NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
OncBioMune Pharmaceuticals, Inc. (the “Company”)
is a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary
vaccine technology that is designed to stimulate the immune system to attack its own cancer while not attacking the patient’s
healthy cells. The Company has proprietary rights to an immunotherapy platform with an initial focus on prostate and breast cancers
but that may be used to fight any solid tumor. The Company is also developing targeted therapies. Our mission is to improve overall
patient condition through innovative bio-immunotherapy with proven treatment protocols, to lower deaths associated with cancer
and to reduce the cost of cancer treatment. We believe our technology is safe, and utilizes clinically proven research methods
of treatment to provide optimal likelihood of patient recovery.
On March 10, 2017 (the “Closing Date”),
the Company completed the acquisition of 100% of the issued and outstanding capital stock of Vitel Laboratorios, S.A. de C.V.,
a Mexican variable stock corporation (“Vitel”) from its shareholders Manuel Cosme Odabachian and Carlos Fernando
Alaman Volnie (collectively, the “Vitel Stockholders”) pursuant to the terms and conditions of a Contribution Agreement
to the Property of Trust F/2868 entered into among the Company and the Vitel Stockholders on the Closing Date (the “Contribution
Agreement”). The Company acquired Vitel for the purpose of commercializing the Company’s ProscaVax™ vaccine
technology and cancer technologies in Mexico, Central and Latin America and to utilize Vitel’s distribution network
and customer and industry relationships.
On
December 29, 2017, the Board of Directors of the Company determined to sell or otherwise dispose of its interest in Vitel and
OncBioMune México due to disputes with the original Vitel Stockholders and resulting loss of operational control of the
assets and operations of Vitel and OncBioMune Mexico. Accordingly, Vitel and OncBioMune México were treated as a discontinued
operation through December 31, 2017 and were deconsolidated effective January 1, 2018 (see Note 3). The Company expects to terminate
the Contribution Agreement, Stockholders Agreement and Trust Agreement during 2019.
On
April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 500,000,000 shares to 1,500,000,000 shares (see Note 8). The Company’s 1,520,000,000 authorized
shares consisted of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock,
par value $0.0001 per share.
On
August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized
common stock from 1,500,000,000 shares to 5,000,000,000 shares (see Note 8). The Company’s 5,020,000,000 authorized
shares consist of 5,000,000,000 shares of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock
at $0.0001 per share par value.
On
August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split
of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the
“Reverse Stock Split”), which became effective on September 12,
2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667
shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523
shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and
preferred stock. All share and per share amounts in the accompanying historical
condensed consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock
Split (see Note 8).
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) were treated as a discontinued operation through December 31, 2017 and were deconsolidated
effective January 1, 2018 (see Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation.
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 consolidated financial position and the consolidated 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 year ended December 31, 2018 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 April 1, 2019.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
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 the accompanying unaudited condensed
consolidated financial statements, the Company had net (loss) from continuing operations of $(7,048,361) for the nine months ended
September 30, 2019. The net cash used in operations was $831,284 for the nine months ended September 30, 2019. Additionally,
the Company had an accumulated deficit of $24,236,025 at September 30, 2019 and had a working capital deficit of $13,718,635
at September 30, 2019, 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.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to
raise capital through additional debt and/or equity financings to fund its operations in the future.
Although
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 nine months ended September 30, 2019 and year ended December
31, 2018 include the valuation of assets and liabilities of discontinued operations, useful life of property and equipment, valuation
of operating lease right-of-use (“ROU”) assets and liabilities, assumptions used in assessing impairment of
long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash
equity transactions and the valuation of derivative liabilities.
Concentrations
Generally,
the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products.
Any production shortfall that impairs the supply of the antigen in ProscaVax™ to the Company could have a material adverse
effect on the Company’s business, financial condition and results of operations. If the Company is unable to obtain a sufficient
quantity of antigen, there could be a substantial delay in successfully developing a second source supplier.
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires
disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures
about the fair value of financial instruments are based on pertinent information available to the Company on September 30, 2019.
Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be
realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether
the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level
3 measurement). The three levels of the fair value hierarchy are as follows:
|
Level
1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
|
|
|
|
Level
2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and
inputs derived from or corroborated by observable market data.
|
|
|
|
Level
3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the
market participants would use in pricing the asset or liability based on the best available information.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts
payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
|
|
At
September 30, 2019
|
|
|
At
December 31, 2018
|
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
7,477,494
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,364,032
|
|
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
Derivative
Liabilities
|
|
Balance at December 31, 2018
|
|
$
|
3,364,032
|
|
Initial valuation
of derivative liabilities included in debt discount
|
|
|
352,472
|
|
Initial valuation
of derivative liabilities included in derivative income (expense)
|
|
|
—
|
|
Reclassification
of derivative liabilities to gain (loss) on debt extinguishment
|
|
|
(292,267
|
)
|
Change
in fair value included in derivative income (expense)
|
|
|
4,053,257
|
|
Balance at September 30, 2019
|
|
$
|
7,477,494
|
|
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 September 30, 2019 and December
31, 2018, the Company did not have any cash equivalents.
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There
were no balances in excess of FDIC insured levels as of September 30, 2019 and December 31, 2018. The Company has not experienced
any losses in such accounts through September 30, 2019.
Property
and equipment
Property
are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three
to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal
terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect
the fact that their recorded value may not be recoverable.
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 three and
nine months ended September 30, 2019 and 2018, the Company did not record any impairment loss.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
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 815-10 – Derivative and Hedging –
Contract in Entity’s Own Equity. 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 debt extinguishment.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to
outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated
balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. ASU No. 2017-11
in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statement and there was no
cumulative effect adjustment.
Revenue
recognition
In
May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers.
ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new
standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to
retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have
on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for,
timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
The Company does not have revenues from continuing operations in 2019 and 2018.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Through
March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including
grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period
of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the
Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns
with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements
accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which
simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based
compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees.
ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual
periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC
606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its
consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(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 options and warrants (using the treasury stock method), convertible
notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive
equity securities outstanding as of September 30, 2019 and 2018 were not included in the computation of dilutive loss per common
share because the effect would have been anti-dilutive:
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
Stock warrants
|
|
|
15,964,516
|
|
|
|
275,514
|
|
Convertible debt
|
|
|
12,333,669
|
|
|
|
234,282
|
|
Stock options
|
|
|
52,730
|
|
|
|
28,667
|
|
Series A preferred stock
|
|
|
1,333
|
|
|
|
—
|
|
Series B preferred
stock
|
|
|
3,856
|
|
|
|
—
|
|
|
|
|
28,356,104
|
|
|
|
538,463
|
|
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 September 30, 2019, and December 31, 2018, the Company
had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes
interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were
recorded as of September 30, 2019.
Research
and development
Research
and development costs incurred in the development of the Company’s products are expensed as incurred. For the nine months
ended September 30, 2019 and 2018, research and development costs were $161,453 and $101,097, respectively, and are included in
operating expenses on the accompanying consolidated statements of operations.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The
updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the
updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue
guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
On
January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before
the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain
leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is
based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of
the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease
liabilities for short-term leases that have a term of 12 months or less.
Operating
lease ROU assets represents the right to use the leased asset for the lease term
and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease
term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based
on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum
lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses
in the condensed consolidated statements of operations.
Recent
accounting pronouncements
In
August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments
in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The Company does not believe this will have any material impact on the Company’s consolidated financial
statements.
Removals.
The following disclosure requirements were removed from Topic 820:
|
1.
|
The
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
|
|
|
|
|
2.
|
The
policy for timing of transfers between levels
|
|
|
|
|
3.
|
The
valuation processes for Level 3 fair value measurements
|
|
|
|
|
4.
|
For
nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair
value measurements held at the end of the reporting period.
|
Modifications.
The following disclosure requirements were modified in Topic 820:
|
1.
|
In
lieu of a roll forward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and
out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
|
|
|
|
|
2.
|
For
investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation
of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated
the timing to the entity or announced the timing publicly.
|
|
|
|
|
3.
|
The
amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement
as of the reporting date.
|
Additions.
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
|
1.
|
The
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value
measurements held at the end of the reporting period.
|
|
|
|
|
2.
|
The
range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain
unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu
of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational
method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
In
addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote
the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality
is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The Company is evaluating
the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited consolidated financial statements.
NOTE
3 – DISCONTINUED 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, Vitel and OncBioMune Mexico are now treated as a discontinued operation
for all periods presented in accordance with ASC 205-20. At December 31, 2018 and after deconsolidation, the Company has recorded
the liabilities of these subsidiaries that existed at December 31, 2017 as a contingent liability and therefore reflected liabilities
of discontinued operation of $686,547 on the accompanying consolidated balance sheet, which consist of accounts payable balances
incurred through December 31, 2017. This decision will enable the Company to focus more of its efforts and resources on the Phase
2 clinical trial of ProscaVax™ in the United States.
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 September
30, 2019 and December 31, 2018 are set forth below.
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
|
—
|
|
Total
current assets
|
|
|
—
|
|
|
|
—
|
|
Total
assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
686,547
|
|
|
$
|
686,547
|
|
Due to related parties
|
|
|
—
|
|
|
|
—
|
|
Payroll
liabilities
|
|
|
—
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
686,547
|
|
|
|
686,547
|
|
Total
liabilities
|
|
$
|
686,547
|
|
|
$
|
686,547
|
|
NOTE
4 – CONVERTIBLE DEBT
November
2016 Financing
On
November 23, 2016, the Company entered into Amended and Restated Securities Purchase Agreements (the “Amended and Restated
Securities Purchase Agreements”) with three institutional investors (the “Purchasers”) for the sale of the Company’s
convertible notes and warrants. Pursuant to the Amended and Restated Securities Purchase Agreements, the Company issued upon closing
to the Purchasers for an aggregate subscription amount of $350,000, (i) 14.29% Original Issue Discount 10% Senior Secured
Convertible Notes (the “November 2016 Notes”) and (ii) warrants (the “Warrants”) to purchase aggregate
of 3,111 shares of the Company’s common stock at an initial exercise price of $131.25 (subject to adjustments under certain
conditions as defined in the Warrants) (see below for reduction of warrant exercise price) which are exercisable for a period
of five years from November 23, 2016. The aggregate principal amount of the November 2016 Notes was $350,000 and the Company received
$300,000 after giving effect to the original issue discount of $50,000. The November 2016 Notes bore interest at a rate
equal to 10% per annum (which interest rate increased to 24% per annum upon the occurrence of an Event of Default (as defined
in the November 2016 Notes)), had a maturity date of July 23, 2017 and were convertible (principal, and interest) at any time
after the issuance date into shares of the Company’s common stock at an initial conversion price equal to $112.50 per share
(subject to adjustment as provided in the Note) (see below for reduction for reduction of conversion price), provided, however,
that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the November
2016 Notes were convertible and the November 2016 Warrants shall be exercisable at 60% of the lowest closing price during
the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the “Default
Conversion Price”). Due to non-payment of the November 2016 Notes, an event of default occurred and accordingly, the November
2016 Notes and Warrants are convertible and exercisable based on the default terms.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
On
May 23, 2017, in connection with the November 2016 Notes, the Company entered into forbearance agreements (the “Forbearance
Agreements”) with the Purchases whereby the Purchasers waived any event of default, as defined in the November 2016 Notes.
