Although there are signs that COVID-19 may begin
to taper off, COVID-19 still has an impact on worldwide economic activity, and the ongoing effects of the COVID-19 pandemic has impacted
(although not significantly as of June 30, 2021), and may continue to impact, certain aspects of our business such as our labor workforce,
unavailability of products and supplies used in our operations, and a potential decline in value of assets held by the Company. In response
to the COVID-19 pandemic, many state, local, and foreign governments have put in place restrictions in order to control the spread of
the disease. Such restrictions, or the perception that further restrictions could occur, have resulted in business closures, work stoppages,
slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that
impacted productivity and disrupted our operations and those of our partners, suppliers, and contractors.
The COVID-19 pandemic may also have the effect
of heightening many of the other risks described in the “Risk Factors” section of our December 31, 2020 Annual Report on Form
10-K filed March 30, 2021. We may take further actions that alter our operations as may be required by federal, state, or local authorities,
or which we determine are in our best interests. While some of our operations can be performed remotely, certain activities often require
personnel to be on-site, and our ability to carry out these activities have been, and may continue to be negatively impacted if our employees
or local personnel are not able to travel or be restricted to on-site access. In addition, for activities that may be conducted remotely,
there is no guarantee that we will be as effective while working remotely because our team is dispersed and many employees and their families
have been negatively affected, mentally or physically, by the COVID-19 pandemic. Decreased effectiveness and availability of our team
could harm our business. In addition, we may decide to postpone or cancel planned investments in our business in response to changes in
our business as a result of the spread of COVID-19, which may impact our rate of innovation, and may impact the start and/or completion
of our studies and/or clinical trials, either of which could harm our business.
We do not yet know the full extent of potential delays
or impacts on our business, operations, or the global economy as a whole. While there have recently been vaccines developed and administered,
and certain government orders and restrictions in particular cities, counties, and states have been lifted as the spread of COVID-19 starts
to get contained and mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, and we
do not yet know how businesses, contractors, suppliers, or our partners will operate in a post COVID-19 environment, especially if additional
or supplemental governmental orders, limitations, and restrictions are reinstated. There may be additional costs or impacts to our business
and operations. In addition, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or
that the global economy will recover, either of which could harm our business.
Furthermore, while the potential impact and duration
of the COVID-19 pandemic on the economy and our business in particular may be difficult to assess or predict, the pandemic has resulted
in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional
capital, which could negatively affect our liquidity in the future.
NOTE
7 – LOAN PAYABLE
Schedule of Loans Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021
|
|
December
31, 2020
|
Loan
payable at 8%, matures December 31, 2021
|
|
|
*
|
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
Loan
payable at 1%, matured June 11, 2021
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
Total
|
|
|
|
|
|
|
900,000
|
|
|
|
950,000
|
|
Less:
short term loans
|
|
|
|
|
|
|
900,000
|
|
|
|
—
|
|
Total
long-term loans
|
|
|
|
|
|
$
|
—
|
|
|
$
|
950,000
|
|
*
- unsecured note
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense on notes payable, amounted to $16,767 and $12,369 for the three months ended June 30, 2021 and 2020, respectively.
Total interest expense on notes payable, amounted to $33,534 and $24,599 for the six months ended June 30, 2021 and 2020, respectively.
Accrued interest related to these notes was $161,359 and $127,825 as of June 30, 2021 and December 31, 2020, respectively.
NOTE
8 – LOAN PAYABLE – RELATED PARTY
Prior
to the share exchange agreement, the Company borrowed $25,822 and issued a promissory note with a maturity date of March 31, 2020
which was later extended to March 31, 2022. Additionally, the note holder advanced the Company $16,270 for working capital, for
a total of $42,092 – also see Note 16.
The
loans represent working capital advances from shareholders, bear interest at 0.5%, and grant a security interest in the Company’s
assets as collateral. In March 2018, this note was amended, and the original note holder assigned the note to Kettner Investments,
LLC, a significant shareholder. The note is now non-interest bearing. Accrued interest related to this note is $226 as of June
30, 2021 and December 31, 2020, respectively.
NOTE
9 – CAPITAL LEASE OBLIGATIONS
In
September 2019, the Company entered into a lease agreement with Thermo Fisher Scientific to acquire equipment with 48 monthly
payments of $941, payable through September 1, 2023, with an effective interest rate of 12% per annum. The outstanding balance
of this capital lease was $23,653, secured by equipment with carrying value of $22,457, as of June 30, 2021.
In
March 2021, the Company entered into another lease agreement with Thermo Fisher Scientific to acquire equipment with 36 monthly
payments of $699, payable through February 29, 2024, with an effective interest rate of 13% per annum. The outstanding balance
of this capital lease was $11,983, secured by equipment with carrying value of $23,404, as of June 30, 2021.
