The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 1: ORGANIZATION
Axim Biotechnologies, Ind., (the “Company”) was originally incorporated in Nevada on November 18, 2010, as Axim International Inc. On July 24, 2014, the Company changed its name to AXIM Biotechnologies, Inc. to better reflect its business operations. The Company’s principal executive office is located at 45 Rockefeller Plaza 20th Floor, Suite 83, New York, NY 10111. On August 7, 2014, the Company formed a wholly owned Nevada subsidiary named Axim Holdings, Inc. This subsidiary will be used to help facilitate the anticipated activities planned by the Company. On May 11, 2015 the Company acquired a 100% interest in Can Chew License Company a Nevada incorporated licensing Company, through the exchange of 5,826,706 shares of its common stock.
On March 17, 2020, the Company acquired Sapphire Biotech, Inc., (“Sapphire’) which is research and development company that has a mission to improve global cancer care through the development of proprietary therapeutics for inhibiting cancer growth and metastasis. Sapphire is also developing a line of novel diagnostics for early cancer detection, response to treatment, and recurrence monitoring. Sapphire’s operations are located in the Greater San Diego Area.
Company Developments – Divesture of Cannabis Related Assets
On May 6, 2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada corporation (the “Company”), entered into an Agreement (the “Separation Agreement”) by and among the Company, CanChew License Company (“CanCo”), CanChew Biotechnologies, LLC (“CanChew”), Medical Marijuana, Inc., Dr. George A. Anastassov (“Dr. Anastassov”), Dr. Philip A. Van Damme (“Dr. Van Damme”), Lekhram Changoer (“Mr. Changoer”), Sanammad Foundation, Netherlands and Sanammad Foundation, US (collectively, the “Sanammad Parties”), pursuant to which, among other matters as described herein, Drs. Anastassov and Van Damme and Mr. Changoer resigned as members of the Company’s Board of Directors.
Pursuant to the Separation Agreement, the Company transferred and assigned to an entity designated by Dr. Anastassov all of the Company’s cannabis-related intellectual property other than the inventions and discoveries described in that certain cannabis-related patent application filed by the Company’s wholly-owned subsidiary, Sapphire Biotech, Inc. (water-soluble cannabinoid molecules). The Company also transferred 100% of its interest in CanCo and CanChew to an entity designated by Dr. Anastassov. In consideration for the transfers set forth above, any and all indebtedness owed by the Company to CanChew, totaling approximately $2.61 million, was satisfied and paid in its entirety.
In addition, in consideration for the payment by the Company of $65,000, the Company purchased 100% of the issued and outstanding shares of Series B Preferred Stock held by the Sanammad Parties. Such shares shall be retired to treasury of the Company. The Sanammad Parties also agreed to forfeit and assign back to treasury, for no consideration, a total of 18,570,356 shares of the Company’s common stock.
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC.
On March 17, 2020, the Company entered into a Share Exchange Agreement (“Agreement”) with Sapphire Biotech, Inc., a Delaware corporation (“Sapphire”) and all of the Sapphire stockholders (collectively, the “Sapphire Stockholders”). Following the closing of the transaction, Sapphire will become a wholly owned subsidiary of AXIM.
Under the terms of the Agreement, the Company intends to: (i) acquire 100% of Sapphire’s outstanding capital (consisting of 100,000,000 shares of common stock and zero (0) shares of Preferred Stock); and (ii) assume all of the outstanding debt of Sapphire. The outstanding debt includes two (2) convertible notes in the principal amounts of $310,000 and $190,000. Pursuant to the terms of the Share Exchange Agreement, the Company acquired 100% of the issued and outstanding shares of Sapphire by means of a share exchange with the Sapphire Stockholders in exchange for 54,000,000newly issued shares of the common stock of AXIM (the “Share Exchange”). As a result of the Share Exchange, Sapphire became a 100% owned subsidiary of AXIM, which on a going forward basis will result in consolidated financial reporting by AXIM to include the results of Sapphire. The closing of the Share Exchange occurred concurrently with entry into the Share Exchange Agreement (the “Closing”).
In March 2020, the Company acquired SAPPHIRE BIOTECH, Inc., a biotechnology company focusing on improving cancer care through the development of proprietary therapeutics for inhibiting cancer growth and metastasis. The Company issued 54,000,000 shares of common stock with a total fair value of $7,506,000, in exchange for all outstanding shares of SAPPHIRE BIOTECH, Inc. The Company accounted for the acquisition using the purchase method of accounting for business combinations. The purchase price and costs associated with the acquisition exceeded the preliminary estimated fair value of net assets acquired by $9,573,233, which was preliminarily assigned to intangible asset and goodwill. The Company incurred $6,000 of acquisition-related costs, which will be recorded as expense after the evaluation work been completed.
9
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC. (CONTINUED)
The Company expects to complete the valuation of the intangible assets acquired in the SAPPHIRE BIOTECH, Inc. transaction by September 2020. Pursuant to the valuation, the Company may assign a portion of the purchase price to in-process technology that previously had been initially assigned to goodwill. In management’s judgment, the amount assigned to in process research and development would reflect the amount the Company would reasonably expect to pay an unrelated party for each project included in the technology. Based on the final valuation, the remaining excess purchase price will be allocated existing patents and goodwill.
The aggregate purchase price of $7,506,000 consisted of common stock valued at $7,506,000. The value of the $7,506,000 common shares issued was determined based on the closing price of the Company’s common shares at the acquisition date.
The following table summarizes the consideration paid for SAPPHIRE BIOTECH and the estimated amounts of the assets acquired and liabilities assumed recognized at the acquisition date.
Consideration:
|
|
|
Cash and cash equivalents
|
$
|
79,814
|
Property and equipment, net
|
|
20,533
|
Intangible assets including goodwill
|
|
9,763,233
|
Security deposit
|
|
12,785
|
Total asset acquired
|
$
|
9,876,365
|
|
|
|
Accrued expenses and other current liabilities
|
$
|
5,767
|
Deferred taxes liability
|
|
1,845,000
|
Notes Payable including convertible and discount on conversion
|
|
519,598
|
Total liabilities assumed
|
|
2,370,365
|
Net assets acquired
|
$
|
7,506,000
|
Of the $9,763,233 of acquired intangible assets, $5,900,000 was assigned to in-process research and development and $3,613,233 to goodwill that are not subject to amortization, and $1,845,000 was assigned to deferred tax liability which was included in goodwill at the date of acquisition. The remaining $250,000 of patent have a weighted-average useful life of approximately 20 years.
The $3,613,233 of goodwill is not expected to be deductible for tax purposes.
The allocation of the purchase price is based on preliminary data and could change when final valuation of certain intangible assets is obtained. The effective settlement of receivable/payable between the Company and Sapphire deemed to be not material.
Disclosure of Pro Forma Information
The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of SAPPHIRE BIOTECH, Inc. had occurred at January 1, 2019:
10
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC. (CONTINUED)
For six months ended
|
|
June 30,
2020
|
|
June 30,
2019
|
Net loss from continuing operations
|
$
|
(2,176,677)
|
$
|
(2,167,394)
|
Net loss from discontinued operations
|
$
|
(357,430)
|
$
|
(2,093,303)
|
Net loss per share—Basic
|
$
|
(0.02)
|
$
|
(0.04)
|
Net loss per share—Diluted
|
$
|
(0.02)
|
$
|
(0.04)
|
|
|
|
|
|
For three months ended
|
|
June 30,
2020
|
|
June 30,
2019
|
Net loss from continuing operations
|
$
|
(849,804)
|
$
|
(591,215)
|
Net loss from discontinued operations
|
$
|
770,383
|
$
|
(1,267,055)
|
Net loss per share—Basic
|
$
|
0.00
|
$
|
(0.02)
|
Net loss per share—Diluted
|
$
|
0.00
|
$
|
(0.02)
|
The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results. During the three and six months ended June 30, 2020 Sapphire had no revenue transactions.
NOTE 3: BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements of AXIM Biotechnologies, Inc. (formerly Axim International, Inc.) as of June 30, 2020, and for the three and six months period ended June 30, 2020 and 2019 have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”).
The following (a) balance sheets as of June 30, 2020 (unaudited) and December 31, 2019, which have been derived from audited financial statements, and (b) the unaudited interim statements of operations and cash flows of AXIM Biotechnologies, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on May 14, 2020.
Principles of Consolidation
The consolidated financial statements include the accounts of Axim Biotechnologies, Inc. and its wholly owned subsidiaries Axim Holdings, Inc., Marina Street LLC, Axim Biotechnologies (the Netherland Company) and Sapphire Biotech, Inc. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation.