The Company failed to make a payment on May 23, 2017 to each of the Holders as required pursuant to the November 2016 Notes which
resulted in an event of default under such Notes. As of result of the event of default, the aggregate amount owing under the November
2016 Notes as of May 23, 2017 was increased to $509,135 with such amount including a mandatory default amount of $141,299 and
accrued interest of $17,836 resulting in debt settlement expense of $141,299 which was recorded in May 2017. The Forbearance Agreements
also provide for the Holders to forbear their right to demand an immediate cash payment of the principal amount due plus accrued
interest as a result of the Company’s failure to satisfy its payment obligations to the Holder on May 23, 2017 so long as
the Company complies with its other obligations under the November 2016 Notes and the other transaction documents. The Forbearance
Agreements did not waive the default interest rate of 24%. In consideration therefore, and as currently set forth in the November
2016 Notes, the Holders shall be entitled to convert such notes from time to time at their discretion in accordance with the terms
of the November 2016 Notes and the November 2016 Notes shall not be subject to repayment unless agreed to by the Holder of such
Note. In connection with the Forbearance Agreements, in May 2017, the Company increased the principal balance of the November
2016 Notes by $159,135, reduced accrued interest payable by $17,836, and recorded debt settlement expense of $141,299. In 2017,
the Company also increased the principal amount of these notes by $42,327 and charged this to interest expense for other default
charges and other expenses.
In
2017, the Purchasers converted $369,423 and $32,878 of outstanding principal and interest, respectively, of the November 2016
Notes into 11,150 shares of common stock.
In
2018, the Purchasers fully converted the remaining outstanding principal and interest of $139,712 and $21,869, respectively, of
the November 2016 Notes into 17,372 shares of common stock. As of December 31 2018, there were no November 2016 Notes outstanding.
The
November 2016 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price
could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at
inception; and (ii) default conversion and exercise price provisions where, the November 2016 Notes shall be convertible and the
November 2016 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common
stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). Subsequent to the
date of these November 2016 Notes, the Company sold stock at a share price of $56.25 per share then $37.50 per share and then
$7.50 per share. Accordingly, pursuant to these ratchet provisions, the conversion price on the November 2016 Notes were
lowered to $37.50 per share then to $22.50 per share and then to $4.50 per share and the exercise price of the November 2016 Warrants
was lowered to $4.50. Additionally, the total number of November 2016 Warrants were increased on a full ratchet basis from 3,111
warrants to 42,346 warrants, an increase of 39,235 warrants (see Note 8). In September 2017, the Company issued 12,729 shares
of its common stock upon the cashless exercise of 12,099 of these warrants (see Note 8). As of September 30, 2019, there were
30,247 warrants outstanding under the November 2016 Warrants.
June
2017 Financing
On
June 2, 2017, the Company entered into a Securities Purchase Agreement (the “Second Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Second Securities Purchase Agreement, the Company issued the Purchasers for an aggregate subscription amount of $233,345:
(i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “June 2017 Notes”); and (ii) warrants
(the “June 2017 Warrants”) to purchase an aggregate of 2,074 shares of the Company’s common stock at an initial
exercise price of $131.25 (subject to adjustments under certain conditions as defined in the June 2017 Warrants) and exercisable
for five years after the issuance date.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
aggregate principal amount of the June 2017 Notes was $233,345 and the Company received $190,000 after giving effect to the original
issue discount of $33,345 and $10,000 of offering costs. The June 2017 Notes bear interest at a rate equal to 10% per annum (which
interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the June 2017 Notes)), have
a maturity date of February 2, 2018 and are convertible (principal and interest) at any time after the issuance date, into shares
of the Company’s common stock at an initial conversion price equal to $112.50 per share (subject to adjustment as provided
in the June 2017 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event
of Default has been cured or remains ongoing, the June 2017 Notes shall be convertible and the June 2017 Warrants shall
be exercisable at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the
OTCQB or other principal trading market (the “Default Conversion Price”). The June 2017 Notes are currently in default.
The June 2017 Notes provide for two amortization payments on the six-month, seven-month and eight-month anniversary of the issue
date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization
payment is made in cash then the payment is an amount equal to 120% of the applicable amortization payment and if the seven-month
or the eight-month amortization payments are made in cash then the payment is an amount equal to 125% of the applicable amortization
payment. The June 2017 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount equal
to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original Issue
Date through the three months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the June 2017
Notes and accrued and unpaid interest during months four through six following the Original Issue Date. In order to prepay the
June 2017 Notes, the Company shall provide 20 Trading Days prior written notice to the Holder, during which time the Holder may
convert the June 2017 Notes in whole or in part at the Conversion Price. During the nine months ended June 30, 2018, the Company
also increased the principal amount of these notes by $2,268 for other default charges and other expenses. In 2018, the Purchasers
converted $118,786 and $7,036 outstanding principal and interest, respectively, of the June 2017 Notes into 19,819 shares of common
stock. In addition, pursuant a securities purchase agreement dated September 24, 2018, the Company purchased back from one Purchaser,
a June 2017 Note with $37,814 and $4,534 of outstanding principal and interest, respectively, (see-Puritan Settlement Agreement
below). During the three months ended March 31, 2019, the Purchasers converted $77,782, $13,593 and $36,134 outstanding principal,
interest and default interest, respectively, of the June 2017 Notes into 32,180 shares of common stock. As of September 30, 2019,
the June 2017 Notes had outstanding principal and accrued interest of $1,495 and $0, respectively.
The
June 2017 Notes and related June 2017 Warrants includes; (i) down-round provision under which the conversion price and exercise
price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts
at inception; and (ii) default conversion and exercise price provisions where, the June 2017 Notes shall be convertible and the
June 2017 Warrants shall be exercisable at Default Conversion Price as defined above. Subsequent to the date of these June 2017
Notes, the Company sold stock at a share price of $37.50 per share and then $7.50 per share. Accordingly, pursuant to these ratchet
provisions, the conversion price of the notes were lowered to $4.50 per shares and the exercise price of the June 2017 Warrants
were lowered to $4.50 per share and the total number of June 2017 Warrants were increased on a full ratchet basis from 2,074 warrants
to 60,497 warrants, an increase of 58,423 warrants (see Note 8). In 2018, the Company issued 11,332 shares of its common stock
upon the cashless exercise of 20,166 of the June 2017 Warrants. As of September 30, 2019, there were 40,331 warrants outstanding
under the June 2017 Warrants.
July
2017 Financing
On
July 26, 2017, the Company entered into a Securities Purchase Agreement (the “Third Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Third Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $300,000:
(i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,883 (the “July
2017 Notes”); and (ii) warrants (the “July 2017 Warrants”) to purchase an aggregate of 6,359 shares of the Company’s
common stock at an exercise price of $75.00 per share (subject to adjustments under certain conditions as defined in the Warrants).
The July 2017 Notes were issued on July 26, 2017. The July 2017 Notes bear interest at a rate equal to 5% per annum (which interest
rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the July 2017 Notes)), have a maturity
date of March 25, 2018 and are convertible (principal, and interest) at any time after the issuance date into shares of the Company’s
common stock at a conversion price equal to $52.50 per share (subject to adjustment as provided in the July 2017 Notes),
provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains
ongoing, the July 2017 Notes shall be convertible and the July 2017 Warrants shall be exercisable at 60% of the lowest closing
price during the prior twenty trading days of the common stock as reported on the OTCQB or other principal trading market (the
“Default Conversion Price”). The July 2017 Notes are currently in default. The July 2017 Notes provide for three amortization
payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment being one
third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the payment
is an amount equal to 110% of the applicable amortization payment and if the seven-month or the eight-month amortization payments
are made in cash then the payment is an amount equal to 115% of the applicable amortization payment. The July 2017 Notes may be
prepaid at any time until the 210th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal
balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following
the Original Issue Date, and (ii) 120% of outstanding principal balance of the July 2017 Notes and accrued and unpaid interest
during months four through seven following the Original Issue Date. In order to prepay the July 2017 Notes, the Company shall
provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may convert the July 2017 Notes
in whole or in part at the Conversion Price. During the year ended December 31, 2018, the Purchasers converted $111,295 and $11,414
outstanding principal and interest, respectively, of the July 2017 Notes into 31,053 shares of common stock. In addition, pursuant
to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser, a July 2017 Note
with $155,812 and $38,395 of outstanding principal and interest, respectively (see-Puritan Settlement Agreement below).
As of September 30, 2019, the July 2017 Notes had outstanding principal and accrued interest of $44,518 and $24,174, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
On June 5, 2018, the original purchaser
of the July 2017 Notes entered into an Assignment Agreement (“First Note Assignment”) with the assignee (“First
Assignee”) for the sale of a portion of the July 2017 Notes (“First Assigned Note”) with outstanding principal
of $111,295 and accrued interest of $29,180. In connection with the First Note Assignment, a default interest in the amount of
$53,733 was charged, which was included in the sale price and updated principal of the First Assigned Note totaling $194,208.
On October 16, 2018, the First Assignee,
in turn entered into an Assignment Agreement (“Second Note Assignment”) with a another assignee (“Second Assignee”)
for the sale of the First Assigned Note with outstanding principal of $194,208 and accrued interest of $3,204. In connection with
the Second Note Assignment, a prepayment premium of $49,353 was charged which was included in the sale price and updated principal
of $246,765. In 2018, the Purchasers converted $17,500 of the outstanding principal of the new Note (“Second Assigned Note”),
into 3,613,688 shares of common stock. During the six months ended June 30, 2019, the Purchasers converted $55,000 of the outstanding
principal of the Second Assigned Note, into 10,966,166 shares of common stock. As of June 30, 2019, the Second Assigned Note had
an outstanding principal balance of $174,264 and accrued interest of $0.
During the quarter ended September 30,
2019, the default interest charged on June 2018 of $53,733 and prepayment premium charged on October 2018 of $49,535, an aggregate
penalties of $103,268, was contested by the Company and the penalties related to these note assignments were removed from the
outstanding principal balance of the July 2017 Notes. In addition, certain amounts of the accrued liabilities had been previously
included in the principal balance of $32,384 was reversed and a new accrued interest based in the agreed upon principal balance
was accrued which totaled $30,612. As of September 30, 2019, the July 2017 Notes had an outstanding principal balance of $38,794
and accrued interest of $30,612.
The
July 2017 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price could
be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception;
and (ii) default conversion and exercise price provisions where, the July 2017 Notes shall be convertible and the July 2017 Warrants
shall be exercisable at the Default Conversion Price as define above. Subsequent to the date of these July 2017 Notes, the Company
sold stock at a share price of $37.50 per share and then at $7.50 per share. Accordingly, pursuant to these ratchet provisions,
the conversion price of the July 2017 Notes was lowered to $4.50 per share and the exercise price of the July 2017 Warrants was
lowered to $4.50 per share and the total number of July 2017 Warrants was increased on a full ratchet basis from 6,359 warrants
to 105,994 warrants, an increase of 99,635 warrants (see Note 8). In 2018, the Company issued 32,289 shares of its common stock
upon the cashless exercise of 35,332 of these warrants. As of September 30, 2019, there were 70,662 warrants outstanding under
the July 2017 Warrants.
