Notes to Consolidated Financial Statements
August 31, 2016
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Business Activity
Panther Biotechnology, Inc. (the “Company”)
was incorporated in the State of Nevada on July 11, 2011. The Company was originally incorporated as New Era Filing Services
Inc., changed its name to NEF Enterprises, Inc. on October 4, 2011 and then changed its name to Panther Biotechnology, Inc. on
May 29, 2014. The Company incorporated a wholly-owned subsidiary, PubCo Reporting Services, Inc., formerly known as New Era
Filing Services, Inc., in Florida on November 20, 2012.
The Company has established a fiscal year
end of May 31.
The Company is an early stage bio-medical
technology company that pursues and is continuing to pursue in-licensing of certain technologies so that they may be able to develop
those technologies for treatments of patients with cancer. Panther’s current purpose is to better serve the unmet medical
needs of patients with the most difficult to treat cancers. Panther’s mission is to identify, license and acquire unique
molecules that are designed to heal without causing harm and are either optimized derivatives of existing products, repurposed
approved products or new classes of drugs. Panther is also seeking other diversified business opportunities.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated
financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission ("SEC"). and should be read in conjunction
with the audited consolidated financial statements and notes thereto contained in the Company's latest annual report filed with
the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a
fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes
to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the
audited consolidated financial statements for fiscal year 2016, as reported in the Form 10-K, have been omitted.
Basis of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions
have been eliminated in these consolidated financial statements.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from those estimates. The Company’s periodic
filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties
and markets that could affect the financial statements and future operations of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of less than three months, which are readily convertible to known amounts of cash and which,
in the opinion of management, are subject to an insignificant risk of loss in value, to be cash equivalents.
Intangible Assets
Intangible assets are amortized using the
straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and
take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.
All of our intangible assets are subject to amortization. Intangible assets having a capitalized cost of $390,487 were impaired
during the year ended May 31, 2016. No impairment of intangible assets was identified for the three months ended August 31, 2016.
Impairment of Long-Lived Assets
The Company reviews the carrying value
of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value
of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating
the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted
cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s
carrying value and estimated fair value.
Fair Value of Financial Instruments
The Company adopted the framework for measuring
fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are described below:
Basis of Fair Value Measurement
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·
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Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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·
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Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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·
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Level 3 - Unobservable inputs reflect the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
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The Company believes that the fair value
of its financial instruments comprising cash, accounts payable, and convertible notes approximate their carrying amounts. As of
August 31, 2016 and May 31, 2016, the Company had no Level 1 or Level 2 financial assets or liabilities, and Level 3 financial
assets consisted of the Company’s derivative liability.
The following table presents the fair value measurement information
for the Company as of August 31, 2016:
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Carrying Amount
|
|
|
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Level 1
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|
|
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Level 2
|
|
|
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Level 3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Derivative liability
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$
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243,175
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|
|
$
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–
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|
|
$
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–
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|
|
$
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243,175
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|
The following table presents the fair value measurement information
for the Company as of May 31, 2016:
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Carrying Amount
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Level 1
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|
|
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Level 2
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|
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Level 3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Derivative liability
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$
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250,052
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|
|
$
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–
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|
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$
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–
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$
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250
,052
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Income Taxes
Deferred tax assets and liabilities are
recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in
effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Share-based Expenses
ASC 718 "
Compensation –
Stock Compensation
" prescribes accounting and reporting standards for all share-based payment transactions in which employee
services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity
instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including
grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values.
That expense is recognized over the period during which an employee is required to provide services in exchange for the award,
known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation
issued to non-employees and consultants in accordance with the provisions of ASC 505-50, "
Equity – Based Payments
to Non-Employees"
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever
is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based
payment transaction is determined at the earlier of performance commitment date or performance completion date.
Loss per Share
Basic loss per common share equals net
loss divided by weighted average common shares outstanding during the period. Diluted loss per share includes the impact on dilution
from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from
contingent shares are determined by the treasury stock method. The Company incurred net losses for the three months ended August
31, 2016 and 2015, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent
shares would be antidilutive. For the three months ended August 31, 2016 and 2015, the Company had 33,000 common stock warrants
outstanding that were excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive.
