 warrants to 22,675,740, an increase of 14,342,406
warrants (see Note 4).
On
March 13, 2018, in connection with the 5
th
Securities Purchase Agreement (see Note 4), the Company issued the March
2018 Warrants to purchase 12,500,000 shares of the Company’s common stock, par value $0.001 per share at an exercise price
of $0.04 (subject to adjustments under certain conditions as defined in the March 13 2018 Warrants). The March Notes and related
Warrants include a down-round provision under which the conversion price and exercise price could be affected by future equity
offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Subsequent to the date
of the 5
th
Securities Purchase Agreement, the Company defaulted on the Notes. Accordingly, pursuant to the default
provisions, the exercise price of the March 2018 Warrants became 60% of the Default Conversion Price and the total number of January
2018 Warrants were increased on a full ratchet basis from12,500,000 warrants to 34,013,605, an increase of 21,513,605 warrants
(see Note 4).
During
January through June 2018, the Company issued 22,738,435 shares of its common stock upon the cashless exercise of 28,948,533 of
these warrants. Upon the cashless exercise of these warrants, the Company valued such warrants using the Binomial valuation model
and calculated a fair value of $514,938 which was recorded as a reduction of derivative liabilities and as gain on debt extinguishment.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
Warrant
activities for the six months ended June 30, 2018 are summarized as follows:
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding December 31, 2017
|
|
|
153,151,959
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
Issued in connection with financings
|
|
|
56,689,345
|
|
|
|
0.015
|
|
|
|
|
|
|
|
|
|
Reduction in warrants related to change in estimate in the number of warrants based on full ratcheted terms
|
|
|
(12,674,350
|
)
|
|
|
0.006
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(28,948,533
|
)
|
|
|
0.006
|
|
|
|
|
|
|
|
|
|
Balance Outstanding June 30, 2018
|
|
|
168,218,421
|
|
|
$
|
0.02
|
|
|
|
4.14
|
|
|
$
|
2,596,588
|
|
Exercisable, June 30, 2018
|
|
|
168,218,421
|
|
|
$
|
0.02
|
|
|
|
4.14
|
|
|
$
|
2,596,588
|
|
Stock
options
On
March 10, 2017, the non-management members of the Board of Directors determined that it was in the best interests of the Company
to reward the Company’s chief executive officer and chief financial officer of the Company by amending their employment
agreements and awarding them stock options in order to provide incentives to retain and motivate them in their roles with the
Company. The stock option award included options for each of them to purchase 2,000,000 shares (the “Stock Options”)
of Common Stock at an exercise price of $0.25 per share. One-third of the Stock Options vest on March 10, 2017, March 10, 2018,
and March 10, 2019, respectively, and are exercisable at any time after vesting until 10 years after the grant date. The Stock
Options vest so long as the optionee remains an employee of the Company or a subsidiary of the Company on the vesting dates (except
as otherwise provided for in the employment agreement between the Company and the optionee).
The
fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 0%; expected volatility of 203.4%; risk-free interest rate of
1.93%; and, an estimated holding period of 6 years. In connection with these options, the Company valued these options at a
fair value of $293,598 and will record stock-based compensation expense over the vesting period. During the six months ended
June 30, 2018 and 2017, the Company recorded stock-based compensation expense of $44,855 and $140,682 related to these
options, respectively.
On
May 8, 2018, the Company granted an aggregate of 17,500,000 stock options to purchase 17,500,000 shares of the
Company’s common stock at $0.0135 per share as follows: 15,000,000 options were granted to officers and directors of
the Company, 500,000 options were granted to an employee, and 2,000,000 option to the Company’s scientific advisory
board. These options vest in one year from the grant date and expire on May 8, 2028. The fair value of these option grants
was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; expected volatility of 243%; risk-free interest rate of 2.81%; and, an estimated term
based on the simplified method of 5.5 years. In connection with these options, the Company valued these options at a fair
value of approximately $233,000 and will record stock-based compensation expense over the vesting term.