January
2018 Financing
On
January 29, 2018, the Company entered into a Securities Purchase Agreement (the “Fourth Securities Purchase Agreement”)
with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided for in
the Fourth Securities Purchase Agreement, the Company issued to the Purchasers for an aggregate subscription amount of $333,333:
(i) 10% Original Issue Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “January
2018 Notes”); and (ii) 5 year warrants (the “January 2018 Warrants”) to purchase an aggregate of 11,111 shares
of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions
as defined in the Warrants). The closing under the Fourth Securities Purchase Agreement occurred on January 29, 2018. The aggregate
principal amount of the January 2018 Notes is $333,333 and the Company received $295,000 after giving effect to the original issue
discount of $33,333 and offering costs of $5,000. These January 2018 Notes bear interest at a rate equal to 5% per annum (which
interest rate is increased to 18% per annum upon the occurrence of an Event of Default (as defined in the January 2018 Notes)),
have a maturity date of September 29, 2018 and are convertible (principal, and interest) at any time after the issuance date into
shares of the Company’s common stock at a conversion price equal to $22.50 per share (subject to adjustment as provided
in the January 2018 Notes), provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the January 2018 Notes shall be convertible and the January 2018 Warrants shall be exercisable
at 60% of the lowest closing price during the prior twenty trading days of the common stock as reported on the OTCQB or other
principal trading market (the “Default Conversion Price”). The January 2018 Notes are currently in default. The January
2018 Notes provide for three amortization payments on the six-month, seven-month and eight-month anniversary of the original issue
date with each amortization payment being one third of the total outstanding principal and interest. If the six-month amortization
payment is made in cash, then the payment is an amount equal to 110% of the applicable amortization payment and if the seven-month
or the eight-month amortization payments are made in cash then the payment is an amount equal to 115% of the applicable amortization
payment. The January 2018 Notes may be prepaid at any time until the 180th day following the Original Issue Date at an amount
equal to (i) 115% of outstanding principal balance of the Note and accrued and unpaid interest during the period from the Original
Issue Date through the five months following the Original Issue Date, and (ii) 120% of outstanding principal balance of the January
2018 Notes and accrued and unpaid interest during the six month following the Original Issue Date. In order to prepay the January
2018 Notes, the Company shall provide 20 Trading Days prior written notice to the Purchaser, during which time the Purchaser may
convert the January 2018 Notes in whole or in part at the Conversion Price. Pursuant to a securities purchase agreement dated
September 24, 2018, the Company purchased back, from one Purchaser, a January 2018 Note with $111,111 and $98,031 outstanding
principal and interest, respectively (see-Puritan Settlement Agreement below). As of September 30, 2019, the January 2018
Notes had outstanding principal and accrued interest of $222,222 and $57,321, respectively.
The
January 2018 Notes and related Warrants includes; (i) down-round provision under which the conversion price and exercise price
could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at
inception; and (ii) default conversion and exercise price provisions where, the January 2018 Notes shall be convertible and the
January 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of January 2018
Warrants were increased on a full ratchet basis from 11,111 warrants to 963,822, an aggregate increase of 952,711 warrants (see
Note 8). Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased back, from one Purchaser,
warrants to purchase 10,078 (post anti-dilution) of the Company’s common stock (see-Puritan Settlement Agreement
below). As of September 30, 2019, there were 953,744 warrants outstanding under the January 2018 Warrants.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
March
2018 Financing
On
March 13, 2018, the Company entered into a Securities Purchase Agreement (the “Fifth Securities Purchase Agreement”)
securities with the Purchasers for the sale of the Company’s convertible notes and warrants. Pursuant to the terms provided
for in the Fifth Purchase Agreement, the Company issued for an aggregate subscription amount of $333,333: (i) 10% Original Issue
Discount 5% Senior Secured Convertible Notes in the aggregate principal amount of $333,333 (the “March 2018 Notes”)
and (ii) warrants (the “March 2018 Warrants”) to purchase an aggregate of 16,667 shares of the Company’s common
stock at an exercise price of $30.00 per share. The aggregate principal amount of the March 2018 Notes is $333,333 and as of the
date the Company received $61,000 after giving effect to the original issue discount of $33,333 and offering costs of $10,000
which are treated as a debt discount, the payment of legal and accounting fees of $29,000 not related to March 2018 Notes and
the funding of an escrow account held by an escrow agent of $200,000. The March 2018 Notes bear interest at a rate of 5% per year
(which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2018
Notes)), have a maturity date of November 13, 2018 and the principal and interest are convertible at any time at a conversion
price equal to $15.00 per share (subject to adjustment as provided in the March 2018 Notes); provided, however, that if an event
of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the March 2018 Notes shall
be convertible and the March 2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading
days of the common stock as reported on the OTCQB or other principal trading market (the “Default Conversion Price”).
The March 2018 Notes are currently in default. The March 2018 Notes provide for amortization payments on each of the six-month
anniversary of the issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment
being one third of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization
payment is made in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month
or the maturity date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization
payment. The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions.
The March 2018 Notes may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i)
115% of outstanding principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue
date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest from the fifth month anniversary
of the issue date through the six month anniversary of the issue date. In order to prepay the March 2018 Notes, the Company shall
provide 20 trading days prior written notice to the holders, during which time a holder may convert its March 2018 Notes in whole
or in part at the conversion price. Pursuant to a securities purchase agreement dated September 24, 2018, the Company purchased
back, from one Purchaser, a convertible note with $111,111 and $97,383 outstanding principal and accrued interest, respectively
(see-Puritan Settlement Agreement below). During the nine months ended September 30, 2019, the Purchasers converted
$69,444 and $612 outstanding principal and accrued interest, respectively, of the March 2017 Notes into 21,779 shares of common
stock. As September 30, 2019, the March 2018 Notes had outstanding principal and accrued interest of $152,778 and $39,431, respectively.
The
March 2018 Notes and related March 2018 Warrants includes; (i) down-round provision under which the conversion price and exercise
price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts
at inception; and (ii) default conversion and exercise price provisions where, the March 2018 Notes shall be convertible and shall
be exercisable at the Default Conversion Price as defined above. Pursuant to a securities purchase agreement dated September 24,
2018, the Company purchased back, from one Purchaser, warrants to purchase 15,117 (post anti-dilution) of the Company’s
common stock (see-Puritan Settlement Agreement below). The total number of March 2018 Warrants was increased, during
the nine months ended September 30, 2019, on a full ratchet basis from 16,667 warrants to 1,445,734, an aggregate increase
of 1,429,067 warrants. As of September 30, 2019, there were 1,430,616 warrants outstanding under the March 2018 Warrants (see
Note 8).
July
2018 Financing
On
July 25, 2018, the Company entered into a securities purchase agreement (the “Sixth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $150,000 (the “July
2018 Note”). The July 2018 Note bears interest at 8% per year and matures on July 24, 2019. The July 2018 Note is convertible
into common stock at a 25% discount to the average of the closing prices of the common stock for the prior five trading days including
the date upon which a notice of conversion is received by the Company or its transfer agent. The holder will not have the right
to convert any portion of its note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the
number of shares of common stock outstanding immediately after giving effect to its conversion. The July 2018 Note may be prepaid
at the Company’s option at a 105% premium between 30 days and 180 days after issuance, and at a 110% premium between 180
days after issuance and the maturity date. Upon certain events defined in the note as “sale events”, the holder may
demand repayment of the note for 125% of the principal plus accrued but unpaid interest. The note also includes certain penalties
upon the occurrence of an event of default, including an increase in the principal and reduction in the conversion rate, as further
described in the July 2018 Note. The Company agreed to use its best efforts to file a proxy statement and take all necessary corporate
actions in order to obtain shareholder approval to increase its authorized shares of common stock or effect a reverse split to
allow for reserving sufficient shares of common stock to allow for full conversion of the July 2018 Note. The July 2018 Note is
currently in default. As of September 30, 2019, the July 2018 Note had outstanding principal and accrued interest of $150,000
and $19,537, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
September
2018 Financing
On
September 24, 2018, the Company entered into a securities purchase agreement (the “Seventh Purchase Agreement” and
together with the Amended and Restated Purchase Agreements and the Second, Third, Fourth, Fifth and Sixth Purchase Agreement,
the “Securities Purchase Agreements”) with four accredited investors (the “Seventh Round Purchasers” and
together with the Purchasers, the “Note Purchasers”) for the sale of the Company’s convertible notes and warrants.
Pursuant to the Seventh Purchase Agreement, the Company issued to the Seventh Round Purchasers for an aggregate subscription amount
of $1,361,111; (i) 10% Original Issue Discount 5% Senior Convertible Notes in the aggregate principal amount of $1,361,111 (the
“September 2018 Notes”) and (ii) 5 year warrants (the “September 2018 Warrants”) to purchase an aggregate
of 68,056 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain
conditions as defined in the September 2018 Warrants). The Company received $1,181,643 in aggregate net proceeds from the sale,
net of $136,111 original issue discount and $43,357 in legal fees. The September 2018 Notes bear interest at a rate of 5% per
year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the September
2018 Notes)), had a maturity date of May 24, 2019 and the principal and interest are convertible at any time at a conversion
price equal to $15.00 per share (subject to adjustment as provided in the September 2018 Notes); provided, however, that if an
event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the September 2018
Notes shall be convertible and the September 2018 Warrants shall be exercisable at 60% of the lowest closing price during the
prior twenty trading days (the “Default Conversion Price”). The September 2018 Notes are currently in default. The
September 2018 Notes provide for amortization payments on each of the six-month anniversary of the issue date, seven-month anniversary
of the issue date and on the maturity date with each amortization payment being one third of the total outstanding principal and
all interest accrued as of the payment date. If the six-month amortization payment is made in cash then the Company shall pay
the holder 110% of the applicable amortization payment and if the seven-month or the maturity date amortization payments are made
in cash then the Company shall pay the holder 115% of the applicable amortization payment. The holder may elect at its option
to receive the amortization payments in common stock subject to certain equity conditions. The Notes may be prepaid at any time
until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the note
and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120% of outstanding principal balance
of the notes and accrued and unpaid interest during month six following the original issuance date of the notes. In order to prepay
the notes, the Company shall provide 20 trading days prior written notice to the holders, during which time a holder may convert
its note in whole or in part at the conversion price. During the nine months ended September 30, 2019, the Purchasers converted
$58,073 and $28,234 outstanding principal and accrued interest, respectively, of the September 2018 Notes into 39,934 shares of
common stock. As of September 30, 2019, the September 2018 Notes had outstanding principal and accrued interest of $1,303,038
and $90,165, respectively.
The
initial exercise price of the September 2018 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The September 2018 Warrants are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants. Accordingly, pursuant to the default provisions, the September 2018 Notes shall be convertible
and the September 2018 Warrants shall be exercisable at the Default Conversion Price as defined above. The total number of September
2018 Warrants was increased, during the nine months ended September 30, 2019, on a full ratchet basis from 68,056 warrants
to 8,762,518, an aggregate increase of 8,694,462 warrants (see Note 8). As of September 30, 2019, there were 8,762,518 warrants
outstanding under the September 2018 Warrants.