Recent Accounting Pronouncements
In April 2015, the FASB issued ASU
No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and in August 2015 issued ASU No. 2015-15, Presentation
and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Under ASU 2015-03, debt issuance
costs reported on the consolidated balance sheet would be reflected as a direct deduction from the related debt liability rather
than as an asset. While ASU 2015-03 addresses costs related to term debt, ASU No. 2015-15 provides clarification regarding costs
to secure revolving lines of credit, which are, at the outset, not associated with an outstanding borrowing. ASU No. 2015-15 provides
commentary that the SEC staff would not object to an entity deferring and presenting costs associated with line-of-credit arrangements
as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. The Company has elected to
implement ASU No. 2015-03 early and the financial statements as of August 31, 2016 and 2015 reflect the early adoption.
The Company does not expect the adoption
of any other recently issued accounting pronouncements to have a significant impact on its financial position, results of operations
or cash flows.
Reclassifications
Certain reclassifications may have been
made to the prior year financial statements to conform to the current year presentation.
Subsequent Events
The Company has evaluated all transactions
through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 3 – GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As of August 31, 2016, the Company has a cumulative net loss since inception of $11,605,782,
negative working capital of $1,204,557 and is currently in default on its convertible debt. The Company has required additional
capital raises and advances from shareholders to support its operations. These factors raise substantial doubt about the ability
of the Company to continue as a going concern for a reasonable period of time. The Company's continuation as a going concern is
dependent upon its ability to raise sufficient capital to fund its operations until such time as it can generate revenues. No assurance
can be given that the Company will be successful in these efforts.
The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
License Agreement with Northwestern University
On January 26, 2015, the Company entered
into a license agreement with Northwestern University (“Northwestern”). Northwestern is the owner of certain patents
and grants for cancer treatments of which the Company has obtained an exclusive license under a Patent Rights agreement and a non-exclusive
license under a Know-How agreement (together the “Licensed Product”) (“the Northwestern License”).
The Northwestern License required that
the Company raise $3,000,000 dollars prior to the one year anniversary of the agreement on January 26, 2016. The Company did not
raise the requisite amount of capital and is in default on the license agreement. Although the Company has not received a notice
of default from Northwestern regarding the default, in the first quarter of fiscal year 2016, the Company recognized an impairment
charge of $198,820 related to the Northwestern License, which represents the net book value of the intangible asset. However, we
maintain a close relationship with Northwestern, as they are a significant shareholder in the Company, and the Inventor of the
Licensed Products sits on our Board of Directors as well as a Professor of Hematology at the Feinberg Medical School (Northwestern’s
medical school).
According to the agreement, the Company
must reach the following milestones to maintain the licenses:
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a)
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Raise funds of at least $3 million by January 26, 2016.
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b)
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Initiate good laboratory practices in preclinical studies with a Licensed Product within 18 months of the closing date;
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c)
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File an Investigational new drug application within 4 years of the closing date;
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d)
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First dosing of a patient in a phase I clinical trial for a Licensed Product within 5 years of the closing date;
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e)
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First dosing of a patient in a phase II clinical trial for a Licensed Product within 6 years of the closing date;
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f)
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First dosing of a patient in a phase III clinical trial for a Licensed Product within eight years of the closing date;
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g)
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Submit a new drug application for a Licensed Product within 10 years of the closing date;
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h)
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Complete and submit to Northwestern a business plan for commercialization of a Licensed Product within 1 year of submission of a new drug application (“NDA”) for such Licensed Product.
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In consideration of the license granted
by Northwestern, the Company shall pay to Northwestern the following:
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a)
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A non-creditable, non-refundable licensing fee of $24,000 within 30 days of the closing date. The license fee was paid during the year ended May 31, 2014. On January 26, 2015, the license deposit was capitalized as part of the intangible license purchase upon closing of the transaction.
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b)
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In partial consideration of the grant of the exclusive rights and license to the assigned patent rights and non-exclusive license to the know-how of Northwestern, the Company agreed to issue Northwestern a number of shares of its common stock that will represent 2% of the total outstanding shares of the Company and, in consideration of Dr. Sui Huang’s role as co-founder and in anticipation of entering into a research agreement with Northwestern to support research in Dr. Sui Huang’s laboratory, the Company will issue to Dr. Sui Huang a number of shares of common stock that will represent 2% of the total outstanding shares of the Company; The fair value of the 186,282 common shares, based on the January 26, 2015 closing stock price of $2.01, was $374,427. The Company recorded an intangible license asset in the amount of $187,214 for the shares owed to Northwestern and recorded share-based compensation of $187,213 for the shares owed to Dr. Sui Huang. As of May 31, 2015 and August 31, 2015, none of these shares had been issued and a stock payable in the amount of $374,427 was recorded. On September 12, 2015, one of the Company’s shareholders, and former Chairman of the Board, transferred 186,282 common shares of his own on behalf of the Company for the 4% of outstanding shares to be issued above.