11
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 4: GOING CONCERN
The Company’s condensed consolidated financial statements have been presented assuming that the Company will continue as a going concern. The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit as of June 30, 2020. The Company has historically financed its operations primarily through the sale of common stock, promissory notes and convertible notes. To date, none of the Company’s products related to continuing operations are still in the product development phase, and the Company has not generated any product revenue since inception. Management expects operating losses to continue and increase for the foreseeable future, as the Company progresses into clinical development activities for its lead product candidates. The Company’s prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the biotechnology industry. As shown in the condensed consolidated financial statements, the Company has negative working capital of $1,821,609 and has an accumulated deficit of $37,547,798 has cash used in operating activities of continuing operations $976,745 and discontinued operations of $797,939. The Company intends to raise substantial additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. That will raise a doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements as well as the reported amounts of revenue and expenses during reporting periods. Actual results could differ from these estimates. Significant estimates are assumptions about collection of accounts receivable, intangible assets, useful life of intangible assets, determination of the discount rate for operating leases and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate and expected dividend rate.
Risks and uncertainties
The Company operates in a dynamic and highly competitive industry and is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies and clinical trials and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting. The Company believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows; ability to obtain future financing; advances and trends in new technologies and industry standards; results of clinical trials; regulatory approval and market acceptance of the Company’s products; development of sales channels; certain strategic relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth.
Products developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that the products will receive the necessary approvals, or that any approved products will be commercially viable. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.
12
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Beginning in late 2019, the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease 2019, or COVID-19, has evolved into a global pandemic. The extent of the impact of the coronavirus outbreak on the Company’s business will depend on certain developments, including the duration and spread of the outbreak and the extent and severity of the impact on the Company’s clinical trial activities, research activities and suppliers, all of which are uncertain and cannot be predicted. At this point, the extent to which the coronavirus outbreak may materially impact the Company’s financial condition, liquidity or results of operations is uncertain. The Company has expended and will continue to expend substantial funds to complete the research, development and clinical testing of product candidates. The Company also will be required to expend additional funds to establish commercial-scale manufacturing arrangements and to provide for the marketing and distribution of products that receive regulatory approval. The Company may require additional funds to commercialize its products. The Company is unable to entirely fund these efforts with its current financial resources. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay, reduce the scope of or eliminate one or more of its research or development programs which would materially and adversely affect its business, financial condition and operations.
There have been no material changes in the accounting policies from those disclosed in the financial statements and the related notes included in the Form 10-K.
Cash equivalents
The Company considers all highly liquid investments with original maturities of six months or less at the time of purchase to be cash equivalents. As of June 30, 2020 and December 31, 2019, the Company had no cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company had no uninsured balances at June 30, 2020 and December 31, 2019. The Company has never experienced any losses related to these balances.
Accounts Receivable
It is the Company’s policy to review accounts receivable at least on a monthly basis for conductibility and follow up with customers accordingly. Covid19 has slowed collection as our customers are in a mandated pause. The Company does not have geographic concentration of customers. Accounts receivable were all generated from discontinued operations for the three and six-months ending June 30, 2020 and 2019.
Concentrations
At June 30, 2020 and December 31, 2019, one customer and two customers accounted for 100% and 100% of accounts receivable, respectively. For the six months period ended June 30, 2020, one customer accounted for 21% of total revenue. For the six months period ended June 30, 2019, two customers accounted for 88% of total revenue. Accounts receivable and revenue were all generated from discontinued operations for the three and six-months ending June 30, 2020 and 2019.
Inventory
Inventory consists of finished goods available for sale and raw materials owned by the Company and are stated at the lower of cost or market. As of June 30, 2020 and December 31, 2019, the Company had $-0- and $175,304 of finished goods and $-0- and $312,511 of raw materials; respectively. All inventory was related to discontinued operations for the three and six-months ending June 30, 2020 and 2019.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful life. New assets and expenditures that extend the useful life of property or equipment are capitalized and depreciated. Expenditures for ordinary repairs and maintenance are charged to operations as incurred. The Company’s property and equipment relating to continuing operations consisted of the following at June 30, 2020 and December 31, 2019, respectively and none related to discontinued operations.
13
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
June 30,
|
|
December 31,
|
2020
|
2019
|
Equipment of continuing operations
|
$
|
108,292
|
$
|
16,780
|
Less: accumulated depreciation
|
$
|
19,817
|
$
|
14,543
|
|
$
|
88,475
|
$
|
2,237
|
|
|
|
|
|
Intangible Assets
As required by generally accepted accounting principles, trademarks and patents are amortized if they have a definite life, and not amortized if they have an indefinite life and then they are tested annually for impairment. The Company’s intangible assets relating to continuing operations and discontinued operations consisted of the following at June 30, 2020 and December 31, 2019, respectively.
|
|
June 30,
|
|
December 31,
|
2020
|
2019
|
Patent – Sapphire
|
$
|
250,000
|
$
|
-
|
Goodwill
|
$
|
3,541,451
|
|
|
Research in progress
|
$
|
5,900,000
|
|
|
Less: accumulated amortization and impairment
|
$
|
3,604
|
$
|
-
|
|
$
|
9,687,847
|
$
|
-
|
|
|
|
|
|
Intangible assets of discontinued operations
|
$
|
-
|
$
|
715,432
|
Less: accumulated amortization and impairment
|
$
|
-
|
$
|
664,898
|
|
$
|
-
|
$
|
50,534
|
Revenue Recognition
The Company follows the guidance contained in Topic 606 (FASB ASC 606). The core principle of Topic 606 (FASB ASC 606) is that an entity should recognize revenue to depict the transfer of goods of 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. The revenue recognition guidance contained in Topic 606, to follow the five-step revenue recognition model along with other guidance impacted by this standard: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transportation price; (4) allocate the transportation price; (5) recognize revenue when or as the entity satisfies a performance obligation. All revenue was from operations that were divested.
Revenues are recognized when title for goods is transferred; non-refundable fees and proceeds from irrevocable agreements recognized when inflows or other enhancements of assets of the Company are received.
Revenues from continuing operations recognized for three and six months ended June 30, 2020 and 2019 amounted to $-0-, $-0-, $-0- and $-0-, respectively. Revenues from discontinued operations recognized for three and six months ended June 30, 2020 and 2019 amounted to $849, $93,088, $7,990 and $110,149, respectively.
Cost of Sales
Cost of sales includes the purchase cost of products sold and all costs associated with getting the products to the customers including buying and transportation costs. Cost of sales all related to discontinued operations.
Shipping Costs
Shipping and handling costs billed to customers are recorded in sales. Shipping costs incurred by the company are recorded in general and administrative expenses. Shipping costs all related to discontinued operations.
14
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements
The Company applies the guidance that is codified under ASC 820-10 related to assets and liabilities recognized or disclosed in the financial statements at fair value on a recurring basis. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of ASC 820-10 only apply to the Company’s investment securities, which are carried at fair value.
ASC 820-10 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820-10 requires valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
Fair Value Hierarchy
|
Inputs to Fair Value Methodology
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities
|
Level 2
|
Quoted prices for similar assets or liabilities; quoted markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the financial instrument; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from, or corroborated by, observable market information
|
Level 3
|
Pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption is unobservable or when the estimation of fair value requires significant management judgment
|
The Company categorizes a financial instrument in the fair value hierarchy based on the lowest level of input that is significant to its fair value measurement.
|
|
As of June 30, 2020
|
|
|
Quoted Market
Prices in Active
Markets
(Level 1)
|
|
Internal Models
with Significant
Observable
Market
Parameters
(Level 2)
|
|
Internal Models
with Significant
Unobservable
Market
Parameters
(Level 3)
|
|
Total Fair
Value
Reported in
Financial
Statements
|
Marketable Securities
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
As of December 31, 2019
|
|
|
Quoted Market
Prices in Active
Markets
(Level 1)
|
|
Internal Models
with Significant
Observable
Market
Parameters
(Level 2)
|
|
Internal Models
with Significant
Unobservable
Market
Parameters
(Level 3)
|
|
Total Fair
Value
Reported in
Financial
Statements
|
Marketable Securities
|
$
|
213,745
|
$
|
-
|
$
|
-
|
$
|
213,745
|
The Company recorded a change in FMV of trading securities as unrealized gain (loss) and realized gain (loss) of $-0-, $(109,040), $113,400 and $-0- for the three months ended June 30, 2020 and 2019, respectively. The Company recorded a change in FMV of trading securities as unrealized gain (loss) and realized gain (loss) of $(104,705), $(109,040), $138,400 and $-0- for the six months ended June 30, 2020 and 2019, respectively. These securities are classified as trading.
The Company did not have any Level 2 or Level 3 assets or liabilities as of June 30, 2020 and December 31, 2019, There were no financial liabilities measured and recognized at fair value as of June 30, 2020 and December 31, 2019.
Cash is as of June 30, 2020 and December 31, 2019 is classified as Level 1 within our fair value hierarchy.