At
June 30, 2018, there were 21,500,000 options outstanding and 2,666,668 options vested and exercisable. As of June 30, 2018, there
was $228,617 of unvested stock-based compensation expense to be recognized through December 2026. The aggregate intrinsic value
at June 30, 2018 was approximately $0 and was calculated based on the difference between the quoted share price on June 30, 2018
and the exercise price of the underlying options.
Stock
option activities for the six months ended June 30, 2018 are summarized as follows:
|
|
Number of Option
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding December 31, 2017
|
|
|
4,000,000
|
|
|
$
|
0.250
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
17,500,000
|
|
|
|
0.014
|
|
|
|
|
|
|
|
|
|
Balance Outstanding June 30, 2018
|
|
|
21,500,000
|
|
|
$
|
0.07
|
|
|
|
9.64
|
|
|
$
|
0
|
|
Exercisable, June 30, 2018
|
|
|
2,666,668
|
|
|
$
|
0.25
|
|
|
|
8.70
|
|
|
$
|
0
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(Unaudited)
NOTE
8 –
COMMITMENTS AND CONTINGENCIES
Employment
agreements
On
February 2, 2016, the Company entered into an employment agreement with Jonathan F. Head, Ph.D. (“Dr. Head”) to serve
as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February
1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days
prior to the automatic renewal date. The employment agreement with Dr. Head provides that Dr. Head’s salary for calendar
year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment
agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual
salary that was payable by the Company to Dr. Head for the immediately preceding calendar year.
On
February 2, 2016, the Company entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as
the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through
February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than
120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s
salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term
of the employment agreement with Mr. Kucharchuk shall be an amount determined by the Board of Directors, which in no event shall
be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.
The
above executives shall be eligible for an annual target bonus payment in an amount equal to ten percent of his base salary (“Bonus”).
The Bonus is determined based on the achievement of certain performance objectives of the Company as established by the Board
of Directors. The Bonus may be greater or less than the target Bonus, based on the level of achievement of the applicable performance
objectives.
NOTE
9 -
SUBSEQUENT EVENTS
Common
stock issued for debt conversion
In
July 2018, the Company issued 3,852,486 shares upon conversion of debt of $20,000 and accrued interest of $3,115.
On August 3,
2018, the Company issued 3,338,767 shares upon conversion of debt of $20,000 and accrued interest of $333.
Cashless
exercise of Warrants
During
July, the Company issued an additional 5,447,438 shares of its common stock as a result of several prior cashless exercise of
28,948,553 Warrants under a securities purchase agreement dated June 2, 2017. The exercise price of the securities issued due
to the conversions of the June 2017 and the July 2017 Warrants were lowered to $0.006 in December 2017. For that reason, the shareholder
presented the company with its request for the issuance of the additional subject shares. Upon the cashless exercise of these
warrants, the Company valued such Warrants using the Binomial valuation model and calculated a fair value of $142,651 which was
recorded as a reduction of derivative liabilities and as gain on debt extinguishment.
Convertible
Debt
In
July 2018, the Company issued an 8% Convertible Promissory Note for principal borrowings of $150,000. The 8% convertible
promissory note and all accrued interest are due in July 2019. The Company received proceeds for a total of $150,000 and paid
no original issuance costs or related loan fees in connection with this note payable. The note is unsecured and bears
interest at the rate of 8% per annum from the issuance date thereof until the note is paid. The note holder has the right to
convert beginning on the date which was the issuance date the outstanding principal amount and accrued but unpaid interest
into the Company’s common stock at a conversion price equal to 75% of the average of the closing prices of the
Company’s common stock during the 5 trading days immediately preceding the conversion date. During the first 30 to 365
days following the date of these notes, the Company has the right to prepay the principal and accrued but unpaid interest due
under these notes, together with any other amounts that the Company may owe the holder under the terms of these notes, at a
premium ranging from 105% to 110% as defined in the note agreements. After this initial 365-day period, the Company does not
have a right to prepay the note.