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c)
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The Company shall pay to Northwestern a non-creditable, non-refundable annual maintenance fee on each anniversary of the closing date according to the following schedule until the Company receives regulatory approval from the Federal Drug Administration (or foreign equivalent) (“Regulatory Approval”) of the first Licensed Product(s):
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Time Periods
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Amount
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1st anniversary
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$
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0
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2nd-4th anniversaries
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$
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7,000
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5th and 6th anniversaries
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$
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25,000
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7th anniversary and each year thereafter
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$
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50,000
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In the first full calendar year
following Regulatory Approval, Northwestern shall credit 1/12 of the annual maintenance fee paid by the Company against the minimal
royalty payments (see item (e) below) due for each full month remaining between January 1 of that year and the anniversary of the
closing date.
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d)
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The following non-creditable and non-refundable milestone payments upon the achievement of particular milestones in the development of Licensed Products (none of which have occurred as of May 31, 2016 and through the date of this filing):
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(1)
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$25,000 upon filing of Investigational new drug application for a Licensed Product
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(2)
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$50,000 upon dosing first patient in Phase I trial (or foreign equivalent) for a Licensed Product
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(3)
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$100,000 upon dosing first patient in Phase II trial (or foreign equivalent) for a Licensed Product
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(4)
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$250,000 upon dosing first patient in Phase III trial (or foreign equivalent) for a Licensed Product
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(5)
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$1,500,000 upon Regulatory Approval of a Licensed Product
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e)
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Beginning the first full calendar year after Regulatory Approval of a Licensed Product in the United States, Canada, Japan, France, Germany, United Kingdom, Australia, or Italy, or the year 2025, whichever comes first, the Company shall pay to Northwestern minimum royalty payments of $200,000 per year, on a quarterly basis.
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f)
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The Company will reimburse Northwestern's out of pocket patent expenses totaling approximately $25,000 as of November 18, 2014. All future patent costs for the preparation, filing, prosecution, and maintenance of the Patent rights, shall be borne by the Company. Payment of out of pocket patent expenses will be deferred until the earlier of a) the date the Company closes on its first round of financing after the closing date or b) one year from the closing date. None of these events have occurred as of May 31, 2016 and through the date of this filing and the $25,000 reimbursement remains in deferral.
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g)
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A running royalty of (a) 5% of net sales of Licensed Products if such Licensed Product is covered by patent rights in the country where such Licensed Product is manufactured or sold and (b) 2% of net sales of Licensed Products in all other countries. In the event that Licensee enters into other license agreements) with third parties with respect to intellectual property which in the Company's opinion is legally required for the manufacture, use or sale of Licensed Product(s), the Company may offset amounts paid to such third parties against earned royalties due Northwestern hereunder, by reducing Licensee's obligation to Northwestern by 0.25% for each 1% of royalty rate payable to third parties; provided, however, that in no event will the royalty rate otherwise due to Northwestern be less than 2.5%;
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h)
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In addition to the running royalties described above, 15% of any payments, including, but not limited to, sublicense issue fees or milestones received from sub licensees as consideration for Patent Rights or Licensed Products prior to filing of an NDA; 5% after filing an NDA;
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i)
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In the event of a corporate partnership for the development and/or commercialization of a Licensed Product, 10% of any payments received from such corporate partner as consideration for patent rights or Licensed Products. Payments received by the Company for equity and payments allocated solely for research are excluded;
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j)
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The Company subject to certain payments if the Company issues sublicenses, permit assignments on the agreement, or in the event of a corporate partnership for the development and /or commercialization of a licensed product;
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k)
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In the event of a permitted assignment of the agreement, 10% of any payments received from such assignee as consideration for patent rights or Licensed Products.
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The agreement will continue in effect,
on a country-by country basis, until the expiration of the last to expire of patent rights.