15
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company did not record a federal or state income tax provision or benefit for the three and six months ended June 30, 2020 and 2019 as it has incurred net losses since inception. In addition, the net deferred tax assets generated from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefits business entities, and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for businesses in the CARES Act include a five-year net operating loss carryback for certain net operating losses, suspension of the annual deduction limitation of 80% of taxable income for certain net operating losses, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company evaluated the impact of the CARES Act and determined that there is no material impact to the income tax provision for the quarter.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. The Company had $240,769 and 0 allowance for doubtful accounts at June 30, 2020 and December 31, 2019, respectively and had $240,769 accounts receivable at June 30, 2020 and $315,843 at December 31, 2019, all was related to discontinued operations for the three and six-months ending June 30, 2020 and 2019.
Net Loss per Common Share
Net loss per common share is computed pursuant to section 260-10-45 Earnings Per Share (“ASC 260-10”) of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding and the member potentially outstanding during each period. In periods when a net loss is experienced, only basic net loss per share is calculated because to do otherwise would be anti-dilutive.
There were 35,619,074 common share equivalents at June 30, 2020 and 16,295,498 common shares at December 31, 2019. For the three and six months ended June 30, 2020 and 2019 these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.
Stock Based Compensation
All stock-based payments to employees and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period. Stock-based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached, or the date performance is completed. In addition, for awards that vest immediately and are non-forfeitable the measurement date is the date the award is issued. The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Black-Scholes option pricing model in accordance with ASC 505-50, Equity-Based Payment to Non-employees. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options vest. The Company believes that the fair value of the stock options is more reliably measurable than the fair value of the services received. Stock options granted to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustments as such options vest and at the end of each reporting period, and the resulting change in value, if any, is recognized in the Company’s statements of operations and comprehensive loss during the period the related services are rendered.
16
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. For the three and six months ended June 30, 2020 and 2019 The Company incurred research and development expenses of $121,437, $-0-, $126,292 and $-0- from continuing operations, respectively. For the three and six months ended June 30, 2020 and 2019 The Company incurred research and development expenses of $200,669, $991,637, $816,324 and $1,524,316 from discontinued operations, respectively. The Company has entered into various agreements with CROs. The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.
Recently Issued Accounting Standards
In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which provides clarification on implementation issues associated with adopting ASU 2016-02. The implementation issues noted in ASU 2019-01 include determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, presentation on the statement of cash flows for sales-type and direct financing leases, and transition disclosures related to Topic 250, Accounting Changes and Error Corrections. We will apply the guidance, if applicable, as of January 1, 2019, the date we adopted ASU 2016-02. Refer to the discussion of ASU 2016-02 below for the impact on our financial position, results of operations, cash flows, or presentation thereof. In February 2016, FASB issued an update 2016-02 and created Topic 842, Leases. Topic 842 effects any entity that enters into a lease arrangement with another person. The guidance in this update supersedes Topic 840. The main difference between previous GAAP and Topic 842 is the recognition of accounting policies for leases classified as operating leases under previous GAAP. The amendments in this update for public business entities that file with the Securities and Exchange Commission are effective for fiscal years beginning after Dec. 15, 2018 and the interim periods within that year with early application permitted for all entities. The Company adopted the lease accounting model as described in Topic 842 for the fiscal year begins on January 1, 2019 and it had no impact on date of adoptions
The Company has a long-term operating lease, and the long-term operating lease took effect in April 2020. (see Note 18)
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 818): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We adopted this standard on its effective date of January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof. See Note X for more information related to the Company’s lease obligations.
In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities, that changes the guidance for determining whether a decision-making fee paid to a decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We adopted this standard on its effective date of January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We adopted this standard on its effective date of January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
17
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 6: PREPAID EXPENSES
Prepaid expenses consist of the following as of June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
December 31,
2019
|
Prepaid insurance
|
$
|
99,819
|
$
|
67,734
|
Prepaid software/license
|
|
4,487
|
|
9,872
|
|
$
|
104,306
|
$
|
77,606
|
For the three and six months ended June 30, 2020 and 2019, the Company recognized amortization of prepaid expense of $34,108, $25,972, $68,079 and $51,740, respectively.
NOTE 7: MARKETABLE SECURITIES
As of December 31, 2019 the Company had marketable securities, 4,925,000 fully paid ordinary unrestricted shares in Impression Healthcare Limited (Australian Company), traded on Australian Security Exchange by the code IHL. The Company categorize these securities as trading securities and report them at fair value, with unrealized gains and losses included in earnings. On December 31, 2019 the stock price was A$ 0.062 per share as quoted on asx.com.au and exchange rate of $0.7 AUD/USD as quoted on oanda.com and had FMV $213,745. On April 14, 2020 the Company entered into deed of settlement and release with Impression Healthcare Limited and transferred 4,925,000 held shares back to Impression Healthcare Limited by way of sale and purchase, with the total amount payable by Impression Healthcare Limited to Axim for completion of the sale and purchase and transfer being the aggregate amount of $1. During the three months ended June 30, 2020 and 2019, the Company recorded a change in FMV of trading securities as unrealized gain (loss) and realized gain (loss) of $-0-, $(109,040), $113,400 and $-0-, respectively.. During the six months ended June 30, 2020 and 2019, the Company recorded a change in FMV of trading securities as unrealized gain (loss) and realized gain (loss) of $(104,705), $(109,040), $138,400 and $-0-, respectively.
NOTE 8: INVESTMENT IN THIRD PARTY
On June 11, 2019 the Company entered into an operating agreement as 1/3 member of KAM Industries, LLC, a Wyoming Limited Company. On June 18, 2019 KAM Industries LLC, entered into Joint Venture Agreement to receive a percentage of the industrial hemp harvest yield on a parcel of land in Wayne County, North Carolina owned by Farm Share, LLC with whom KAM contracted to purchase a percentage of the hemp harvest for the 2019 growing season. Once the hemp is harvested from the 2019 growing season the Company will get its 1/3 share at no additional cost. The agreement then expires unless renewed for 2020 with an additional payment. The Company paid $27,490 for 33.3% of KAM Industries, LLC and recorded $27,490 as current asset as of December 31, 2019. This investment is counted by using cost method of accounting. An officer in KAM Industries, LLC is the Company’s CEO.
As of June 30, 2020, Farm Share, LLC is in the middle of the processing of the entire 2019 crop. During the virus shut down the extraction laboratories were not considered essential, but they were back in business as of June 11, 2020.
18
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 9: PROMISSORY NOTE
Related Party
On August 8, 2014 the Company entered into a Promissory Note Agreement with CanChew Biotechnologies, LLC (CCB), a related party (the owners of CCB also own a majority of the outstanding shares of the Company), under which it borrowed $1,000,000 to fund working capital. The original loan was a demand note bearing interest at the rate of 7% per annum, which amount, along with principal, was payable upon demand. The demand note was amended effective January 1, 2015 to reduce the annual interest rate to 3%. All other terms and conditions shall remain in full force and effect. The Company is in discussions to have the demand note modified or exchanged for a longer term, fixed maturity note.
On May 6, 2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada corporation (the “Company”), entered into an Agreement (the “Separation Agreement”). Pursuant to the Separation Agreement, the Company transferred 100% of its interest in CanCo and CanChew to an entity designated by Dr. Anastassov. In consideration for the transfers set forth above, any and all indebtedness owed by the Company to CanChew, totaling approximately $2.61 million, was satisfied and paid in its entirety.
For the three and six months ended June 30, 2020 and 2019 the Company recognized interest expense of $2,567, $6,582, $9,076 and $13,092, respectively on this note all was related to discontinued operations.
Non-Related Party
On December 31, 2019, Sapphire Biotech, Inc. had entered into a Debt Exchange Agreement whereas the Company assumed three (3) loans totaling $128,375 of Debt owned by Sapphire Diagnostics, LLC which had an interest rate of 6% per annum. In the same Debt Exchange Agreement, the Company assumed four (4) additional loans made to the Company in 2019, which had an interest rate of 6% per annum. All seven (7) loans totaling $310,000, plus the aggregate interest accrued thereon of $14,218 making the face value of the new note $324,218. As of June 30, 2020, the principal and accrued interest balances were $324,218 and $9,780, respectively.
NOTE 10: RELATED PARTY TRANSACTIONS
The Company has received working capital advances from CanChew totaling $1,526,603 and $1,526,603 as of June 30, 2020 and December 31, 2019 respectively. The advances are payable on demand. The Company is in discussions to have the advances reduced to a longer term, fixed maturity note, all was related to discontinued operations.
The Company owes $5,000 to the chairman of the board of the Company for a working capital advance of $5,000 made in May of 2014, all was related to discontinued operations.