November
2018 Financing
On November 13, 2018, the Company entered
into a securities purchase agreement (the “Eighth Purchase Agreement”) with an institutional accredited investor (the
“Eighth Round Purchaser”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighth
Purchase Agreement, the Company issued to the Eighth Round Purchasers for an aggregate subscription amount of $127,778: (i) 10%
Original Issue Discount 5% Senior Convertible Note in the aggregate principal amount of $127,778 (the “November 2018 Note”)
and (ii) 5 year warrants (the “November 2018 Warrants”) to purchase an aggregate of 6,389 shares of the Company’s
common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the November
2018 Warrants). The Company received $112,500 in aggregate net proceeds from the sale, net of $12,778 Original Issue Discount
and $2,500 of legal fees. The November 2018 Note bears interest at a rate of 5% per year (which interest rate shall be
increased to 18% per year upon the occurrence of an Event of Default (as defined in the November 2018 Note)), has a maturity date
of July 13, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject
to adjustment as provided in the November 2018 Note); provided, however, that if an Event of Default has occurred, regardless
of whether such Event of Default has been cured or remains ongoing, the November 2018 Note shall be convertible and the November
2018 Warrants shall be exercisable at 60% of the lowest closing price during the prior twenty trading days (the “Default
Conversion Price”). The November 2018 Note provides for amortization payments on each of the six-month anniversary of the
issue date, seven-month anniversary of the issue date and on the maturity date with each amortization payment being one third
of the total outstanding principal and all interest accrued as of the payment date. If the six-month amortization payment is made
in cash then the Company shall pay the holder 110% of the applicable amortization payment and if the seven-month or the maturity
date amortization payments are made in cash then the Company shall pay the holder 115% of the applicable amortization payment.
The holder may elect at its option to receive the amortization payments in common stock subject to certain equity conditions.
The Note may be prepaid at any time until the 180th day following the original issue date at an amount equal to (i) 115% of outstanding
principal balance of the Note and accrued and unpaid interest through the five month anniversary of the issue date, and (ii) 120%
of outstanding principal balance of the Note and accrued and unpaid interest during month six following the original issuance
date of the notes. In order to prepay the notes, the Company shall provide 20 trading days prior written notice to the holders,
during which time a holder may convert its note in whole or in part at the conversion price. As of September 30, 2019, the November
2018 Note is currently in default and had outstanding principal and accrued interest of $127,778 and $11,490, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
initial exercise price of the November 2018 Warrants was $30.00 per share, subject to adjustment as described below, and
are exercisable for five years after the issuance date. The November 2018 Warrants are exercisable for cash at any
time and is exercisable on a cashless basis at any time there is no effective registration statement registering the shares of
common stock underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock
dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock
and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise
price of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share
lower than the then-current exercise price of the warrant in the two years after the issue date of the Warrants (“Dilutive
Issuances”). Accordingly, pursuant to the default provisions, the November 2018 Warrant shall be exercisable at the
Default Conversion Price as defined above. The total number of November 2018 Warrants was increased on a full ratchet basis from
6,389 warrants to 822,604, an aggregate increase of 816,215 warrants. As of September 30, 2019, there were 822,604 warrants
outstanding under the November 2018 Warrants (see Note 8).
January
2019 Financing
On
January 18, 2019, the Company entered into a securities purchase agreement (the “Ninth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $146,875 (the “January
2019 Note I”). The closing occurred on January 22, 2019, with the Company receiving net proceeds of $125,000, net of 12,500
OID and $9,375 of legal fees. The January 2019 Note I had an interest rate of 5% per annum and matures on January 18, 2020. During
the first six months the January 2019 Note I may be converted, all or a portion, of the outstanding principal into shares of the
Company’s common stock at a fixed conversion price of $15.00 per share. Starting on the six-month anniversary, the conversion
price shall be equal to 60% of the lowest trading price of the common stock during the 20 prior trading days (including the day
upon which a notice of conversion is received). The January 2019 Note I may not be converted to the extent that such conversion
would result in beneficial ownership by the purchaser and its affiliates to exceed more than 9.9% of the Company’s issued
and outstanding common stock. If the Company prepays the January 2019 Note I within 150 days of its issuance, the Company must
pay the principal at a cash redemption premium of 115%, in addition to accrued interest; if such prepayment is made from the151st
day to the 180th day after issuance, then such redemption premium is 120%, in addition to accrued interest. After the 180th day
following the issuance of the January 2019 Note I, there shall be no further right of prepayment. During the nine months ended
September 30, 2019, the Purchaser converted $46,875 and $1,246 of outstanding principal and accrued interest, respectively, into
35,216 shares of the Company’s common stock. As of September 30, 2019, the January 2019 Note I was in default and had outstanding
principal and accrued interest of $100,000 and $4,325, respectively.
On
January 18, 2019, the Company entered into a securities purchase agreement (the “Tenth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $88,125 (the “January
2019 Note II”). The closing occurred on January 29, 2019, with the Company receiving net proceeds of $75,000, net of $7,500
OID and $5,625 of legal fees. The January 2019 Note II had an interest rate of 5% per annum and matures on January 18, 2020. During
the first six months the January 2019 Note II is in effect, the purchaser may convert all or a portion of the outstanding principal
of the January 2019 Note II into shares of the Company’s common stock at a fixed conversion price of $15.00 per share. Starting
on the six-month anniversary, the conversion price shall be equal to 60% of the lowest trading price of the common stock during
the 20 prior trading days (including the day upon which a notice of conversion is received). The purchaser may not convert the
January 2019 Note II to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates
of more than 9.9% of the Company’s issued and outstanding common stock. If the Company prepays the January 2019 Note II
within 150 days of its issuance, the Company must pay the principal at a cash redemption premium of 115%, in addition to accrued
interest; if such prepayment is made from the151st day to the 180th day after issuance, then such redemption premium is 120%,
in addition to accrued interest. After the 180th day following the issuance of the January 2019 Note II, there shall be no further
right of prepayment. During the nine months ended September 30, 2019, the Purchasers converted $15,000 and $16 outstanding principal
and accrued interest, respectively, into 3,708 shares of the Company’s common stock. As of September 30, 2019, the January
2019 Note II was in default and had outstanding principal and accrued interest of $73,125 and $7,128, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
March
2019 Financing
On
March 25, 2019, the Company entered into a securities purchase agreement (the “Eleventh Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Eleventh Purchase Agreement, the Company issued to
the Eleventh Round Purchaser for an aggregate subscription amount of $50,000: (i) 10% Original Issue Discount and 5% Senior Convertible
Notes in the aggregate principal amount of $55,556 (the “March 2019 Note”) and (ii) 5 year warrants (the “March
2019 Warrants”) to purchase an aggregate of 2,778 shares of the Company’s common stock at an exercise price of $30.00
per share (subject to adjustments under certain conditions as defined in the March 2019 Warrants). The Company received $50,000
in net proceeds from the sale, net of $5,556 OID. The March 2019 Note bears an interest rate of 5% per year (which interest rate
shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the March 2019 Note)), shall mature
on November 25, 2019 and the principal and interest are convertible at any time at a conversion price equal to $15.00 per share
(subject to adjustment as provided in the March 2019 Note); provided, however, that if an Event of Default has occurred,
regardless of whether such Event of Default has been cured or remains ongoing, the March 2019 Note shall be convertible and the
March 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading
market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the March
2019 Note to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates of more
than 9.9% of the Company’s issued and outstanding common stock. The March 2019 Note may be prepaid at any time until the
180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the March 2019 Note
and accrued and unpaid interest during the period from the original issue date through the five months following the original
issue date, and (ii) 120% of the outstanding principal balance of the March 2019 Note and accrued and unpaid interest during month
six following the original issue date. In order to prepay the March 2019 Note, the Company shall provide twenty trading days prior
written notice to the lender, during which time the purchaser may convert the March 2019 Note in whole or in part at the conversion
price. As of September 30, 2019, the March 2019 Note was in default (under provision Section 7(a)(i) of the note) and had
outstanding principal and accrued interest of $55,556 and $3,991, respectively.
The
initial exercise price of the March 2019 Warrants was $30.00 per share, subject to adjustment as described below, and are
exercisable for five years after the issuance date. The March 2019 Warrants are exercisable for cash at any time and are exercisable
on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying
the warrants. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
Accordingly, pursuant to the default provisions, the March 2019 Warrants shall be convertible shall be exercisable at the
Default Conversion Price as defined above. The total number of March 2019 Warrants was increased, during the nine months ended
September 30, 2019, on a full ratchet basis from 2,778 warrants to 357,645, an aggregate increase of 354,867 warrants. As
of September 30, 2019, there were 357,645 warrants outstanding under the March 2019 Warrants (see Note 8).
April
2019 Financings
On
April 1, 2019, the Company entered into a securities purchase agreement (the “Twelfth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Twelfth Purchase Agreement, the Company issued to
the Twelfth Round Purchaser a Note (“April 2019 Note I”) for a principal amount of $27,778 with 10% OID and 5 year
warrants (the “April 2019 Warrants I”) to purchase an aggregate of 1,389 shares of the Company’s common stock
at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the April 2019 Warrants
I). The Company received net proceeds of $25,000, net of $2,778 OID. The April 2019 Note I bears an interest rate of 5% per year
(which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the April 2019
Note I)), shall mature on December 2, 2019 and the principal and interest are convertible at any time at a conversion price equal
to $15.00 per share (subject to adjustment as provided in the April 2019 Note I); provided, however, that if an event of default
has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the April 2019 Note I shall be convertible
and the April 2019 Warrants I shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal
trading market, during the prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert
the April 2019 Note I to the extent that such conversion would result in beneficial ownership by the purchaser and its affiliates
of more than 9.9% of the Company’s issued and outstanding common stock. The April 2019 Note I may be prepaid at any time
until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April
2019 Note I and accrued and unpaid interest during the period from the original issue date through the five months following the
original issue date, and (ii) 120% of the outstanding principal balance of the April 2019 Note I and accrued and unpaid interest
during month six following the original issue date. In order to prepay the April 2019 Note I, the Company shall provide twenty
trading days prior written notice to the lender, during which time the purchaser may convert the April 2019 Note I in whole or
in part at the conversion price. As of September 30, 2019, the April 2019 Note I was in default (under provision Section 7(a)(i)
of the note) and had outstanding principal and accrued interest of $27,778 and $1,965, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
initial exercise price of the April 2019 Warrants I was $30.00 per share, subject to adjustment as described below, and
are exercisable for five years after the issuance date. The April 2019 Warrants I are exercisable for cash at any time and are
exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock
underlying the warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default
provision, the April 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price
of the warrants is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower
than the then-current exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive
Issuances”). The total number of April 2019 Warrants I was increased on a full ratchet basis, during the nine months
ended September 30, 2019, from 1,389 warrants to 178,827, an aggregate increase of 177,438 warrants. As of September 30, 2019,
there were 178,827 warrants outstanding under the April 2019 Warrants I (see Note 8).