NOTE
10 – CONVERTIBLE NOTES PAYABLE
Prior
to the Share Exchange, the Company issued a convertible note to an investor, face value of $500,000,
in exchange for $500,000
in cash. The note is unsecured, bears interest at the rate of 3%
per annum and matures on February
16, 2030. The note is convertible into common stock of the Company at $0.10
per share at any time at the option of the holder, subject to a 4.9% blocking provision which prohibits the holder from converting
into common stock of the Company if such conversion results in the holder owning greater than 4.9% of the outstanding common stock
of the Company after giving effect to such conversion. On September 26, 2019, the Company issued 1,500,000
shares of common stock for the conversion of $123,627
convertible notes payable and $26,373
of related accrued interest. The outstanding balance on this convertible note after the conversion was $376,373 as of June 30, 2021
and December 31, 2020.
In
December 2019, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed
to sell to the investor a $100,000 convertible note bearing interest at 8% per annum (the “Note”). The Note matures
two years from the date of issuance. The Note is convertible at the option of the holder at any time into shares of the Company’s
common stock at an effective conversion price of 75% of the average closing price of the Company’s common stock on the fifteen
days prior to conversion. The Company may not prepay this Note within the first six months. If, after the first six months until
the maturity of the Note the Company:
|
(a)
|
elects to repay
the Note, it must do so at a premium of one hundred and twenty five percent (125%) of the face amount of the Note, together
with all unpaid and accrued interest to the date of repayment.
|
|
(b)
|
elects to involuntarily
exercise conversion of this Note to the Holder, the Company must provide written notice to the Holder along with an executed
copy of the Company’s Notice of Conversion, specifying that the Note shall be converted into shares of the Company’s
Common Stock based upon at an effective conversion price of 75% of the average closing price of the Company’s common
stock on the fifteen days prior to conversion.
|
The
embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant
to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 100,000
shares of common stock. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the
Note (see Note 12) resulting in full discount of the Note as of June 30, 2021 and December 31, 2020.
On
March 12, 2020, the Company entered into securities purchase agreements with two different accredited investors (each an “Investor”,
and together the “Investors”) pursuant to which each Investor purchased an 8% unsecured convertible promissory note
(each a “8% Note”, and together the “8% Notes”) from the Company. The terms and conditions of each of
the 8% Notes are substantially the same. Each 8% Note has a principal amount of $105,000 less a $5,000 original issue discount
for a purchase price of $100,000, with a maturity date of March 12, 2021. This note is in default as of March 12, 2021, which
may trigger cross defaults on other notes. The Company is in negotiations to extend the maturity date of the Note.
All principal amounts and the interest thereon are convertible into shares of the Company’s common stock at the option of
each Investor, after six (6) months from the date of the 8% Notes. These 8% Notes have a variable conversion price and the
Company recorded embedded derivative liabilities. The fair value of the derivative liability and warrants as of the date of issuance
was in excess of the 8% Note (see Note 12) resulting in full discount of the 8% Note. During the six months ended June 30,
2021, the Company issued 988,069 shares of common stock for the conversion of $85,000 convertible notes payable and $4,731 of
related accrued interest. The outstanding balance on these convertible notes after the conversion was $14,000.
On
June 8, 2020, the Company entered into a securities purchase agreement, dated as of June 2, 2020 (the “Purchase
Agreement”), with an accredited investor pursuant to which the investor purchased a 12% unsecured convertible promissory note
(the “12% Note”) from the Company. The 12%
Note has a principal amount of $165,000
less a $9,000
original issue discount (“OID”) for a purchase price of $156,000,
of which $52,000
was paid on June 8, 2020 less $3,100 in transaction fees (the “First Tranche”). The 12% Note matures 12 months from the
effective date of each tranche. This note is in default as of June 8, 2021, which may trigger cross defaults on other notes. The Company is in negotiations to extend the maturity date of the Note. All
principal amounts and the interest thereon are convertible into shares of the Company’s common stock at the option of the
Investor, after six (6) months from the date of the 12% Note. All closings occurred following the satisfaction of customary closing
conditions. The 12% Note is convertible at the option of the holder at any time into shares of the Company’s common stock at
an effective conversion price of the lesser of (i) 68% multiplied by the lowest Trading Price (representing a discount rate of 32%)
during the previous fifteen (15) trading day period ending on the latest complete trading day prior to the date of the 12% Note or
(ii) the Variable Conversion Price. In connection with the Purchase Agreement and the 12% Note, the Company issued a common stock
purchase warrant to purchase 36,666
shares of the Company’s common stock at $0.75 per
share (the “Warrant”) which may be exercised by cashless exercise, exercisable for a period of three years. The 12% Note
has a variable conversion price and the Company recorded embedded derivative liabilities. The fair value of the derivative liability
and warrants as of the date of issuance was in excess of the 12% Note (see Note 13) resulting in full discount of the 12%
Note.