Blue Print Partners Group
On April 7, 2015, the Company entered into
a twelve-month consulting agreement with Blue Print Partners and its principal, Tim Boyd, to assist in, among other items, the
daily merger and acquisition activities of the Company, raising capital, and the possible acquisition of pre-identified biotech
assets. Mr. Boyd was to be paid a signing fee of 6,250 shares of the Company’s common stock with a fair value of $50,000
on closing and a retainer of $12,500 per month plus out-of-pocket costs. Mr. Boyd would also have been entitled to various success
fees ranging from seven percent (7%) to ten percent (10%), based on the type of transaction, of the total value of any transaction,
and would be payable in shares of the Company’s common stock. Mr. Boyd would have earned a success fee of $100,000 plus 10%
of the transaction value in the Company’s stock in the event of a closing of a transaction of an acquisition of an agreed
upon target company, a success fee upon the closing of a financing of 5% cash or 10% in Company stock (7% cash or 12% stock for
Mezzanine or Equity financing) if Boyd had introduced us to the investor or lender, or a success fee of $100,000 on the sale of
any of the Company assets through Mr. Boyd. None of these potential targets had been met by Mr. Boyd prior to the termination of
this Agreement. Due to Mr. Boyd’s improper and unauthorized activities in a number of transactions, the Company terminated
this agreement on August 18, 2015, and informed Mr. Boyd he would not be receiving any shares and the Company demanded the return
of $10,000 delivered to Mr. Boyd for the purposes of legal fees for a possible transaction. The Company has instituted legal
proceedings against Mr. Boyd due to a pattern of conduct by Mr. Boyd after the consulting agreement was signed that the Company
believes was wholly improper and is seeking significant damages from Mr. Boyd for damages caused due to his actions. The
Company recorded a stock payable of $50,000 for the 6,250 signing fee shares and accrued $25,000 for the April and May retainer
amounts due under the agreement as of May 31, 2015. During the three months ended August 31, 2015, the Company accrued an additional
$37,500 for monthly retainers, pending resolution of this matter. On July 6, 2015, the Company issued 6,250 common shares for the
$50,000 stock payable recorded as of May 31, 2015. The Company filed a 30-day notice of termination on August 31, 2015, and per
the terms of the agreement, the contract was terminated on September 30, 2015. Accordingly, the Company reversed the stock payable
and accrued compensation as of May 31, 2016.
License Agreement with University
of Rochester
On April 16, 2015, the Company entered
into an exclusive patent license agreement with University of Rochester (“Rochester”). Rochester grants to the Company
a worldwide exclusive, royalty-bearing license, with the right to sublicense, for patents and technology related to the treatment
of diabetes (the “Patent Products”). According to the agreement, the Company will reimburse Rochester for all mutually
agreed fees and costs relating to the filing, prosecution, and maintenance of patent applications, including without limitation,
interferences, oppositions, and reexaminations, and the maintenance and defense of patents in patent rights, including fees and
cost incurred on, and after the closing date of the agreement.
As partial consideration for the rights
conveyed by Rochester under this agreement, the Company agreed to issue 25,437 shares of the Company’s common stock to Rochester
as a one-time, non-refundable, non-creditable license issue fee valued at $200,000 based upon the average price per share during
the week preceding the closing date, which was $7.86. Rochester may not transfer the shares before August 30, 2016. The Company
capitalized the $200,000 as an intangible license asset on the consolidated balance sheet. On July 6, 2015, the Company issued
25,437 common shares to settle the $200,000 stock payable recorded as of May 31, 2015.
In addition to the above license fee, for
the term of the agreement on an annual basis measured from the closing date of the agreement, the Company will pay at the beginning
of the following year a non-refundable minimum annual maintenance fee of $15,000 in cash or Company stock each year prior to the
onset of clinical trials. Rochester will waive the pre-clinical trial annual maintenance fee if the Company spends at least $200,000
annually on the drug development that would enhance the patent rights conveyed. After onset of clinical trials, the Company
will pay a non-refundable minimum annual maintenance fee of $25,000 in cash or Company stock each year or part of year until the
first product is commercialized and sales royalty payments begin. Annual maintenance fees paid in cash will be credited against
the costs of maintaining the Patent Rights for that year.
During the term of this Agreement, the
Company agreed to pay to Rochester an earned royalty of 5% of the first $10,000,000, 4% of the second $10,000,000, 3% of the third
$10,000,000, 2% of the fourth $10,000,000 in net sales revenue produced from Patent Products, and 1% of all remaining net sales
revenue produced from Patent Products. Earned royalty payments are due and payable within 30 days of the end of each calendar quarter.
The Company agreed to pay to Rochester
50% of all cash and non-cash consideration derived from sublicenses granted by the Company in Patent Products, excluding earned
royalties, loans, equity investments, and research and development support.