On
April 29, 2019, the Company entered into a securities purchase agreement (the “Thirteenth Purchase Agreements”) for
the sale of the Company’s convertible notes and warrants. Pursuant to the Thirteenth Purchase Agreements, the Company issued
to the Thirteenth Round Purchasers a note (the “April 2019 Notes II”) for an aggregate principal amount of $205,279
with 10% Original Issue Discount and five-year warrants (the “April 2019 Warrants II”) to purchase an aggregate of
10,264 shares of the Company’s common stock at an exercise price of $30.00 per share (subject to adjustments under certain
conditions as defined in the April 2019 Warrants II). The Company received $185,450 in aggregate net proceeds from the sale, net
of $19,829 OID. The April 2019 Notes II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per
year upon the occurrence of an Event of Default (as defined in the April 2019 Notes II)), shall mature on December 29, 2019 and
the principal and interest are convertible at any time at a conversion price equal to $15.00 per share (subject to adjustment
as provided in the April 2019 Notes II); provided, however, that if an event of default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the April 2019 Notes II shall be convertible and the April 2019 Warrants II
shall be exercisable at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the
prior twenty trading days (the “Default Conversion Price”). The purchaser may not convert the April 2019 Notes II
to the extent that such conversion would result in beneficial ownership by a purchaser and its affiliates of more than 9.9% of
the Company’s issued and outstanding common stock. The April 2019 Notes II may be prepaid at any time until the 180th following
the original issue date at an amount equal to (i) 115% of outstanding principal balance of the April 2019 Notes II and accrued
and unpaid interest during the period from the original issue date through the five months following the original issue date,
and (ii) 120% of the outstanding principal balance of the April 2019 Notes II and accrued and unpaid interest during month six
following the original issue date. In order to prepay the April 2019 Notes II, the Company shall provide twenty trading days prior
written notice to the lender, during which time the purchaser may convert the April 2019 Notes II in whole or in part at the conversion
price. As of September 30, 2019, the April 2019 Notes II were in default and had outstanding principal and accrued interest of
$205,279 and $13,763, respectively.
The
initial exercise price of the April 2019 Warrants II is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The April 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
April 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of April 2019 Warrants II was increased on a full ratchet basis, during the nine months ended September
30, 2019, from 10,264 warrants to 1,321,531, an aggregate increase of 1,311,267 warrants. As of September 30, 2019, there
were 1,321,531 warrants outstanding under the April 2019 Warrants II (see Note 8).
May
2019 Financing
On
May 29, 2019, the Company entered into a securities purchase agreement (the “Fourteenth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Fourteenth Purchase Agreement, the Company issued
to the Fourteenth Round Purchasers a note (the “May 2019 Notes”) for an aggregate principal of $10,000 with 10% OID
and five-year warrants (the “May 2019 Warrants”) to purchase an aggregate of 500 shares of the Company’s
common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the May 2019
Warrants). The Company received $9,000 in aggregate net proceeds from the sale, net of $1,000 OID. The May 2019 Notes bears an
interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event of Default
(as defined in the May 2019 Notes)), shall mature on January 29, 2020 and the principal and interest are convertible at any time
at a conversion price equal to $15.00 per share (subject to adjustment as provided in the May 2019 Notes); provided, however,
that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing, the May
2019 Notes shall be convertible and the May 2019 Warrants shall be exercisable at 60% of the lowest closing price, as reported
on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion Price”).
The purchaser may not convert the May 2019 Notes to the extent that such conversion would result in beneficial ownership by a
purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The May 2019 Notes
may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of outstanding principal
balance of the May 2019 Notes and accrued and unpaid interest during the period from the original issue date through the five
months following the original issue date, and (ii) 120% of the outstanding principal balance of the May 2019 Notes and accrued
and unpaid interest during month six following the original issue date. In order to prepay the May 2019 Notes, the Company shall
provide twenty trading days prior written notice to the lender, during which time the purchaser may convert the May 2019 Notes
in whole or in part at the conversion price. As of September 30, 2019, the May 2019 Notes were in default and had outstanding
principal and accrued interest of $10,000 and $451, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
initial exercise price of the May 2019 Warrants is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The May 2019 Warrants are exercisable for cash at any time and are exercisable on a cashless
basis at any time there is no effective registration statement registering the shares of common stock underlying the warrants.
The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
May 2019 Warrants shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants is
also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of May 2019 Warrants was increased on a full ratchet basis, during the nine months ended September 30,
2019, from 500 warrants to 64,378, an aggregate increase of 63,878 warrants. As of September 30, 2019, there were 64,378 warrants
outstanding under the May 2019 Warrants (see Note 8).
June
2019 Financing
On
June 3, 2019, the Company entered into a securities purchase agreement (the “Fifteenth Purchase Agreement”) for the
sale of the Company’s convertible notes and warrants. Pursuant to the Fifteenth Purchase Agreement, the Company issued to
the Fifteenth Round Purchasers a note (the “June 2019 Note I”) with an aggregate principal of $129,167 with 10% OID
and five- year warrants (the “June 2019 Warrants I”) to purchase an aggregate of 6,458 shares of the Company’s
common stock at an exercise price of $30.00 per share (subject to adjustments under certain conditions as defined in the June
2019 Warrants I). The Company received $116,250 in aggregate net proceeds from the sale, net of $12,917 OID. The June 2019 Note
I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence of an Event
of Default (as defined in the June 2019 Note I)), shall mature on February 3, 2020 and the principal and interest are convertible
at any time at a conversion price equal to $15.00 per share (subject to adjustment as provided in the June 2019 Note I); provided,
however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains ongoing,
the June 2019 Note I shall be convertible and the June 2019 Warrants I shall be exercisable at 60% of the lowest closing price,
as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default Conversion
Price”). The purchaser may not convert the June 2019 Note I to the extent that such conversion would result in beneficial
ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common stock. The
June 2019 Note I may be prepaid at any time until the 180th following the original issue date at an amount equal to (i) 115% of
outstanding principal balance and accrued and unpaid interest during the period from the original issue date through the five
months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and unpaid interest during
month six following the original issue date. In order to prepay the June 2019 Note I, the Company shall provide twenty trading
days prior written notice to the lender, during which time the purchaser may convert the June 2019 Note I in whole or in part
at the conversion price. As of September 30, 2019, the June 2019 Note I was in default and had outstanding principal and accrued
interest of $129,167 and $5,740, respectively.
The
initial exercise price of the June 2019 Warrants I is $30.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The June 2019 Warrants I are exercisable for cash at any time and are exercisable on a
cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
June 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of June 2019 Warrants I was increased, during the nine months ended September 30, 2019, on a full
ratchet basis from 6,458 warrants to 831,545, an aggregate increase of 825,087 warrants. As of September 30, 2019, there were
831,545 warrants outstanding under the June 2019 Warrants I (see Note 8).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
On
June 26, 2019, the Company entered into a securities purchase agreement (the “Sixteenth Purchase Agreement”) for the
sale of the Company’s convertible note and warrants. Pursuant to the Sixteenth Purchase Agreement, the Company issued to
the Sixteenth Round Purchaser a note (the “June 2019 Note II”) with a principal amount of $55,556 with 10% OID and
five- year warrants (the “June 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the Company’s
common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined in the June
2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue discount.
The June 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence
of an Event of Default (as defined in the June 2019 Note II)), shall mature on February 26, 2020 and the principal and interest
are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the June 2019
Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured
or remains ongoing, the June 2019 Note II shall be convertible and the June 2019 Warrants II shall be exercisable at 60% of the
lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days (the “Default
Conversion Price”). The purchaser may not convert the June 2019 Note II to the extent that such conversion would result
in beneficial ownership by a purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding common
stock. The June 2019 Note II may be prepaid at any time until the 180th following the original issue date at an amount equal to
(i) 115% of outstanding principal balance of the June 2019 Note I and accrued and unpaid interest during the period from the original
issue date through the five months following the original issue date, and (ii) 120% of the outstanding principal balance of the
June 2019 Note II and accrued and unpaid interest during month six following the original issue date. In order to prepay the June
2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during which time the purchaser
may convert the June 2019 Note II in whole or in part at the conversion price. As of September 30, 2019, the June 2019 Note II
was in default and had outstanding principal and accrued interest of $55,556 and $2,294, respectively.
The
initial exercise price of the June 2019 Warrants II is $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The June 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
June 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of June 2019 Warrants II was increased, during the nine months ended September 30, 2019, on a full ratchet
basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were 357,654
warrants outstanding under the June 2019 Warrants II (see Note 8).
July
2019 Financing
On
July 2, 2019, the Company closed a securities purchase agreement (the “Seventeenth Purchase Agreement”), dated June
26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Seventeenth Purchase Agreement,
the Company issued to the Seventeenth Round Purchaser a note (the “July 2019 Note I”) for a principal amount of $55,556
with 10% OID and five- year warrants (the “July 2019 Warrants I”) to purchase an aggregate of 5,556 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the July 2019 Warrants I). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue
discount. The July 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon
the occurrence of an Event of Default (as defined in the July 2019 Note I)), shall mature on February 26, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the July 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the July 2019 Note I shall be convertible and the July 2019 Warrants I shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note I to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The July 2019 Note I may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the July 2019 Note I and accrued and unpaid interest during month six following the original issue date.
In order to prepay the July 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the July 2019 Note I in whole or in part at the conversion price. As of September 30, 2019,
the July 2019 Note I was in default and had outstanding principal and accrued interest of $55,556 and $2,248, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
initial exercise price of the July 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The July 2019 Warrants I are exercisable for cash at any time and are exercisable on a
cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
July 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of July 2019 Warrants I was increased, during the three months ended September 30, 2019, on a full ratchet
basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were 357,654
warrants outstanding under the July 2019 Warrants I (see Note 8).
On
July 8, 2019, the Company closed a securities purchase agreement (the “Eighteenth Purchase Agreement”), dated June
26, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Eighteenth Purchase Agreement, the
Company issued to the Eighteenth Round Purchaser a note (the “July 2019 Note II”) for principal amount of $55,556
with 10% OID and five-year warrants (the “July 2019 Warrants II”) to purchase an aggregate of 5,556 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the July 2019 Warrants II). The Company received $50,000 in aggregate net proceeds from the sale, net of $5,556 original issue
discount. The July 2019 Note II bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year
upon the occurrence of an Event of Default (as defined in the July 2019 Note II)), shall mature on February 26, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the July 2019 Note II); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the July 2019 Note II shall be convertible and the July 2019 Warrants II shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the July 2019 Note II to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The July 2019 Note II may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the July 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the July 2019 Note II and accrued and unpaid interest during month six following the original issue date.
In order to prepay the July 2019 Note II, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the July 2019 Note II in whole or in part at the conversion price. As of September 30, 2019,
the July 2019 Note II was in default and had outstanding principal and accrued interest of $55,556 and $2,202, respectively.
The
initial exercise price of the July 2019 Warrants II is $15.00 per share, subject to adjustment as described below and are exercisable
for five years after the issuance date. The July 2019 Warrants II are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
July 2019 Warrants II shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants (“Dilutive Issuances”).
The total number of July 2019 Warrants II was increased, during the three months ended September 30, 2019, on a full
ratchet basis from 5,556 warrants to 357,654, an aggregate increase of 352,098 warrants. As of September 30, 2019, there were
357,654 warrants outstanding under the July 2019 Warrants II (see Note 8).