Under an agreement Mr. Changoer received on March 20, 2018 the Company issued 50,000 restrictive shares of its common stock and recorded $235,000 of compensation expenses in the accompanying consolidated financial statements to account for the issuance of the incentive shares. As of June 30, 2020 and December 31, 2019, the total outstanding balance was $20,000 and $23,696 respectively for consulting fees to Mr. Changoer, all was related to discontinued operations.
On September 25, 2018, the Company amended Independent Director Compensation agreement. Under the agreement in lieu of the share compensation due to independent director of the Company for his annual service ending May 23, Dr. Philip A. Van Damme shall receive cash compensation of $20,000. Started from August 1, 2019 the company has been paying monthly clinical trial fee of $5,000. As of June 30, 2020 and December 31, 2019, the total outstanding balance was $21,877 and $9,377 respectively, all was related to discontinued operations.
Effective January 1, 2019 the company entered into a thirty-months consulting agreement with the chairman of the board which pays a monthly consulting fee of $20,000. The company has also been paying a monthly bonus fee of 15,000; this additional fee is on a month to month basis at the discretion of management. As of June 30, 2020 and December 31, 2019, the total outstanding balance was $35,000 and $35,000 respectively for consulting fees, all was related to discontinued operations.
19
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 10: RELATED PARTY TRANSACTIONS (CONTINUED)
On May 6, 2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada corporation (the “Company”), entered into an Agreement (the “Separation Agreement”) by and among the Company, CanChew License Company (“CanCo”), CanChew Biotechnologies, LLC (“CanChew”), Medical Marijuana, Inc., Dr. George A. Anastassov (“Dr. Anastassov”), Dr. Philip A. Van Damme (“Dr. Van Damme”), Lekhram Changoer (“Mr. Changoer”), Sanammad Foundation, Netherlands and Sanammad Foundation, US (collectively, the “Sanammad Parties”), pursuant to which, among other matters as described herein, Drs. Anastassov and Van Damme and Mr. Changoer resigned as members of the Company’s Board of Directors.
Pursuant to the Separation Agreement, the Company transferred and assigned to an entity designated by Dr. Anastassov all of the Company’s cannabis-related intellectual property other than the inventions and discoveries described in that certain cannabis-related patent application filed by the Company’s wholly-owned subsidiary, Sapphire Biotech, Inc. (water-soluble cannabinoid molecules). The Company also transferred 100% of its interest in CanCo and CanChew to an entity designated by Dr. Anastassov. In consideration for the transfers set forth above, any and all indebtedness owed by the Company to CanChew, totaling approximately $2.61 million, was satisfied and paid in its entirety.
In addition, in consideration for the payment by the Company of $65,000, the Company purchased 100% of the issued and outstanding shares of Series B Preferred Stock held by the Sanammad Parties. Such shares shall be retired to treasury of the Company. The Sanammad Parties also agreed to forfeit and assign back to treasury, for no consideration, a total of 18,570,356 shares of the Company’s common stock.
In addition, each of Drs. Anastassov and Van Damme and Mr. Changoer have agreed to subject the shares of the Company’s common stock held by each of them to lock-up and leak-out restrictions, as follows: they shall not sell shares for a period of 12 months following the Effective Date and, thereafter, subject to a daily volume limitation of 5%, on an aggregate basis among them.
Further, the Company terminated the Consulting Agreement of Dr. Anastassov and the Employment Agreements for each of Dr. Van Damme and Mr. Changoer. In connection with the termination of Dr. Anastassov’s Consulting Agreement, the Company agreed to pay severance in the amount of $35,000 for March 2020 and $20,000 per month thereafter through July 2021 (the termination date contemplated by the Consulting Agreement). Commencing for the April 2020, the Company may, in its sole discretion, pay the $20,000 severance obligation by the issuance of shares of the Company’s common stock registered pursuant to the Registration Statement on Form S-8 filed with the Commission on May 29, 2015 (“S-8 Shares”). If the gross cash proceeds from the sale of any S-8 Shares issued in lieu of cash severance is less than $20,000, as determined 20 days after issuance of such S-8 Shares, then the Company has agreed to issue additional shares that would serve to “true-up” the value of the shares to the $20,000 monthly severance obligation; provided, however, that if 30 days after the date the severance payment is due the gross proceeds from the sale of S-8 Shares is less than $20,000, the Company must pay the shortfall in cash. In addition, for each month that Dr. Anastassov is entitled to receive severance, he shall receive S-8 Shares in an amount equal to the lesser of (a) 150,000 S-8 Shares, or (b) S-8 Shares valued at $15,000 based upon the closing price of the Company’s common stock as of the due date of the severance payment obligation.
In connection with the termination of the Employment Agreements of Dr. Van Damme and Mr. Changoer, Mr. Changoer’s severance payments shall be $20,000 per month for 12 months, commencing April 2020 (paid in arrears) and Dr. Van Damme’s severance payments shall be $5,000 per month for 12 months, similarly commencing April 2020 and paid in arrears. The Company has the right to pay each of Dr. Van Damme’s and Mr. Changoer’s monthly severance payments in S-8 shares in lieu of cash subject to the same terms and restrictions (including true-up terms) as set forth above for Dr. Anastassov. As of June 30, 2020, the accrued severance pyament was $435,000 to Dr. Anastassov, $180,000 to Mr. Changoer and $55,000 to Dr. Van Damme, all was related to discontinued operations.
The Company retains the right to prepay the severance obligations to Drs. Anastassov and Van Damme and Mr. Changoer, without penalty.
No claims were alleged by the Company against any party, and no claims were alleged against the Company. However, in connection with the transactions described above, the parties entered into a general mutual release of all claims.
Purchase of Promissory Note and Forbearance Agreement
20
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 10: RELATED PARTY TRANSACTIONS (CONTINUED)
Effective May 4, 2020, the Company acquired from TL-66, a California limited liability company (“Seller”), a promissory note issued to Seller by Dr. Anastassov (“Maker”) dated December 1, 2017, with a face value of $350,000 and a remaining balance due of approximately $100,000 (the “Note”). The purchase price for the Note was $100,000 payable by the Company issuing Seller One Million (1,000,000) restricted shares of the Company’s Common Stock. Effective May 6, 2020, the Company and Maker entered into a Forbearance Agreement whereby the Company agreed to forbear from making any collection efforts on the Note for a period of 24 months so long as Maker has not breached the Separation Agreement. Following 24 months, if there has been no breach of the Separation Agreement by Maker, repayment of the Note, including all principal and unpaid interest, will be waived in full. As of May, 4, 2020 the carrying value of the note was $102,567, the value of the common stock to be issued was $135,000, resulting in a loss of $32,433 accounted as loss on debt extinguishment related to discontinued operations.
NOTE 11: DUE TO FIRST INSURANCE FUNDING
On June 25, 2019, the Company renewed its D&O and EPLI insurance policy with total premiums, taxes and fees for $97,000 and $6,849 respectively. A cash down payment of $20,850 was paid on July 16, 2019. Under the terms of the insurance financing, payments of $9,501, which include interest at the rate of 7.2% per annum, are due each month for nine months commencing on July 25, 2019.
On October 22, 2019, the Company renewed its CL Products Liability insurance policy with total premiums, taxes and fees for $18,864. A cash down payment of $1,886 was paid on October 24, 2019. Under the terms of the insurance financing, payment of $1,945, which include interest at the rate of 7.451% per annum, are due each month for nine months commencing on November 22, 2019.
On June 25, 2020, the Company renewed its D&O insurance policy with total premiums, taxes and fees for $93,357. A cash down payment of $18,671 was paid on July 6, 2020. Under the terms of the insurance financing, payments of $8,456, which include interest at the rate of 4.6% per annum, are due each month for nine months commencing on July 25, 2020.
The total outstanding due to First Insurance Funding as of June 30, 2020 and December 31, 2019 is $78,054 and $42,121; respectively.
NOTE 12: CONVERTIBLE NOTES PAYABLE
The following table summarizes convertible note payable- shareholder as of June 30, 2020 and December 31, 2019
|
|
June 30,
2020
|
|
December 31,
2019
|
Convertible note payable, due on July 1, 2028, interest at 3.5% p.a.
|
$
|
45,000
|
$
|
45,000
|
Accrued interest
|
|
6,370
|
|
5,578
|
|
$
|
51,370
|
$
|
50,578
|
The Convertible Note (“Note”) bears interest at the rate of 3.5% per annum, payable annually beginning on July 1, 2017, and matures on July 1, 2028. The Note is convertible, in whole or in part at any time at the option of the holder, into the Company’s common stock at a conversion price of $0.01, provided however, the holder of the Note is not permitted to convert an amount of the Note that would result in the holder and its affiliates owning more than 4.9% of the Company’s outstanding common stock. The balance on the Note as of June 30, 2020 and December 31, 2019 is $51,370 and $50,578, including interest accrued thereon of $6,370 and $5,578, respectively.