The Company agreed to pay Rochester the
milestone payments per product as set forth below:
|
a)
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If the Company sponsors Phase I, II and III clinical trials, the Company will pay $500,000 within 30 days of approval of any Patent Product;
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|
b)
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If the Company sells a controlling interest in or sublicenses substantially all of the Patent Products before the initiation of Phase II clinical trial, the Company will pay:
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1)
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$200,000 within 30 days of initiation of Phase II clinical trial;
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2)
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$200,000 within 30 days of initiation of Phase III clinical trial; and
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3)
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$300,000 within 30 days of approval of a Patent Product
|
As of August 31, 2016, and through the
date of this filing, none of the milestones noted above for Rochester have been met.
The term of this Agreement will commence
on the closing date and will end upon the latest of (i) expiration of the last-to-expire valid claim of the Patent Products; or
(ii) the 10-year anniversary of commercial launch of any Patent Product.
The University of Rochester License required
that the Company spend $200,000 annually on drug development or pay an annual maintenance fee of $15,000 in cash or an equivalent
number of the Company’s common stock. The Company has defaulted on these requirements. Although the Company has not received
a notice of default from Rochester regarding the default, the Company recognized an impairment charge of $191,667 related to the
Rochester License, which represents the net book value of the intangible license, during the year ended May 31, 2016.
Alchemia Oncology / Blueprint Partners
Dispute
On June 27, 2015, the Company entered into
a binding term sheet to acquire Alchemia Oncology Pty LTD (“Alchemia”), a subsidiary of Alchemia LTD listed on the
Australian Stock Exchange (the “Alchemia Term Sheet”). The transaction was brought to the Company by Tim Boyd of Blueprint
Partners, whom the Company engaged to seek potential acquisitions of Australian biotechnology candidates on a success fee basis,
see Note 4. Mr. Boyd identified and negotiated directly with Alchemia and agreed on the transaction terms. Mr. Boyd subsequently
presented those terms to the Company. Mr. Boyd guaranteed the due diligence and a financing of $10,000,000 should the Company engage
in the transaction, with a short term guarantee of $500,000 simply to execute the term sheet. The agreement that Mr. Boyd negotiated
required a final mutually agreed upon asset purchase agreement containing certain milestone achievements in the short term, including
but not limited to, a filing of an S-1 registration statement and applying for a listing on the NASDAQ. The acquisition consideration
was $15,000,000 worth of the Company’s common shares. The guaranteed price of the first tranche of the Blueprint Partners
financing was $5 per share. The Company believed the transaction to be of minimal risk. However, the initial failure of Blueprint
to deliver the financing, of which an initial $500,000 was guaranteed with five days from the date of the signing of the term sheet,
resulted in the failure to achieve certain milestones per the term sheet which then subjected the Company to a breakup fee of $500,000.
The Company takes the position that it is not liable if such fee were ever pursued due to the failure of Blueprint to deliver the
financing. The Company was unable to agree upon the terms of the asset purchase agreement as well as unable to achieve the milestones
on a timely basis due to both Alchemia withholding critical data and Mr. Boyd improperly misrepresenting his ability to deliver
the requisite financing concurrent with the execution of the term sheet. In addition, the Company discovered questionable board
relationships and practices amongst Alchemia and Mr. Boyd. Also, certain statements and actions from Alchemia appeared contradictory
to the expectations of the relationship. The Company made every attempt to resolve the situation, however, the Company suspects
that possible collusion amongst the parties made the transaction absolutely impossible to consummate. Currently there is no negotiation
or agreement in place. The Company believes it is entitled to damages and has initiated litigation against Tim Boyd and Blueprint
Partners and is evaluating whether other parties should be part of the litigation in any capacity. This is not expected to have
a material impact on the Company.
In December 2015, the Company received
a demand letter for payment under the Alchemia Term Sheet demanding $500,000 for the breakup fee and an additional $75,000 for
operational expenses. The Company has delivered a demand letter to Alchemia asserting its rights to void the agreement in light
of irregularities that have been brought to the Company’s attention. Neither Alchemia nor the Company have initiated legal
action regarding the Alchemia Term Sheet. The Company intends to mount a vigorous defense in the event that suit is brought by
Alchemia and will pursue counterclaims against Alchemia in the event a lawsuit is filed against the Company by Alchemia.