August
2019 Financing
On
August 19, 2019, the Company closed a securities purchase agreement (the “Nineteenth Purchase Agreement”), dated July
30, 2019, for the sale of the Company’s convertible notes and warrants. Pursuant to the Nineteenth Purchase Agreement,
the Company issued to the Nineteenth Round Purchaser a note (the “August 2019 Note I”) for principal amount of $27,778
with 10% OID and five-year warrants (the “August 2019 Warrants I”) to purchase an aggregate of 2,778 shares of the
Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain conditions as defined
in the August 2019 Warrants I). The Company received $25,000 in aggregate net proceeds from the sale, net of $2,778 original issue
discount. The August 2019 Note I bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year
upon the occurrence of an Event of Default (as defined in the August 2019 Note I)), shall mature on March 30, 2020 and the principal
and interest are convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in
the August 2019 Note I); provided, however, that if an event of default has occurred, regardless of whether such Event of Default
has been cured or remains ongoing, the August 2019 Note I shall be convertible and the August 2019 Warrants I shall be exercisable
at 60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading
days (the “Default Conversion Price”). The purchaser may not convert the August 2019 Note I to the extent that such
conversion would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued
and outstanding common stock. The August 2019 Note I may be prepaid at any time until the 180th following the original issue date
at an amount equal to (i) 115% of outstanding principal balance of the August 2019 Note I and accrued and unpaid interest during
the period from the original issue date through the five months following the original issue date, and (ii) 120% of the outstanding
principal balance of the August 2019 Note I and accrued and unpaid interest during month six following the original issue date.
In order to prepay the August 2019 Note I, the Company shall provide twenty trading days prior written notice to the lender, during
which time the purchaser may convert the August 2019 Note I in whole or in part at the conversion price. As of September 30, 2019,
the August 2019 Note I had outstanding principal and accrued interest of $27,778 and $160, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
initial exercise price of the August 2019 Warrants I is $15.00 per share, subject to adjustment as described below, and are exercisable
for five years after the issuance date. The August 2019 Warrants I are exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. Pursuant to the default provision, the
August 2019 Warrants I shall be exercisable at the Default Conversion Price as defined above. The exercise price of the warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants. As of September 30, 2019, there
were 2,778 warrants outstanding under the August 2019 Warrants I (see Note 8).
On
August 28, 2019, the Company entered into a securities purchase agreement (the “Twentieth Securities Purchase Agreement”)
with an institutional investor for the sale of a convertible note in the aggregate principal amount of $29,700 (the “August
2019 Notes II”). The Company received net proceeds of $25,000, net of OID and legal fees of $4,700. The August 2019 Note
II has an interest rate of 5% per annum and matures on August 27, 2020. During the first six months the August 2019 Note II may
be converted, all or a portion, of the outstanding principal into shares of the Company’s common stock at a fixed conversion
price of $7.50 per share. Starting on the six-month anniversary, the conversion price shall be equal to 60% of the lowest closing
bid price of the common stock during the 20 prior trading days (including the day upon which a notice of conversion is received).
The August 2019 Note II may not be converted to the extent that such conversion would result in beneficial ownership by the purchaser
and its affiliates to exceed more than 9.9% of the Company’s issued and outstanding common stock. The August 2019 Note II
can be prepaid during the first 180 days for a redemption price equal to 140% of the sum of the outstanding principal and accrued
interest and shall forfeit the right of prepayment after the 180th day following the issuance date. As of September 30, 2019,
the August 2019 Note II had outstanding principal and accrued interest of $29,700 and $134, respectively.
September
2019 Financing
On
September 27, 2019, the Company closed a securities purchase agreement dated September 25, 2019 (the “Twenty-first
Purchase Agreement”), for the sale of the Company’s convertible notes and warrants. Pursuant to the Twenty-first Purchase
Agreement, the Company issued to the Twenty-first Round Purchaser a note (the “September 2019 Note”) for principal
amount of $166,667 with 10% OID and five-year warrants (the “September 2019 Warrants”) to purchase an aggregate of
16,667 shares of the Company’s common stock at an exercise price of $15.00 per share (subject to adjustments under certain
conditions as defined in the September 2019 Warrants). The Company received $150,000 in net proceeds, net of $16,667 OID. The
September 2019 Note bears an interest rate of 5% per year (which interest rate shall be increased to 18% per year upon the occurrence
of an Event of Default (as defined in the September 2019 Note)), shall mature on May 27, 2020 and the principal and interest are
convertible at any time at a conversion price equal to $7.50 per share (subject to adjustment as provided in the September 2019
Note); provided, however, that if an Event of Default has occurred, regardless of whether such Event of Default has been
cured or remains ongoing, the September 2019 Note shall be convertible and the September 2019 Warrants shall be exercisable at
60% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the prior twenty trading days
(the “Default Conversion Price”). The purchaser may not convert the September 2019 Note to the extent that such conversion
would result in beneficial ownership by the purchaser and its affiliates of more than 9.9% of the Company’s issued and outstanding
common stock. The September 2019 Note may be prepaid at any time until the 180th following the original issue date at an amount
equal to (i) 115% of outstanding principal balance and accrued and unpaid interest during the period from the original issue date
through the five months following the original issue date, and (ii) 120% of the outstanding principal balance and accrued and
unpaid interest during month six following the original issue date. The Company shall provide twenty trading days prior written
notice to the lender, during which time the purchaser may convert the September 2019 Note in whole or in part at the conversion
price. As of September 30, 2019, the September 2019 Note had outstanding principal and accrued interest of $166,667 and $0, respectively.
The
initial exercise price of the September 2019 Warrants is $15.00 per share, subject to adjustment as described below, and is exercisable
for five years after the issuance date. The September 2019 Warrants is exercisable for cash at any time and are exercisable on
a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the
warrants. The exercise price of the warrants is subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants
is also subject to full ratchet price adjustment if the Company issues common stock at a price per share lower than the then-current
exercise price of the warrants in the two years after the issue date of the Warrants. In an Event of Default, pursuant
to the default provision, the September 2019 Warrants shall be exercisable at the Default Conversion Price as defined above.
As of September 30, 2019, there were 16,667 warrants outstanding under the September 2019 Warrants (see Note 8).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
June 2017, July 2017, January 2018, March 2018, July 2018, September 2018, November 2018, January 2019, March 2019, April 2019,
May 2019, June 2019, July 2019, August 2019 and September 2019 Notes (collectively, the “Notes”) contain certain covenants
such as default provisions, restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments,
redemptions, payment of cash dividends and the transfer of assets. The Notes also contains certain adjustment provisions that
apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. The conversion
price is also subject to adjustment if the Company issues or sells shares of its common stock for a consideration per share less
than the conversion price then in effect, or issue options, warrants or other securities convertible or exchange for shares of
its common stock at a conversion or exercise price less than the conversion price of these Notes then in effect. If either of
these events should occur, the conversion price is reduced to the lowest price at which these securities were issued or are exercisable.
The Company granted the Note Purchasers certain rights of first refusal on future offerings by the Company for as long as the
Note Purchasers hold the Notes. In addition, subject to limited exceptions, the Note Purchasers will not have the right to convert
any portion of the Notes if the Note Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the
number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion. The Note Purchaser
may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon 61 days prior written notice to
the Company.
The
November 2016, June 2017, July 2017, January 2018, March 2018, September 2018, November 2018 and March 2019, April 2019, May 2019,
June 2019, July 2019, August 2019 and September 2019 Warrants (collectively, the “Warrants”) are exercisable for shares
of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless
basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants.
The exercise price of the Warrants are subject to adjustment in the event of default, certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions
of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants are
also subject to full ratchet price adjustment if the Company sells or grants any option to purchase, sells or re-prices any common
stock or common stock equivalents, as defined, at an exercise price lower than the then-current exercise price of the Warrants
with the exception for certain exempted issuances and subject to certain limitations on the reduction of the exercise price as
provided in the Warrants in the two years after the issue date of the Warrants. In the event of a fundamental transaction,
as described in these warrants and generally including any reorganization, recapitalization or reclassification of the common
stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets, the Company’s
consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding common stock, or any
person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding common stock, the holders
of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property
that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction; provided
that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrants for
cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrants or difference between
the cash per share paid in the fundamental transaction and the exercise price per share. The holders of the Warrants will not
have the right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in
excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Warrants.
To
secure the Company’s obligations under each of the June 2017, July 2017, January 2018, March 2018, September 2018 and November
2018 Notes, the Company entered into Security Agreements, Pledge Agreements and Subsidiary Guaranty’s with Calvary Fund
I LP, as agent, pursuant to which the Company granted a lien on all assets of the Company (the “Collateral”) excluding
permitted indebtedness which included a first lien held by Regions Bank in connection with the $100,000 revolving promissory note
entered into with Regions Bank in October 2014, for the benefit of the Note Purchasers. Upon an Event of Default (as defined in
the related Notes), the Note Purchasers may, among other things, collect or take possession of the Collateral, proceed with the
foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.
During
the nine months ended September 30, 2019, the Company issued an aggregate of 148,834 shares of its common stock upon conversion
of $322,174 and $79,836 of outstanding principal and accrued interest, respectively, of convertible debt (see Note 8). These
shares of common stock had an aggregate fair value $770,609 and the difference between the aggregate fair value and the aggregate
converted amount of $368,599 was recorded as loss on debt extinguishment.
Puritan
Settlement Agreement
On
September 24, 2018, the Company and Puritan Partners LLC (“Puritan”) entered into a securities purchase agreement
(the “Puritan Purchase Agreement”), pursuant to which the Company purchased (using proceeds from the September 2018
Notes) back from Puritan, June 2017, July 2017, January 2018, March 2018 and July 2018 Notes having an aggregate outstanding principal
and accrued but unpaid interest amount of $654,191 and June 2017, January 2018 and March 2018 Puritan Warrants to purchase up
to 33,262 shares of common stock as well as the securities and certain rights associated thereunder for an aggregate purchase
price of $900,000, which was paid on September 26, 2018. In connection with the purchase and extinguishment of the above-mentioned
notes and warrants, the Company paid $245,809 for additional penalties and interest which is reflected in loss on debt extinguishment.
Additionally, the Company revalued the derivative liabilities associated with these notes and warrants and recorded a gain on
debt extinguishment of $1,323,111, during the nine months ended September 30, 2018.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
Derivative
Liabilities Pursuant to Notes and Warrants
In
connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain
terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity
offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other
terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives
and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible
instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair
value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and 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
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to
outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated
balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in
the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statements and there were no
cumulative effect adjustments as there were other notes and warrants provisions that caused derivative treatment.
In
connection with the issuance of the January 2019 and March 2019, April 2019, May 2019, June 2019, July 2019, August 2019 and September
2019 Notes and related Warrants, during nine months ended September 30, 2019, on the initial measurement date, the fair values
of the embedded conversion option derivative and warrants derivative of $352,472 was recorded as derivative liabilities and was
allocated as a debt discount up to the net proceeds of the January 2019 and March 2019, April 2019, May 2019, June 2019, July
2019, August 2019 and September 2019 Notes.
At
the end of the period, the Company revalued the embedded conversion option and warrants derivative liabilities. In connection
with these revaluations and the initial derivative expense, the Company recorded derivative expense (income) of $4,053,257 and
$(4,495,597) for the nine months ended September 30, 2019 and 2018, respectively.