21
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 12: CONVERTIBLE NOTES PAYABLE (CONTINUED)
The following table summarizes convertible note payable of related party as of June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
December 31,
2019
|
Convertible note payable, due on November 1, 2026, interest at 3.5% p.a.
|
$
|
4,000,000
|
$
|
4,000,000
|
Accrued interest (The accrued interest and principal are both included in the captions titled “convertible note payable” in the balance sheet)
|
|
88,648
|
|
93,333
|
Convertible note payable, net
|
$
|
4,088,648
|
$
|
4,093,333
|
The following table summarizes convertible note payable as of June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
December 31,
2019
|
Convertible note payable, due on October 1, 2029, interest at 3.5% p.a.
|
$
|
484,478
|
$
|
484,478
|
Convertible note payable, due on October 1, 2029, interest at 3.5% p.a.
|
|
1,000,000
|
|
1,000,000
|
Convertible note payable, due on December 31, 2034, interest at 3% p.a.
|
|
190,000
|
|
-
|
Accrued interest (The accrued interest and principal are both included in the captions titled “convertible note payable” in the balance sheet)
|
|
197,196
|
|
168,208
|
Total
|
|
1,871,674
|
|
1,652,686
|
Less: unamortized debt discount/finance premium costs
|
|
(888,299)
|
|
(739,732)
|
Convertible note payable, net
|
$
|
983,375
|
$
|
912,954
|
On September 16, 2016, we entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement” or “Agreement”) with a third-party investor. Under the terms of the Convertible Note Purchase Agreement the investor may acquire up to $5,000,000 of convertible notes from the Company. With various closings, under terms acceptable to the Company and the investor as of the time of each closing. Pursuant to the Agreement, on September 16, 2016 the investor provided the Company with $850,000 secured convertible note financing pursuant to four (4) Secured Convertible Promissory Notes (the “Notes”). Each of the Notes matures on October 1, 2029, and pay 3.5% compounded interest paid bi-annually. The Note are secured by the assets of the Company, may not be pre-paid without the consent of the holder, and are convertible at the option of the holder into shares of the Company common stock at a conversion price equal to $0.2201 per share.
As of June 30, 2020 and December 31, 2019, the balance of secured convertible notes was $547,753 and $539,227, which included $63,275 and $54,749 accrued interest, respectively.
On October 20, 2016 a third-party investor provided the Company with $1,000,000 secured convertible note financing pursuant to three (3) Secured Convertible Promissory Notes (the “Notes”). Each of the Notes mature on October 1, 2029 and pay 3.5% compounded interest paid bi-annually. The Notes are secured by the assets of the Company, may not be pre-paid without the consent of the holder, and are convertible at the option of the holder into shares of the Company’s common stock at a fixed conversion price equal of $0.2201 per share.. The investor paid cash of $500,000 for one of the Notes and issued to the Company two (2) secured promissory notes of $250,000 each for two (2) Convertible Notes of $250,000 each. The two secured promissory notes issued by the investor (totaling $500,000) as payment for two (2) secured Notes totaling $500,000 mature on February 1, 2017 ($250,000) and March 1, 2017 ($250,000), bear interest at the rate of 1% per annum, are full recourse and additionally secured by 10,486,303 shares of Medical Marijuana, Inc. (Pink Sheets symbol: MJNA) and were valued at $858,828 based upon the closing price of MJNA on October 20, 2016. A debt discount was recorded related to beneficial conversion feature inn connection with this convertible note of $499,318 , related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. As of June 30, 2020 and December 31, 2019, this note has not been converted and the balance of secured convertible notes was $1,131,055 and $1,113,458, which included $131,055 and $113,458 accrued interest, respectively.
22
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 12: CONVERTIBLE NOTES PAYABLE (CONTINUED)
In 2018 the Company extinguished debt with Investor. Investor had proposed a financing transaction pursuant to which the Company will satisfy and retire the Original Note and Original Note current balance in simultaneous exchange for and upon delivery by the Company of a (1) new Convertible Promissory Note in the principal amount of $4,000,000 (the “Exchange Note”), and (2) 400,000 shares of the Company’s restricted common stock (the “Origination Shares”).
Simultaneously, a third-party Investor and the Company entered in Debt Exchange Agreement with Medical Marijuana Inc. As part of this agreement Investor will exchange and deliver the AXIM note to Medical Marijuana in exchange for a Convertible Promissory note. Axim consented to the transfer and assignment of the Axim Note in exchange for the issuance by the Medical Marijuana of the Exchange Note. The interest on this note is payable bi-annually every May 1 and November 1. On May 1, 2019 the Company paid accrued interest of $60,278.
In 2020 the Company was authorized to apply the accounts receivable of $75,074 due from Kannawaytowards its accrued interest.
On May 1, 2020, the Company agreed to modify its existing convertible note with a principal balance of $4 million, 3.5% interest rate convertible note with the current holder of that note. There were two changes to the existing agreement – (a) the conversion price was reduced from the $1.50 conversion price in the original Note to $0.25 cents in the modified Note and (b) the term of the note was extended from the original maturity date of November 1, 2021, to November 1, 2026. The Company’s stock closed trading on the day of the modification at $0.13 per share. The amendment of this convertible Note was also evaluated under ASC Topic 470-50-40, “Debt Modifications and Extinguishments.” Based on the guidance, the instruments were determined to be substantially different due to the change in the conversion price being substantial, and debt extinguishment accounting was applied. The fair value of the modified convertible note was different than the carrying value of the original not as such no extinguishment loss was recorded, The Note prior to the amendment of approximately $4 million, and the fair value of the Note and embedded derivatives after the amendment of approximately $4 million. There were no unamortized debt issuance costs and the debt discount associated with the original 2018 Note.
As of June 30, 2020 and December 31, 2019, the balance of secured convertible note was $4,088,648 and $4,093,333 which included $88,648 and $93,333 accrued interest respectively.
On December 31, 2019, Sapphire Biotech, Inc. entered into a Convertible Note Purchase Agreement whereas the Company issued a convertible note with a face value of $190,000 with a compounding interest rate of 3% per annum, the interest shall be payable annually beginning on December 31, 2020 until the maturity date of December 31, 2034, at which time all principal and interest accrued thereon shall be due and payable. The Convertible Note is secured by substantially all the Company’s tangible and intangible assets. In addition, the Convertible Note includes various non-financial covenants including the Company may not enter into any agreement, arrangement or understanding of any kind that would result in a transaction, or series of transactions, that would result in the sale of 50% or more of the Company’s capital stock without the prior approval of the holder.
Upon issuance, the Convertible Note was convertible into shares of the Company’s common stock at $1.90 per share. At December 31, 2019, the Company determined that the Convertible Note contained a beneficial conversion feature for which a full discount was recorded on the Convertible Note. The fair market value of the Company’s common stock was based upon the estimated per share acquisition price per the pending acquisition of the Company, see Note 8 for additional information. The discount of $190,000 will be amortized using the effective interest method and will be fully amortized by December 31, 2034.
On March 17, 2020, Sapphire Biotech, Inc. entered into a Share Exchange Agreement (“Agreement”) with Sapphire Biotech, Inc., a Delaware corporation (“Sapphire”) and all of the Sapphire stockholders (collectively, the “Sapphire Stockholders”). Following the closing of the transaction, Sapphire will become a wholly owned subsidiary of AXIM. Under the terms of the Agreement, the Company intends to assume the convertible notes in the principal amounts of $190,000. After the acquisition, the Convertible Note was able to convert 6,000,000 shares of Axim’s common stock. Upon assumption of the note, the Company recorded a beneficial conversion feature of $190,000. As of June 30, 2020 and December 31, 2019, the balance of secured convertible note was $192,866 and $0 which included $2,866 and $0 accrued interest respectively.
During the three and six months ended June 30, 2020 and 2019, the Company amortized the debt discount on all the notes of $22,071, $18,662, $41,432 and $37,325, respectively, to other expenses. As of June 30, 2020 and December 31, 2019, unamortized debt discount was $888,299 and $739,732, respectively.
23
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 13: STOCK INCENTIVE PLAN
On May 29, 2015 the Company adopted its 2015 Stock Incentive Plan. Under the Plan the Company may issue up to 10,000,000 S-8 shares to officers, employees, directors or consultants for services rendered to the Company or its affiliates or to incentivize such parties to continue to render services. S-8 shares are registered immediately upon the filing of the Plan and are unrestricted shares that are free-trading upon issuance. There were 9,806,000 shares available for issuance under the Plan as of December 31, 2019. On January 2, 2019, John Huemoeller the CEO was granted the option to purchase 2 million shares of Axim Common stock under the plan at a purchase price of $0.75 per share. 1 million options vested immediately and 1 million options vest at the end of 2019. For the three and six months ended June 30, 2020 and 2019 the Company recorded compensation expense of $-0-, $235,000, $287,500 and $1,380,000, respectively. As of June 30, 2020, John Huemoeller the CEO hasn’t exercised the option.