Stock Purchase Agreement
On August 28, 2015, the Company entered
into a Stock Purchase Agreement with a private non-affiliated investor to sell 33,000 shares of the Company’s common stock,
at a price of $5.00 per share. The closing occurred on August 28, 2015. The investor also received a common stock purchase
warrant for the right to purchase 33,000 shares at a purchase price of $6.00 per share. The warrant expires on August 27, 2020.
The investor also received 22,000 shares of the Company’s common stock, with a fair market value of $112,200 based on our
stock closing price of $5.10 that vested over six months, as consideration for a one year consulting agreement to the Company.
The investor has agreed to assist the Company in the capacity of investor relations, introductions to potential public market investors
in the Chicago area, business development and facilitating with potential synergistic corporate alliances, and potential alliances
with medical practices, etc. in the Chicago area.
Officer Compensation
In November 2015, the Compensation Committee
authorized compensation for Mr. Levine, the Chief Executive Officer of the Company and Mr. Ruben, the former Chief Financial Officer
and former General Counsel of the Company, as follows:
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·
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A $25,000 lump sum payment to be payable in November or December 2015 (both payments were made on November 22, 2015)
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|
·
|
2016 salary established at $15,000 per month commencing January 15, 2016
|
|
·
|
Healthcare reimbursement of $1,000 per month
|
|
·
|
2016 bonus, if warranted, will be determined at the discretion of the compensation committee of the Board of Directors and paid in a lump sum in November or December 2016.
|
In March 2016, Mr. Ruben resigned from
his position as Chief Financial Officer and General Counsel of the Company. In April 2016, the Company retained Steven M. Plumb,
CPA as Chief Financial Officer, through a contract with his consulting firm, Clear Financial Solutions, Inc. (“Clear Financial”).
Clear Financial is paid $6,000 per month for Mr. Plumb’s services. In addition, Mr. Plumb was awarded a stock grant for 180,000
shares of the Company’s commons stock, vesting equally over 36 months. The Company has recognized $14,565 in stock based
compensation related to Mr. Plumb’s stock grant during the three months ended August 31, 2016.
Clear Financial Solutions Agreement
On March 21, 2016, the Company, entered
into an engagement letter with Clear Financial Solutions, Inc. Under the Engagement Letter, Clear Financial will provide certain
financial consulting services to the Company and Mr. Steven M. Plumb, founder and President of Clear Financial, will serve as the
Chief Financial Officer of the Company. Clear Financial will, among other things, prepare and review the Company’s financial
statements, oversee internal accounting controls and provide advice on generally accepted accounting principles. In addition, Mr.
Plumb will execute the certifications required by Form 10-K and Form 10-Q pursuant to the requirements of the Securities Exchange
Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002. As compensation for the services provided, the Company will pay
Clear Financial a fee of $6,000 per month and has agreed to issue up to 180,000 shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”), to Mr. Plumb. The Engagement Letter has an initial term of one year and
will automatically renew for successive one-year periods until terminated by either party upon 60 days’ written notice prior
to the end of the then current term.
Loan Default
On March 30, 2016, the Company received
a notice of default, as of August 29, 2015, from our convertible note holder. The default occurred when we failed to file our Form
10-K and 10-Q’s on a timely basis. As a result of the default, the interest rate of the debt was increased to 22% and the
Company incurred additional penalty interest in the amount of $260,732 during the nine months ended February 29, 2016. The total
amount due to the lender for principal and accrued interest, as a result of the default, is $499,735 as of August 31, 2016.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following as of August 31,
2016 and May 31, 2016:
|
|
August 31, 2016
|
|
|
May 31, 2016
|
|
Intangible license - Northwestern University (see Note 4)
|
|
$
|
214,121
|
|
|
$
|
214,121
|
|
Intangible license - Rochester University (see Note 4)
|
|
|
200,000
|
|
|
|
200,000
|
|
Patents
|
|
|
274,000
|
|
|
|
274,000
|
|
Accumulated amortization and impairment
|
|
|
(444,946
|
)
|
|
|
(438,096
|
)
|
Intangible assets, net
|
|
$
|
243,175
|
|
|
$
|
250,025
|
|
The Company is amortizing all of the intangible
assets over the 10 year term of the related agreements. The Company recorded amortization of $6,850 and $13,778, respectively,
for the three months ended August 31, 2016 and 2015.