During
the nine months ended September 30, 2019, the fair value of the derivative liabilities was estimated using the Binomial valuation
model with the following assumptions:
Dividend rate
|
|
|
—
|
%
|
Term (in years)
|
|
|
0.01
to 5.00 years
|
|
Volatility
|
|
|
162%
to 247
|
%
|
Risk-free interest rate
|
|
|
1.55%
to 2.42
|
%
|
At
September 30, 2019 and December 31, 2018, the convertible debt consisted of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Principal amount
|
|
$
|
2,987,822
|
|
|
$
|
2,436,394
|
|
Less: unamortized
debt discount
|
|
|
(224,476
|
)
|
|
|
(1,002,142
|
)
|
Convertible note
payable, net
|
|
$
|
2,763,346
|
|
|
$
|
1,434,252
|
|
For
the nine months ended September 30, 2019 and 2018, amortization of debt discounts related to the Notes amounted to $1,248,031
and $848,280, respectively, which has been included in interest expense on the accompanying consolidated statements of operations.
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 principal amount of $538,875. The Loans bear interest at an annual rate
of 33.3%, are unsecured and are in default. As of September 30, 2019, and December 31, 2018, loan principal due to these third
parties amounted to $538,875 for both periods. At September 30, 2019 and December 31, 2018, accrued interest payable related to
these Loans amounted to $384,993 and $250,777, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
NOTE
6 – OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES
In
September 2015, the Company entered into a lease agreement for its corporate facility in Baton Rouge, Louisiana. The lease is
for a period of 60 months commencing in September 2015 and expiring in August 2020. Pursuant to the lease agreement, the lease
requires the Company to pay a monthly base rent of $3,067 plus a pro rata share of operating expenses beginning September 2015
and of monthly base rent $3,200 beginning plus a pro rata share of operating expenses beginning September 2018.
In
adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit
it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct
costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or
less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $59,216.
For
the nine months ended September 30, 2019, lease costs amounted to $36,852 which included base lease costs of $28,800 and common
area and other expenses of $8,052, all of which were expensed during the period and included in general and administrative expenses
on the accompanying condensed consolidated statements of operations.
The
significant assumption used to determine the present value of the lease liability was a discount rate of 10% which was based on
the Company’s estimated incremental borrowing rate.
Right-of-use
asset (“ROU”) is summarized below:
|
|
September
30, 2019
|
|
Operating office lease
|
|
$
|
59,216
|
|
Less accumulated
reduction
|
|
|
(26,647
|
)
|
Balance of ROU asset as of September
30, 2019
|
|
$
|
32,569
|
|
Operating
lease liability related to the ROU asset is summarized below:
|
|
September
30, 2019
|
|
Operating
office lease
|
|
$
|
59,216
|
|
Total lease liabilities
|
|
|
59,216
|
|
Reduction of
lease liability
|
|
|
(26,647
|
)
|
Total as of September 30, 2019
|
|
|
32,569
|
|
Future
base lease payments under the non-cancelable operating lease at September 30, 2019 are as follows:
Years
ending
|
|
Amount
|
|
December 31, 2019
|
|
$
|
9,600
|
|
December 31,
2020
|
|
|
25,600
|
|
Total minimum non-cancelable operating
lease payments
|
|
|
35,200
|
|
Less: discount
to fair value
|
|
|
(2,631
|
)
|
Total lease liability
at September 30, 2019
|
|
$
|
32,569
|
|
NOTE
7 – RELATED-PARTY TRANSACTIONS
Due
to related parties
From
time to time, the Company receives advances from and repays such advances to the Company’s former chief executive officer
for working capital purposes and to repay indebtedness.
For
the nine months ended September 30, 2019, due to related party activity consisted of the following:
|
|
Total
|
|
Balance
due to related parties at December 31, 2018
|
|
$
|
(315,466
|
)
|
Working capital advances received
|
|
|
(31,970
|
)
|
Repayments made
|
|
|
—
|
|
Balance
due to related parties at September 30, 2019
|
|
$
|
(347,436
|
)
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
NOTE
8 – STOCKHOLDERS’ DEFICIT
Shares
Authorized
On
April 3, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 500,000,000
shares to 1,500,000,000 shares (see Note 1). The Company’s 1,520,000,000 authorized shares consisted of 1,500,000,000 shares
of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On
August 6, 2019, the Company filed an amendment to its Articles of Incorporation to increase its authorized common stock from 1,500,000,000
shares to 5,000,000,000 shares (see Note 1). The Company’s 5,020,000,000 authorized shares consist of 5,000,000,000 shares
of common stock at $0.0001 per share par value, and 20,000,000 shares of preferred stock at $0.0001 per share par value.
On
August 28, 2019, the Company filed an amendment to its Articles of Incorporation to implement a reverse stock split
of the Company’s issued and outstanding shares of common and preferred stock at a ratio of 1-for-750 (the
“Reverse Stock Split”), which became effective on September 12,
2019. In addition, the Company amended the articles to reduce the Company’s authorized shares to; (i) 6,666,667
shares of common stock and; (ii) 26,667 shares of preferred stock, including 1,333 shares of Series A Preferred and 10,523
shares of Series B Preferred. The Reverse Stock Split did not have any effect on the stated par value of the common and
preferred stock. All share and per share amounts in the accompanying historical
condensed consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock
Split (see Note 1).
Series
A Preferred Stock
On
August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,333 shares
of the authorized 26,667 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500
votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for
the consent of the stockholders of the Company.
The
holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent
they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. As of September
30, 2019, and December 31, 2018, there were 1,333 shares of the Company’s Series A Preferred Stock issued and outstanding.
Of these shares, 667 are held by a former Chief Executive Officer and a current member of our Board of Directors and 666
shares are held by a former member of our Board of Directors.
Series
B Preferred Stock
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 10,523 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law. The holders of shares of Series B preferred stock are
entitled to dividends or distributions share for share with the holders of the Common Stock, if, as and when declared from time
to time by the Board of Directors. The holders of shares of Series B preferred stock have the following voting rights:
|
●
|
Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
|
|
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
|
|
|
|
|
●
|
Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common Stock
and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after
the rights of the holders of the Series A Preferred Stock have been satisfied.
In
March 2017, the Company issued 3,856 shares of Series B Preferred to Jonathan F. Head, Ph. D, the Company’s Chief Executive
Officer and a member of the Board of Directors of the Company as provided for in the Contribution Agreement and was recorded as
compensation expense. In addition, in March 2017 the Company issued 6,667 shares of Series B Preferred to Banco Actinver for the
benefit of the Vitel Stockholders as partial consideration in the exchange for 100% of the issued and outstanding capital stock
of Vitel. (see Note 3).
On
February 20, 2019, pursuant to the Certificate of Designation, the Company exercised its right to redeem 6,667 shares of the Series
B Preferred outstanding held by to Banco Actinver, S.A., in its capacity as Trustee of the Trust Agreement for the benefit of
Mr. Cosme and Mr. Alaman equal to the stated value. The total redemption price equaled $500 or $0.075 per share of Series
B Preferred. As of September 30, 2019, and December 31, 2018, there were 3,856 and 10,523 shares of Series B Preferred issued
and outstanding, respectively.
Common
Stock
Shares
issued for cash
|
●
|
During
the nine months ended September 30, 2018, pursuant to a unit subscription agreement, the Company issued 800 shares of its
unregistered common stock to an investor for cash proceeds of $6,000, or $7.5 per share.
|
|
|
|
|
●
|
During
the nine months ended September 30, 2019, the Company did not issue any shares of its common stock for cash.
|
Common
stock issued for debt conversion
|
●
|
During
the nine months ended September 30, 2018, the Company issued an aggregate of 61,893 shares of its common stock upon conversion
of $319,359, $39,164 and $55,890 of outstanding principal, accrued interest and default interest, respectively, of convertible
debt.
|
|
|
|
|
●
|
During the nine months ended
September 30, 2019, the Company issued an aggregate of 148,834 shares of its common stock
upon conversion of $322,174 and $79,836 of outstanding principal and accrued interest,
respectively, of convertible debt (see Note 4). These shares of common stock had an
aggregate fair value $770,609
and the difference between the aggregate fair value and the aggregate converted amount
of $368,599 was recorded as loss on debt extinguishment.
|
Shares
issued for cashless exercise of warrants
|
●
|
During
the nine months ended September 30, 2018, the Company issued 43,620 shares of its common stock upon the cashless exercise
of 47,431 of its warrants.
|
|
|
|
|
●
|
During
the nine months ended September 30, 2019, the Company did not issue any shares of its common stock for cashless exercise of
warrants.
|
Warrants
Warrants
issued pursuant to equity subscription agreements
In
2016, in connection with the sale of common stock, the Company issued an aggregate of 1,295 five-year warrants to purchase common
shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of September 30,
2019, and December 31, 2018, 1,292 and 1,295 of these warrants were issued and outstanding, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
In
2017, in connection with the sale of common stock, the Company issued an aggregate of 6,169 five-year warrants to purchase common
shares for an exercise price of $225 per common share to investors pursuant to unit subscription agreements. As of September 30,
2019, and December 31, 2018, 6,169 of these warrants were issued and outstanding.
Outstanding
warrants related to equity subscription agreements as of September 30, 2019 are summarized as follows:
|
|
Original
warrants
issued
|
|
|
Anti-dilution
adjustment
|
|
|
Expired,
Cancelled
or
Forfeited
|
|
|
Total
warrants
exercised
(Cashless
exercise)
|
|
|
Outstanding
warrants
as of
September 30,
2019
|
|
|
Exercise
price at
September 30,
2019
|
|
Warrants related to the
2016 subscription agreements
|
|
|
1,295
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
1,292
|
|
|
$
|
225
|
|
Warrants related
to the 2017 subscription agreements
|
|
|
6,169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,169
|
|
|
$
|
225
|
|
|
|
|
7,464
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
7,461
|
|
|
|
|
|
Warrants
issued pursuant to Securities Purchase Agreements
The
warrants detailed below, issued pursuant to the Securities Purchase Agreements (see Note 4), have initial exercise price between
$15 and $131 (subject to adjustments under certain conditions as defined in the agreements) and includes a down-round provision
under which the exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are
not fixed monetary amounts at inception. It also includes a default provision pursuant to which, these Warrants shall be exercisable
at the Default Conversion Price as defined in the related Notes (see Note 4).