NOTE 14: STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, with a par value of $0.0001 per share. Of the 5,000,000 authorized preferred shares, 4,000,000 are undesignated “blank check” preferred stock. The Company may issue such preferred shares and designate the rights, privileges and preferences of such shares at the time of designation and issuance. As of June 30, 2020, and December 31, 2019 there are -0- and -0- shares of undesignated preferred shares issued and outstanding, respectively.
There are zero shares issued and outstanding of Series A and Series B Preferred stock as of June30, 2020 and December 31, 2019.
Series C Convertible Preferred Stock
On August 17, 2016 the Company designated up to 500,000 shares of a new Series C Convertible Preferred Stock (Series C Preferred Stock). The holders of the Series C Preferred are entitled to elect four members to the Company’s board of directors and are entitled to cast 100 votes per share on all other matters presented to the shareholders for a vote. Each share of Series C Convertible Preferred is convertible into one share of the Company’s common stock. The Series C Convertible Preferred designation contains a number of protective and restrictive covenants that restrict the Company from taking a number of actions without the prior approval of the holders of the Series C Preferred or the unanimous vote of all four Series C Directors. If at any time there are four Series C Directors, one such director must be independent as that term is defined in the Series C designation. Any challenge to the independence of a Series C Director is a right conferred only upon the holders of the Series B Convertible Preferred Stock and may only be made by the holders of the Series B Convertible Preferred Stock.
On August 18, 2016 the Company issued all 500,000 shares of its newly designated Series C Preferred Stock to MJNA Investment Holdings, LLC in exchange for cash of $65,000. As the holders of the Series C Preferred Stock, MJNA Investment Holdings, LLC has designated Dr. Timothy R. Scott, John W. Huemoeller II, Robert Cunningham and Blake Schroeder as their four Series C Directors.
On February 20, 2019, MJNA Investment Holdings LLC (“Seller”) sold its 500,000 shares of AXIM Biotechnologies, Inc.’s, a Nevada corporation (the “Company”) Series C Preferred Stock to Juniper & Ivy Corporation, a Nevada corporation (“Purchaser”) for a purchase price of $500,000 (the “Purchase Price”) pursuant to a Preferred Stock Purchase Agreement (the “Purchase Agreement”). Payment of the Purchase Price was made as follows (i) a $65,000 payment made by check payable to Seller, which Purchaser borrowed from an unrelated third-party and which has no recourse against the Series C Preferred Stock or assets of Purchaser (the “Loan”), and (ii) the issuance by Purchaser to Seller of a promissory note, face value, $435,000, which has no recourse against the Series C Preferred Stock or assets of Purchaser (the “Note”). The Company’s Chief Executive Officer John W. Huemoeller II is the President of Purchaser. Mr. Huemoeller provided a personal guaranty for the Loan and the Note.
The holders of the Series C Preferred Stock are entitled to elect four members to the Company’s Board of Directors and are entitled to cast 100 votes per share on all other matters presented to the shareholders for a vote. As a result of this transaction, a change in control has occurred.
Effective April 2, 2019, Blake N. Schroeder resigned as a member of the Company’s Board of Directors. Mr. Schroeder’s resignation was not because of any disagreements with the Company on matters relating to its operations, policies and practices.
On April 3, 2019 pursuant to the Company’s Amended and Restated Bylaws, the holder of the Company’s Series C Preferred Stock appointed Mauricio Javier Gatto-Bellora to fill the director seat vacated by the resignation of Mr. Schroeder.
24
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 14: STOCKHOLDERS’ DEFICIT (CONTINUED)
Common Stock
The Company has authorized 300,000,000 shares of common stock, with a par value of $0.0001 per share. As of June 30, 2020, and December 31, 2019, the Company had 113,144,222 and 64,854,539 shares of common stock issued and outstanding, respectively.
2020 Transactions:
During the period between January 1, 2020 and June 30, 2020 the Company issued total 7,494,792 shares valued $1,510,500 pursuant to the Company’s Registration Statement on Form S-3. The Company received $1,510,500 in cash. The Company has an outstanding subscription price adjustment of $609,835 related to the issuance of the S-3 shares, which it expects to satisfy with the issuance of additional shares.
On January 13, 2020 the Company issued 250,000 restricted shares of its common stock to third party valued at $50,000, which were carried on the books as stock to be issued.
On January 23, 2020 and February 26, 2020 the Company issued 600,000, and 62,839 restricted shares of its common stock to third party valued at $262,500, and $25,000 pursuant to the stock purchase agreement for certain services, recorded as advertising and promotion expense and License, permits & Patents, respectively.
On March 17, 2020 the company acquired 100% of the issued and outstanding shares of Sapphire by means of a share exchange with the Sapphire Stockholders in exchange for 54,000,000 restricted shares of its common stock at valued $7,506,000.
On April 21, 2020 the Company issued 1,176,470 restricted shares of its common stock to third party valued at $100,000 pursuant to the stock purchase agreement. The cash was received in 2020.
On May 6, 2020, the Company entered into an agreement with Sanammad Foundation, the Sanammad Parties agreed to forfeit and assign back to treasury, for no consideration, a total of 18,570,356 shares of the Company’s common stock, for which the fair value was $2,562,709, however for accounting purpose this transaction recording at par value adjustment to additional paid in capital. This transaction is related to the divesture of the previous operations to Sanammad.
On May 22, 2020 the Company issued 190,810 and 286,215 S-8 shares valued at $60,000 and $90,000 pursuant to the Company’s Registration Statement on Form S-8 for severance fees.
On June 10, 2020 and June 24, 2020 the Company issued 2,173,913 and 625,000 restricted shares of its common stock to third party valued at $500,000 and $100,000 pursuant to the stock purchase agreement. The cash was received in 2020, respectively.
2019 Transactions:
During the period between January 1, 2019 and June 30, 2019 the Company issued total 2,000,000 shares valued $2,288,813 pursuant to the Company’s Registration Statement on Form S-3. The Company received $2,288,813 in cash.
On March 12, 2019 the Company issued 239,521 restricted shares of its common stock to third party valued at $400,000 pursuant to the stock purchase agreement. The cash was received in 2018.
On May 23, 2019 the Company issued 19,668 shares of its common stock to its Advisory board valued at $48,500 which were carried on the books as stock to be issued.
25
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 15: STOCK OPTIONS
On January 02, 2019, the Company granted 2,000,000 options with an exercise price of $0.75 per share to the Company owned by Mr. John Huemoeller, Chief Executive Officer of the Company.
The following table summarizes the changes in options outstanding, option exercisability and the related prices for the shares of the Company’s common stock issued to employees and consultants under a stock option plan at June 30, 2020:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Exercise
Prices ($)
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price ($)
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price ($)
|
$
|
0.75
|
|
2,000,000
|
|
9
|
$
|
0.75
|
|
2,000,000
|
$
|
0.75
|
The stock option activity for the year ended June 30, 2020 is as follows:
|
Options
Outstanding
|
|
Weighted Average
Exercise Price
|
Outstanding at December 31, 2019
|
2,000,000
|
$
|
0.75
|
Granted
|
-
|
|
-
|
Exercised
|
-
|
|
-
|
Expired or canceled
|
-
|
|
-
|
Outstanding at June 30, 2020
|
2,000,000
|
$
|
0.75
|
For the three and six months ended June 30, 2020 and 2019 stock-based compensation expense related to vested options was $-0-, $227,500, $-0- and $1,365,000, respectively. The Company determined the value of share-based compensation for options vesting during 2019 using the Black-Scholes fair value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common stock of $0.91, risk-free interest rate of 2.66%, volatility of 318%, expected lives of 10 years, and dividend yield of 0%.
NOTE 16: DISCONTINUED OPERATIONS
During May 2020 the Company decided to discontinue most of its operating activities pursurant to the Separation Agreement entered into by and among the Company, CanChew License Company (“CanCo”), CanChew Biotechnologies, LLC (“CanChew”), Medical Marijuana, Inc., Dr. George A. Anastassov (“Dr. Anastassov”), Dr. Philip A. Van Damme (“Dr. Van Damme”), Lekhram Changoer (“Mr. Changoer”), Sanammad Foundation, Netherlands and Sanammad Foundation, US (collectively, the “Sanammad Parties”). (see Note 1)
Pursuant to the terms of the Purchase Agreement dated as of May 6, 2020, Sanammad Parties agreed to acquire from the Company substantially all of its assets and its wholly-owned subsidiaries and to assume certain liabilities and its wholly-owned subsidiaries. Sanammad Parties agreed to pay a purchase price of $2,609,100 reflected in amount due Canchew were deemed paid in full. The sale, which was completed on May 6, 2020, did not include the Compay’s cash and certain other excluded assets and liabilities.