The Northwestern License required that
the Company raise $3,000,000 prior to the one-year anniversary of the agreement on January 26, 2016. The Company did not raise
the requisite amount of capital and is in default on the license agreement. Although the Company has not received a notice of default
from Northwestern regarding the default, the Company recognized an impairment charge of $198,820 related to the Northwestern License,
which represents the net book value of the intangible license. The Company is reevaluating the license.
The University of Rochester License required
that the Company spend $200,000 annually on drug development or pay an annual maintenance fee of $15,000 in cash or an equivalent
number of the Company’s common stock. The Company has defaulted on these requirements. Although the Company has not received
a notice of default from Rochester regarding the default, the Company recognized an impairment charge of $191,667 related to the
Rochester License, which represents the net book value of the intangible license. The Company is reevaluating the license.
NOTE 6 – RELATED PARTY TRANSACTIONS
As of August 31, 2016 and May 31, 2016,
total advances from certain officers, directors and shareholders of the Company were $87,500, which was used for payment of general
operating expenses. The related parties advances have no conversion provisions into equity, are due on demand and do not
accrue interest.
During the three months ended August 31,
2016, the Company has recorded as $47,000 in compensation expense related to the employment agreement with the chief executive
officer and $20,500 in compensation expense related to the contract with the chief financial officer.
During the three months ended August 31,
2016 and 2015, the Company recognized $14,565 and $9,710 in share based compensation related to the stock grants made to the chief
executive officer and the chief financial officer, respectively.
Accounts payable – related party
reflects amounts due to our CEO and CFO of $15,612 as of August 31, 2016 and $20,003 as of May 31, 2016.
Stock payable – related party reflects
stock compensation earned for which the shares had not been issued to officers and directors of $84,562 and $60,287 at August 31,
2016 and May 31, 2016, respectively.
NOTE 7 – CONVERTIBLE NOTE PAYABLE
|
|
August 31,
|
|
|
May 31,
|
|
Description
|
|
2016
|
|
|
2016
|
|
On August 20, 2015, the Company executed a convertible note payable in the original principal amount of $247,000 for net proceeds of $220,000, payable on March 31, 2018 bearing interest at 10% per annum. This note is convertible into the Company’s common stock at $7.50 per share unless the market capitalization of the Company falls below $15,000,000, at which point the conversion price will equal the market price of the Company’s common stock on the date of conversion. On October 29, 2015, the market capitalization of the Company fell below $15,000,000 and the variable conversion feature became permanent. The note is unsecured.
|
|
|
|
|
|
|
|
|
Convertible note payable
|
|
$
|
182,750
|
|
|
$
|
207,750
|
|
Less: Original issue discount
|
|
|
(22,000
|
)
|
|
|
(22,000
|
)
|
Less: Debt discount from derivative liability
|
|
|
(220,000
|
)
|
|
|
(220,000
|
)
|
Less: Deferred financing cost
|
|
|
(5,000
|
)
|
|
|
(5,000
|
)
|
Add: Amortization of debt discount and deferred financing cost
|
|
|
144,563
|
|
|
|
104,548
|
|
Total convertible notes payable, net
|
|
$
|
80,313
|
|
|
$
|
65,298
|
|
On March 30, 2016, the Company received
a notice of default, as of August 29, 2015, from our convertible note holder. The default occurred when we failed to file our Form
10-K and 10-Q’s on a timely basis. As a result of the default, the interest rate of the debt was increased to 22% on August
29, 2015 and the Company incurred additional penalty interest in the amount of $37,122 during the three months ended August 31,
2015, $43,930 during the three months ended November 30, 2015 and $179,680 during the three months ended February 29, 2016, for
a total accrued penalty interest of $260,732. The total amount due to the lender for principal and accrued interest, as a result
of the default, is $499,735 as of August 31, 2016.
NOTE 8 – DERIVATIVE LIABILITIES
On August 20, 2015, the Company issued
a convertible note agreement with a variable conversion feature that gave rise to an embedded derivative instrument. The derivative
feature has been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the
Company's business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and
small-cap companies. Increases or decreases in the Company's share price, the volatility of the share price, changes in interest
rates in general, and the passage of time will all impact the value of the derivative instrument. The Company re-values the derivative
instrument at the end of each reporting period and any changes are reflected as changes in derivative liabilities in the consolidated
statements of operations. The assumptions used are as follows:
|
|
August 21, 2016
|
|
|
May 31, 2016
|
|
Market value of common stock on measurement date (1)
|
|
$
|
0.60
|
|
|
$
|
0.56
|
|
Adjusted conversion price (2)
|
|
$
|
0.108
|
|
|
$
|
0.2304
|
|
Risk free interest rate (3)
|
|
|
0.61%
|
|
|
|
0.68%
|
|
Life of the note in years
|
|
|
1.474 years
|
|
|
|
1.726 years
|
|
Expected volatility (4)
|
|
|
526.09%
|
|
|
|
360.57%
|
|
Expected dividend yield (5)
|
|
|
–
|
|
|
|
–
|
|
(1) The market value of common stock is
based on closing market price as of initial valuation date.