Outstanding
warrants related to Securities Purchase Agreements as of September 30, 2019 are summarized as follows:
|
|
Original
warrants
issued
|
|
|
Cumulative
Anti-dilution
adjustment
|
|
|
Warrants
purchased
back -
Puritan
Settlement
Agreement
(post anti-
dilution)
|
|
|
Total
warrants
exercised
(Cashless
exercise)
|
|
|
Outstanding
warrants
as of
September 30,
2019
|
|
|
Exercise
price at
September 30,
2019
|
|
November 2016 Warrants
|
|
|
3,111
|
|
|
|
39,235
|
|
|
|
—
|
|
|
|
(12,099
|
)
|
|
|
30,247
|
|
|
$
|
4.50
|
|
June 2017 Warrants
|
|
|
2,074
|
|
|
|
58,423
|
|
|
|
—
|
|
|
|
(20,166
|
)
|
|
|
40,331
|
|
|
$
|
4.50
|
|
July 2017 Warrants
|
|
|
6,359
|
|
|
|
99,635
|
|
|
|
—
|
|
|
|
(35,332
|
)
|
|
|
70,662
|
|
|
$
|
4.50
|
|
January 2018 Warrants
|
|
|
11,111
|
|
|
|
952,711
|
|
|
|
(10,078
|
)
|
|
|
—
|
|
|
|
953,744
|
|
|
$
|
0.23
|
|
March 2018 Warrants
|
|
|
16,667
|
|
|
|
1,429,067
|
|
|
|
(15,117
|
)
|
|
|
—
|
|
|
|
1,430,616
|
|
|
$
|
0.23
|
|
September 2018 Warrants
|
|
|
68,056
|
|
|
|
8,694,462
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,762,518
|
|
|
$
|
0.23
|
|
November 2018 Warrants
|
|
|
6,389
|
|
|
|
816,215
|
|
|
|
—
|
|
|
|
—
|
|
|
|
822,604
|
|
|
$
|
0.23
|
|
March 2019 Warrants
|
|
|
2,778
|
|
|
|
354,867
|
|
|
|
—
|
|
|
|
—
|
|
|
|
357,645
|
|
|
$
|
0.23
|
|
April 2019 Warrants I
|
|
|
1,389
|
|
|
|
177,438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178,827
|
|
|
$
|
0.23
|
|
April 2019 Warrants II
|
|
|
10,264
|
|
|
|
1,311,267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,321,531
|
|
|
$
|
0.23
|
|
May 2019 Warrants
|
|
|
500
|
|
|
|
63,878
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,378
|
|
|
$
|
0.23
|
|
June 2019 Warrants I
|
|
|
6,458
|
|
|
|
825,087
|
|
|
|
—
|
|
|
|
—
|
|
|
|
831,545
|
|
|
$
|
0.23
|
|
June 2019 Warrants II
|
|
|
5,556
|
|
|
|
352,098
|
|
|
|
—
|
|
|
|
—
|
|
|
|
357,654
|
|
|
$
|
0.23
|
|
July 2019 Warrants I
|
|
|
5,556
|
|
|
|
352,098
|
|
|
|
—
|
|
|
|
—
|
|
|
|
357,654
|
|
|
$
|
0.23
|
|
July 2019 Warrants II
|
|
|
5,556
|
|
|
|
352,098
|
|
|
|
—
|
|
|
|
—
|
|
|
|
357,654
|
|
|
$
|
0.23
|
|
August 2019 Warrants
|
|
|
2,778
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,778
|
|
|
$
|
15.00
|
|
September 2019 Warrants
|
|
|
16,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,667
|
|
|
$
|
15.00
|
|
|
|
|
171,268
|
|
|
|
15,878,579
|
|
|
|
(25,195
|
)
|
|
|
(67,597
|
)
|
|
|
15,957,055
|
|
|
|
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
During
the nine months ended September 30, 2018, the Company issued 43,620 shares of its common stock upon the cashless exercise of 47,431
of its warrants. No warrants were exercised during the nine months ended September 30, 2019.
Warrants
activities for the nine months ended September 30, 2019 are summarized as follows:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding at December 31, 2018
|
|
|
339,619
|
|
|
$
|
15.75
|
|
|
|
|
|
|
|
|
|
Issued in connection with financings
|
|
|
57,502
|
|
|
|
5.25
|
|
|
|
4.71
|
|
|
|
|
|
Increase in warrants related to default
adjustment
|
|
|
15,567,398
|
|
|
|
0.23
|
|
|
|
4.10
|
|
|
|
|
|
Expired
|
|
|
(3
|
)
|
|
|
225.00
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Balance Outstanding at September
30, 2019
|
|
|
15,964,516
|
|
|
$
|
0.39
|
|
|
|
4.05
|
|
|
$
|
—
|
|
Exercisable at September 30, 2019
|
|
|
15,964,516
|
|
|
$
|
0.39
|
|
|
|
4.05
|
|
|
$
|
—
|
|
Stock
options
Effective
February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option
plan is to enhance the long-term stockholder value of our Company by offering opportunities to directors, key employees, officers,
independent contractors and consultants of our Company to acquire and maintain stock ownership in our Company in order to give
these persons the opportunity to participate in our Company’s growth and success, and to encourage them to remain in the
service of our Company. A total of 57 options to acquire shares of our common stock were authorized under the 2011 stock option
plan and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan, by our board of
directors and during each 12 month period thereafter, our board of directors is authorized to increase the amount of options authorized
under this plan by up to 14 shares. No options were granted under the 2011 stock option plan as of September 30, 2019.
Stock-option
issued during the nine months ended September 30, 2018
On
May 8, 2018, the Company granted an aggregate of 23,334 stock options to purchase 23,334 shares of the Company’s common
stock at $10.13 per share as follows: 20,000 options were granted to officers and directors of the Company, 667 options
were granted to an employee, and 2,667 option to the Company’s scientific advisory board. These options vest in one year
from the grant date and expire on May 8, 2028. The fair value of these option grants was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility
of 243%; risk-free interest rate of 2.81%; and, an estimated term based on the simplified method of 5.5 years. In connection with
these options, the Company valued these options at a fair value of approximately $233,000 and will record stock-based compensation
expense over the vesting term.
Stock-option
issued during the nine months ended September 30, 2019
On
April 24, 2019 the board of directors of the Company granted an aggregate of 23,130 stock options, outside of the plan, to purchase
shares of the Company’s common stock to Dr. Barnett and three non-employee members of the Board, Daniel S. Hoverman, Charles
L. Rice and Neal Holcomb.
Pursuant
to Dr. Barnett’s employment agreement dated December 26, 2018, Dr. Barnett was granted 11,130 stock options with exercise
price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020; (ii) 3,710 on January 9, 2021; and (iii) 3,710 on January
9, 2022 and expire on April 24, 2030. The stock options vest so long as the optionee remains an employee of the Company on the
vesting date (except as otherwise provided for in the employment agreement between the Company and the optionee). The fair value
of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the Company valued these
options at a grant date fair value of $81,803 which will be expensed over the vesting period as stock-based compensation.
The
three non-employee members of the Board were each granted 4,000 stock options for a total of 12,000 stock options with exercise
price of $7.50 per share, vest date of April 24, 2020 and expires on April 24, 2030. The stock options vest so long as the optionee
remains a member of the Board on the vesting date. The fair value of this option grant was estimated on the date of grant using
the Black-Scholes option-pricing model and the Company valued these options at a grant date fair value of $88,200 which will be
expensed over the vesting period as stock-based compensation
During
the nine months ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense of $148,053 and $154,068
related to stock options, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
The
Company uses the Black-Scholes pricing model to determine the fair value of its stock options which requires the Company to make
several key judgments including:
|
●
|
the
value of the Company’s common stock;
|
|
●
|
the
expected life of issued stock options;
|
|
●
|
the
expected volatility of the Company’s stock price;
|
|
●
|
the
expected dividend yield to be realized over the life of the stock option; and
|
|
●
|
the
risk-free interest rate over the expected life of the stock options.
|
The
Company’s computation of the expected life of issued stock options was based on the simplified method as the Company does
not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve
in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common
stock.
At
September 30, 2019, there were 52,730 options issued and outstanding out of which 29,600 options were vested and exercisable.
As of September 30, 2019, there was $109,728 of unvested stock-based compensation expense to be recognized through April 24, 2020.
The aggregate intrinsic value at September 30, 2019 was $0 which was calculated based on the difference between the quoted share
price on September 30, 2019 and the exercise price of the underlying options.
Stock
option activities for the nine months ended September 30, 2019 are summarized as follows:
|
|
Number
of
Option
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding at December 31, 2018
|
|
|
29,600
|
|
|
$
|
45.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
23,130
|
|
|
$
|
9.00
|
|
|
|
10.57
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
|
|
Balance Outstanding at September
30, 2019
|
|
|
52,730
|
|
|
$
|
30.84
|
|
|
|
9.34
|
|
|
$
|
—
|
|
Exercisable at September 30, 2019
|
|
|
29,600
|
|
|
$
|
47.91
|
|
|
|
8.37
|
|
|
$
|
—
|
|
NOTE
9 – 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.
Effective
December 26, 2018, the Company replaced Dr. Jonathan Head and appointed Dr. Brian Barnett as the new Chief Executive Officer.
Dr. Head will continue to serve the Company as the Chairman of the Board of Directors and now as its Chief Scientific Officer
effective December 26, 2018. Dr. Head is still negotiating the terms of his new employment agreement for his new position as the
Chief Scientific Officer, with the Company, as of the date of this report.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
On
December 26, 2018, Dr. Barnett entered into an employment agreement with us (“Barnett Employment Agreement”) to serve
as the Company’s Chief Executive Officer for a term of three years (from December 26, 2018 through December 26, 2021) that
renews automatically for one year periods unless a written notice of termination is provided not less than 180 days prior to the
automatic renewal date. The Barnett Employment Agreement provides that Dr. Barnett’s salary for calendar year 2019 shall
be $250,000 and for each calendar year thereafter during the term of the Barnett Employment Agreement shall be an amount determined
by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Barnett
for the immediately preceding calendar year.
Dr.
Barnett is also eligible to receive a performance-based bonus of up to $150,000 upon completion of specific metrics established
by the Company’s Board of Directors and is entitled to participate in all medical and other benefits that the Company has
established for its employees. Pursuant to the employment agreement, the Company will also grant options to purchase a number
of shares of the Company’s common stock equal to $100,000 divided by the volume weighted average price of the Company’s
common stock for the ten (10) business days prior to the effective date of the employment agreement. The option grant is subject
to continued employment, and will vest ratably over the first three anniversary dates of the grant date. On April 24, 2019, Dr.
Barnett was granted 11,130 stock options with exercise price of $9.00 per share, vest dates of; (i) 3,710 on January 9, 2020;
(ii) 3,710 on January 9, 2021; and (iii) 3,710 on January 9, 2022 and expire on April 24, 2030. The stock options vest so long
as the optionee remains an employee of the Company on the vesting date (except as otherwise provided for in the employment agreement
between the Company and the optionee) (see Note 8).
Additionally,
upon the closing of a transaction during calendar year 2019 which results in the sale of common stock of the Company on terms
acceptable to the Board that provides net proceeds to the Company of no less than $4,000,000 (a “Qualifying Transaction”),
Dr. Barnett shall be granted options to purchase a number of shares of the Company’s common stock equal to $50,000 divided
by the transaction price of the Company’s common stock in the Qualifying Transaction. The option grant is subject to continued
employment, and will vest ratably over the first three anniversary dates of the date of the closing of the Qualifying Transaction.
Lease
Effective
September 1, 2015, the Company leases its facilities under a non-cancelable operating lease which expires on August 31, 2020.
The Company has the right to renew certain facility leases for an additional five years. Rent expense is $3,200 base rent per
month plus operating expense and other fees (see Note 6).
NOTE
10 - SUBSEQUENT EVENTS
Conversion
of Convertible Debt:
Subsequent
to September 30, 2019, The Purchasers converted $25,875 and $313 of outstanding principal and interest into 186,849
shares of common stock.
Subsequent
to September 30, 2019, the Company entered into financing agreements:
|
●
|
with
a lender, for the sale of the Company’s convertible note and warrant, for a principal amount of $55,000 with 10% OID
and five-year warrants to purchase an aggregate of 277,500 shares of the Company’s common stock at an exercise price
of $0.20 per share. The Company received an of $50,000 in net proceeds, net of $5,000 OID.
|
|
|
|
|
●
|
with
a second lender, for the sale of the Company’s convertible note, for a principal amount of $55,000 with 10% OID. The
Company received an of $50,000 in net proceeds, net of $5,000 OID.
|