The assets sold and liabilities transferred in the transaction were the sole revenue generating assets of the Company. The results of operations associated with the assets sold have been reclassified into discontinued operations for periods prior to the completion of the transaction.
26
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 16: DISCONTINUED OPERATIONS (CONTINUED)
The following is a summary of assets and liabilities sold, stock retired and gain recognized, in connection with the sale of assets to Sanammad parties:
Other current assets
|
$
|
5,000
|
Total current assets
|
|
510,017
|
Intangible assets, net of amortization
|
|
47,375
|
Total asset
|
$
|
562,392
|
|
|
|
Notes payable
|
$
|
880,000
|
Accounts payable and accrued expenses
|
|
200,640
|
Due to Canchew
|
|
1,526,603
|
Stock retired
|
|
1,857
|
Total liabilities and equity
|
$
|
2,609,100
|
|
|
|
The gain on sale of assets was reported during the period was determined as follows:
|
|
|
Total asset sold
|
$
|
562,392
|
Total liability sold
|
|
2,609,100
|
Net gain from sales of assets and liability
|
$
|
2,046,708
|
The resulting gain from the sale will be fully offset by existing net operating loss carryforwards available to the Company.
For the three and six months ended June 30, 2020 and 2019 the Company recognized interest expense of $2,567, $6,582, $9,076 and $13,092.
Additionally, the operating results and cash flows related to assets sold on May 06, 2020 are included in discontinued operations in the consolidated statements of operations and consolidated statements of cash flows for the six months ended June 30, 2020 and 2019.
As of June 30, 2020 and December 31, 2019, the Company has separately reported the asset and liabilities of the discontinued operations in the unaudited condensed consolidated balance sheet in accordance with the provision of ASC 205-20. The asset and liabilities have been reflected as discontinued operations, and consist of the following:
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(Unaudited)
|
|
|
Current asset of discontinued operations
|
|
|
|
|
Accounts receivable
|
$
|
-
|
$
|
315,843
|
Inventory
|
|
-
|
|
487,814
|
Loan receivable
|
|
-
|
|
5,000
|
Total current assets of discontinued operations
|
$
|
-
|
$
|
808,657
|
|
|
|
|
|
Noncurrent assets of discontinued operations
|
|
|
|
|
Other assets
|
$
|
-
|
$
|
50,534
|
Total noncurrent assets of discontinued operations
|
$
|
-
|
$
|
50,534
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
1,603,441
|
$
|
552,577
|
Due to related party
|
|
-
|
|
1,526,603
|
Promissory note – related party note payable
|
|
-
|
|
1,046,926
|
Total current liabilities of discontinued operations
|
$
|
1,603,441
|
$
|
3,126,106
|
27
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 16: DISCONTINUED OPERATIONS (CONTINUED)
Loss from Discontinued Operations
The sale of the majority of the assets and liabilities related to the Sanammad parties represents a strategic shift in the Company’s business. For this reason, the results of operations related to the assets and liabilities held for sale for all periods are classified as discontinued operations.
The following is a summary of the results of operations related to the assets and liabilities held for sale for the six months ended June 30, 2020 and 2019:
|
|
June 30,
2020
|
|
June 30,
2019
|
Net sales
|
$
|
5,097
|
$
|
18,127
|
Total expenses
|
$
|
(2,321,852)
|
$
|
(2,111,430)
|
Gain from sale of asset and liability
|
$
|
2,046,708
|
$
|
-
|
Other loss
|
$
|
(87,383)
|
$
|
-
|
Income (loss) from discontinued operations
|
$
|
(357,430)
|
$
|
(2,093,303)
|
The following is a summary of net cash provided by or use in operating activities and investing activities for the assets and liabilities held for sale for the six months ended June 30, 2020 and 2019:
|
|
June 30,
|
|
June 30,
|
2020
|
2019
|
Loss from discontinued operations
|
$
|
(357,430)
|
$
|
(2,093,303)
|
|
|
|
|
|
Adjustment of non-cash activities
|
|
(1,809,325)
|
|
-
|
Decrease in accounts receivable
|
|
315,684
|
|
-
|
Increase in inventory
|
|
(22,203)
|
|
(74,873)
|
Increase in accounts payable and accrued expenses
|
|
1,075,335
|
|
895,008
|
Net cash provided by (used in) operating activities
|
$
|
(797,939)
|
$
|
(1,273,168)
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
$
|
-
|
$
|
-
|
The following is a summary of the results of operations related to the assets and liabilities held for sale for the three months ended June 30, 2020 and 2019:
|
|
June 30,
|
|
June 30,
|
2020
|
2019
|
Net sales
|
$
|
374
|
$
|
5,447
|
Total expenses
|
$
|
(1,189,316)
|
$
|
(1,272,502)
|
Gain from sale of asset and liability
|
$
|
2,046,708
|
$
|
-
|
Other loss
|
$
|
(87,383)
|
$
|
-
|
Income (loss) from discontinued operations
|
$
|
770,383
|
$
|
(1,267,055)
|
28
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 16: DISCONTINUED OPERATIONS (CONTINUED)
The following is a summary of net cash provided by or use in operating activities and investing activities for the assets and liabilities held for sale for the three months ended June 30, 2020 and 2019:
|
|
June 30,
|
|
June 30,
|
2020
|
2019
|
Income (loss) from discontinued operations
|
$
|
770,383
|
$
|
(1,267,055)
|
|
|
|
|
|
Adjustment of non-cash activities
|
|
(1,809,325)
|
|
-
|
Decrease in accounts receivable
|
|
175
|
|
13,000
|
Decrease (increase) in inventory
|
|
284
|
|
(6,197)
|
Increase in accounts payable and accrued expenses
|
|
857,386
|
|
381,194
|
Net cash provided by (used in) operating activities
|
$
|
(181,097)
|
$
|
(879,058)
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
$
|
-
|
$
|
-
|
NOTE 17: COMMITMENT AND CONTINGENCIES
On January 2, 2019 the Company entered into the term of Executive’s employment agreement, at a base salary of $10,000 per month with John W. Huemoeller II to serve as its Chief Executive Officer. The Company and Executive acknowledge and agree that Executive’s employment hereunder shall at all times be “at will,” which means that either Executive may resign at any time for any reason or for no reason, and that the Company may terminate Executive’s employment at any time for any reason or for no reason, in either case, subject to the applicable provisions of this Agreement. In further consideration for Executive’s services and subject to the approval of the Board, Executive will be granted an option to purchase 2,000,000 shares of the Company’s common stock (the “Option Shares”). The option will be subject to the terms and conditions applicable to stock options granted under the Company’s 2015 Stock Incentive Plan, as amended from time to time (the “Plan”), and as described in the Plan and the stock option agreement, which Executive will be required to sign. 50% of the Option Shares shall vest on the date of grant and the remaining 50% of the Option Shares shall vest on the 12- month anniversary of the grant date, subject to Executive’s continued employment by the Company. The exercise price per share will be equal to the fair market value per share on the date of grant, as determined by the last closing price of the Company’s common stock the day prior to grant. As of December 31, 2019 the Company recorded $1,820,000 of compensation expenses for vested stock options. Beginning in October 2019, the board decided to increase CEO base salary to $35,000 per month. As of June 30, 2020 the Company recorded $287,500 of compensation expenses for common stock issued for services.
On April 24, 2017 the company entered into an employment agreement with Robert Malasek, its Chief Financial Officer and Secretary. The agreement does not have a set term and may be terminated at any time by the Company or Mr. Malasek with proper notice. The shares were issued in the 1st quarter 2018. Beginning in October 2019, the board ratified to increase CFO base salary to $3,000 per month.
On August 21, 2018, AXIM Biotechnologies, Inc. (the “Company”) entered into an agreement with Revive Therapeutics Ltd. (“Revive”) to begin selling the Company’s flagship nutraceutical product throughout the rapidly expanding Canadian cannabis market. The agreement defines a relationship where Revive will seek regulatory approval for AXIM’s proprietary, controlled-release functional chewing gum which contains hemp oil and cannabidiol (CBD). Under the terms of the agreement, Revive will have a minimum purchase amount annually, which increases each year for the term of the agreement.
On September 10, 2018, AXIM Biotechnologies, Inc. (the “Company”) entered into a Letter of Intent (“LOI”) with Impression Healthcare Limited (“Impression”), Australia’s largest home dental impression company, for exclusive distribution of all AXIM® Biotech products throughout Australia and New Zealand.