(2) The adjusted conversion price is calculated
based on conversion terms described in the note agreement.
(3) The risk-free interest rate was determined
by management using the 2 year Treasury Bill as of the respective Offering or measurement date.
(4) The volatility factor was estimated
by management using the historical volatilities of the Company’s stock.
(5) Management determined the dividend
yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
The initial valuation of the derivative
liability was $380,995 on August 20, 2015, the date of the initial valuation, $295,883 on May 31, 2016, and $558,403 on August
31, 2016. The increase of $394,843 in the derivative liability was recorded on the consolidated statements of operations.
NOTE 9 – STOCKHOLDERS' EQUITY
In June and July 2016, the Company entered
into stock purchase agreements with private investors to sell 450,000 shares of its common stock for gross proceeds of $67,500.
NOTE 10 – SUBSEQUENT EVENTS
On September 20, 2016, the Company entered
into a letter of intent ("Letter of Intent") with Brown Technical Media Corp. ("Brown") a privately owned corporation
with respect to a proposed acquisition whereby the shareholders of Brown would exchange all of their outstanding capital stock
with the Company, in consideration for approximately 12 million shares of the Company’s common stock, plus certain earn-out
rights, the result of which will be that Brown would become a wholly-owned subsidiary of the Company (the "Exchange").
The Exchange will be structured to qualify as a tax-free reorganization under the US Internal Revenue Code.
The closing of the Exchange is subject
to certain closing conditions set forth in the Letter of Intent including, but not limited to:
• the
negotiation and execution of a definitive share exchange agreement among the Company and Brown’s shareholders;
• the
execution of definitive instruments and agreements related to the Exchange including employment agreements with Brown’s and
Panther’s executive management and such other employees as Brown shall designate;
• the
Company's raising a minimum of $250,000 in a private placement;
• the
obtaining by the Company and Brown of all necessary board and stockholder approvals; and
• the
delivery by Brown of audited and interim unaudited financial statements and pro forma financial statements, as required pursuant
to the applicable rules and regulations of the Securities and Exchange Commission.
The deadline for closing the Exchange,
pursuant to the Letter of Intent, is December 31, 2016.
Steven M. Plumb, the Chief Financial Officer
of the Company is the Chief Financial Officer and Chairman of the Board of Directors of Brown and also owns 45.4% of Brown’s
outstanding common stock and would therefore receive approximately 5,442,177 shares of the Company’s common stock in the
Exchange.
In September 2016, the board approved
the issuance of 1,303,333 shares for cash and services. As of the filing date, 833,333 shares have not been issued.
On October 11, 2016, the Company entered
into a Settlement Agreement with Typenex Co-Investment, LLC (“Typenex”), whereby the Company and Typenex agreed to
modify the terms of the Secured Convertible Promissory Note dated August 20, 2015 (the “Note”) between the Company
and Typenex. Under the terms of the Settlement Agreement, the parties agreed that the Company will repay $265,000 plus accrued
interest (the “Settlement Amount”) in fourteen payments. The first thirteen payments will be in the amount of $20,000
and the fourteenth payment will be in the amount of the unpaid balance of the Settlement Amount. The first payment was due and
paid on October 21, 2016. Subsequent payments are due on the fifth day of each month thereafter. The Company will make the first
thirteen payments as follows: (i) $10,000.00 in cash, and (ii) if elected by Typenex in its sole discretion, up to $10,000.00 in
shares of Company’s common stock. The conversion price of the portion of the payment to be made in the Company’s common
stock will be based upon the market price which shall mean 60% multiplied by the average of the three (3) lowest Closing Bid Prices
in the ten (10) Trading Days immediately preceding the applicable payment date.
On October 19, 2016, the Company issued
85,574 shares of its common stock to a consultant in exchange for services rendered. The fair market value of the common stock
on the date of issuance was $68,459.