29
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 17: COMMITMENT AND CONTINGENCIES (CONTINUED)
Pursuant to the LOI, both parties will endeavor to enter into a definitive agreement whereby the parties will co-develop new products, initially for pre-clinical and phase 1 trials (among other clinical trials), including an oral rinse liquid targeted for the treatment of oral mucositis, strep throat, oral infections and gum disease. Pending initial discussions and an internal review of AXIM® Biotech and its product offerings, Impression will collaborate with AXIM® Biotech for the licensing and distribution of its current and future medicinal cannabis products for distribution in Australia and New Zealand. On December 20, 2018 the Company signed Exclusivity Agreement on terms that include Exclusivity period of 90 days after the date on which this agreement is executed with Impression in exchange for 10,300,000 ordinary fully paid shares in Impression at the price of A$0.02 per share and exchange rate of $0.74 AUD/USD valued $150,000 which the Company recognized as a revenue in 4th quarter of 2018. During the year ended December 31, 2019, the Company received another 2,000,000 shares and sold 7,375,000 shares. On April 14, 2020 the Company entered into deed of settlement and release with Impression Healthcare Limited and transferred 4,925,000 held shares back to Impression Healthcare Limited by way of sale and purchase, with the total amount payable by Impression Healthcare Limited to Axim for completion of the sale and purchase and transfer being the aggregate amount of $1.
On May 31, 2019, AXIM Biotechnologies, Inc. (“AXIM”) entered into a cannabinoid product supply agreement with Impression Healthcare Limited (“Impression”), Australia’s largest home dental impression company, for the supply of the AXIM’s toothpaste and mouthwash containing cannabidiol (CBD) for its clinical trial for the treatment of periodontitis. The supply agreement is in preparation for a clinical trial to test the effectiveness of CBD in treating periodontitis. The clinical trial will be performed at Swinburne University of Technology in Melbourne, Australia. In accordance with the agreement, AXIM will supply the first batch of its patented toothpaste and mouthwash products containing CBD, along with associated placebo units for Impression to perform a randomized control clinical trial. On Apirl 14, 2020 the Company terminated its supply agreement with Impression Healthcare Limited by mutual consent of both parties.
On July 2, 2019, AXIM Biotechnologies, Inc. (“AXIM”) entered into a multi-term, non-exclusive license and distribution agreement (“Agreement”) with Colorado based gum developer, KISS Industries, LLC (“KISS Industries”). Under the terms of the Agreement, AXIM grants KISS Industries a non-exclusive license to formulate and sell products that fall within AXIM’s cannabinoid chewing gum patent in exchange for royalties to be paid to AXIM based upon KISS Industries sales in the United States and Mexico. The Agreement also grants AXIM the right to: (i) acquire 10 percent of KISS Industries under certain conditions; and (ii) match any outside future offer to acquire KISS Industries as a whole. Further, AXIM’s CEO John W. Huemoeller II will also join the Board of Directors of KISS Industries..
In exchange for this license Kiss Industries will pay Axim 6% of gross sales as a royalty on all licensed products sold by Kiss. In the territory covered by this license which is the USA and Mexico. (Minimum annual royalty $50,000). Kiss will manufacture for Axim various licensed products at a price equal to 140% of Kiss’s cost. As of December 31, 2019 and June 30, 2020 Kiss Industries did not sell any Axim’s products.
Industry Sponsored Research Agreement— SAPPHIRE BIOTECH, Inc. entered into the Industry Sponsored Research Agreement (“SRA”) effective February 7, 2020 to test and confirm the inhibitory activity of SBI-183 (exclusively licensed on January 13, 2020) and SBI-183 analogs, including those synthesized by the Company. The testing will include cell-based in vitro assays, NMR binding studies and testing to determine if SBI-183 enhances the activity of cytotoxic drugs in vitro. Animal studies will also be conducted under the SRA. Specifically, SBI-183 analogs will be evaluated in a mouse model of triple negative breast cancer using human tumor xenografts. The work will be performed over a period of one year with the total cost of the SRA totaling $150,468 paid prior to acquisition. In consideration of the License executed between Skysong Innovations and the Company, the SRA provides for a reduced overhead of 5% instead of the usual 67.7%. This overhead fee differential of $89,851 will be deferred for five (5) years with interest of 5% compounded annually. For the three and six months ended June 30, 2020, the Company recorded research and development of $33,694 and $33,694, respectively.
30
AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 17: COMMITMENT AND CONTINGENCIES (CONTINUED)
Operating Lease
The Company is renting an office at 45 Rockefeller Plaza 20th Floor Suite 83, New York, NY 10111 on a month to month basis the monthly rent is $295.
Lease Agreement—On March 3, 2020, SAPPHIRE BIOTECH, Inc. entered into a 3-year lease agreement (“Lease”) to relocate to a larger space within the same business park. The new space totals 1,908 square feet with monthly base rent in the 1st year $4,713, 2nd year $4,854 and 3rd year $5,000 at implicit interest rate of 6%. Upon commencement of the Lease on April 25, 2020, the previous lease will expire.
Operating Leases - Right of Use Assets and Purchase Commitments Right of Use Assets
We have operating leases for office space that expire through 2020. Below is a summary of our right of use assets and liabilities as of June 30, 2020.
Right-of-use assets
|
$
|
156,491
|
|
|
|
Lease liability obligations, current
|
$
|
52,305
|
Lease liability obligations, noncurrent
|
|
104,186
|
Total lease liability obligations
|
$
|
156,491
|
|
|
|
Weighted-average remaining lease term
|
|
2.83 years
|
Weighted-average discount rate
|
|
6%
|
The following table summarizes the lease expense for the six months ended June 30, 2020 and 2019:
|
|
June 30,
2020
|
|
June 30,
2019
|
Operating lease expense
|
$
|
4,713*
|
$
|
-
|
Short-term lease expense
|
|
10,458
|
|
21,831
|
Total lease expense
|
$
|
15,171
|
$
|
21,831
|
The following table summarizes the lease expense for the three months ended June 30, 2020 and 2019:
|
|
June 30,
2020
|
|
June 30,
2019
|
Operating lease expense
|
$
|
4,713*
|
$
|
-
|
Short-term lease expense
|
|
5,547
|
|
6,923
|
Total lease expense
|
$
|
10,260
|
$
|
6,923
|
*The first lease payment was made and adjusted in preacquisition cost.
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of June 30, 2020, are as follows:
Remainder of 2020
|
$
|
28,278
|
2021
|
|
57,684
|
2022
|
|
59,416
|
2023
|
|
20,000
|
Total minimum payments
|
|
165,378
|
Less: amount representing interest
|
|
(8,887)
|
Total
|
|
156,491
|
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AXIM BIOTECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE 17: COMMITMENT AND CONTINGENCIES (CONTINUED)
Litigation
As of June 30, 2020, and this report issuing date, the Company is not a party to any pending material legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.
NOTE 18: SUBSEQUENT EVENTS
On July 1, 2020 the Company issued 185,185 and 370,370 restricted shares of its common stock to third party valued at $25,000 and $50,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020.
On July 2, 2020 and July 9, 2020 the Company issued 714,285 and 1,785,714 restricted shares of its common stock to third party valued at $100,000 and $250,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020.
On July 10, 2020 the Company issued 5,141,377 restricted shares of its common stock in exchange for the conversion of $51,414 of a convertible note payable, which included $6,414 in interest.
On July 10, 2020 the Company issued 142,857 and 357,153 restricted shares of its common stock to third party valued at $20,000 and $50,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020.
On July 10, 2020 the Company issued 250,000 and 107,143 restricted shares of its common stock to third party valued at $35,000 and $15,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020
On July 14, 2020 the Company issued 200,000 restricted shares of its common stock to third party valued at $23,630 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020.
On July 21, 2020 the Company entered into convertible note purchase agreement with Cross & Company, the Company owed to Cross & Company $609,835 of aggregated True-Up payments and desired to satisfy the amount due in full by issuing to Cross & Company a convertible promissory note. The convertible note matures on July 21, 2032 and incurred 3.5% compounded interest paid annually. The Note are secured by the assets of the Company, may not be pre-paid without the consent of the holder, and are convertible at the option of the holder into shares of the Company common stock at a conversion price equal to $0.37. Notwithstanding the foregoing, holder shall not be permitted to convert the note, or portion thereof, if such conversion would result in beneficial ownership by holder and its affiliates of more than 4.9% of the debtor’s outstanding common stock as of the date of conversion.
On July 22, 2020 the Company issued 65,359 and 130,719 restricted shares of its common stock to third party valued at $20,000 and $40,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020
On July 22, 2020 the Company issued 163,398 and 326,797 restricted shares of its common stock to third party valued at $50,000 and $100,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020
On July 22, 2020 the Company issued 816,993 and 65,359 restricted shares of its common stock to third party valued at $250,000 and $20,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020
On August 4, 2020 the Company issued 141,243 restricted shares of its common stock to third party valued at $50,000 pursuant to the stock purchase agreement. The cash was received subsequent to June 30, 2020.
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