On
June 23, 2020, the Company entered into a securities purchase agreement, dated as of June 19, 2020, with an accredited investor
pursuant to which the investor purchased a 12% convertible promissory note in the principal amount of $150,000, less $20,750 in
transaction-related, broker, legal and due diligence expenses. The note matures on June 19, 2021. This note is in
default as of June 19, 2021, which may trigger cross defaults on other notes. The Company is in negotiations to extend the maturity
date of the Note. Principal payments on the note shall be made in six (6) installments, each in the amount of $25,000, starting
on December 19, 2020, and continuing thereafter each thirty (30) days for five (5) months. Notwithstanding the foregoing, the
final payment of principal, and accrued and unpaid interest shall be due on the June 19, 2021. The investor is entitled to, at
its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the note into shares of the
Company’s common stock, at any time upon an event of default, at a conversion price for each share of common stock equal
to the lesser of (i) the lowest trading price during the previous five (5) trading day period ending on the latest complete trading
day prior to the date of the note, or (ii) the Variable Conversion Price, subject to certain equitable adjustments. Furthermore,
in connection with the securities purchase agreement and the note, the Company issued two common stock purchase warrants each
to purchase 115,385 shares of the Company’s common stock at $1.30 per share which may be exercised by cashless exercise,
exercisable for a period of five years. One of the warrants only becomes exercisable upon default of the note. During the first
quarter of 2021, the anti-dilution clause was triggered and the exercise price was reset to $0.09 resulting in the number of warrants
to be increased to 1,696,838. The note has a variable conversion price and the Company recorded embedded derivative liabilities.
The fair value of the derivative liability and warrants as of the date of issuance was in excess of the note (see Note 13) resulting
in full discount of the note.
Total
interest expense on convertible notes payable, inclusive of amortization of debt discount of $59,110 and $73,562, amounted to
$70,363 and $80,912 for the three months ended June 30, 2021 and 2020, respectively. Total interest expense on convertible notes
payable, inclusive of amortization of debt discount of $140,804 and $103,151, amounted to $164,554 and $113,434 for the six months
ended June 30, 2021 and 2020, respectively.
Total
accrued interest on convertible notes payable, as of June 30, 2021 and December 31, 2020, was $32,860 and $26,105, respectively.
NOTE
11 – CONVERTIBLE NOTES PAYABLE – RELATED PARTY
In
January 2020, the Company sold an additional $100,000, to Kettner Investments, LLC, a significant shareholder, under the Note
and sold warrants to purchase up to an aggregate of 100,000 shares of common stock under the Securities Purchase Agreement. The
fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 13) resulting
in full discount of the Note.
In
February 2020, the Company sold an additional $50,000, to the CEO of MJNA, a significant shareholder, under the Note and sold
warrants to purchase up to an aggregate of 50,000 shares of common stock under the Securities Purchase Agreement. The fair value
of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 13) resulting in full
discount of the Note.
Total
interest expense on convertible notes payable – related party, inclusive of amortization of debt discount of $18,493
and $73,562,
amounted to $21,493
and $80,912
for the three months ended June 30, 2021 and
2020, respectively. Total interest expense on convertible notes payable – related party, inclusive of amortization of debt discount
of $36,986
and $103,151,
amounted to $42,986
and $113,434
for the six months ended June 30, 2021 and 2020,
respectively.
Total
accrued interest on convertible notes payable – related party, as of June 30, 2021 and December 31, 2020, was $17,178 and
$11,178, respectively.
The
following is a schedule by year of future debt payments at June 30, 2021.
Schedule of future debt payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ending December 31,
|
|
Loan
payable
|
|
Loan
payable - related party
|
|
Convertible
notes payable
|
|
Convertible
notes payable - related party
|
|
Total
|
2021
– remainder of the year
|
|
$
|
900,000
|
|
|
$
|
42,092
|
|
|
$
|
319,000
|
|
|
$
|
100,000
|
|
|
$
|
1,361,092
|
|
2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
50,000
|
|
2023
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2025
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
$
|
376,373
|
|
|
|
—
|
|
|
|
376,373
|
|
Total
|
|
$
|
900,000
|
|
|
$
|
42,092
|
|
|
$
|
695,373
|
|
|
$
|
150,000
|
|
|
$
|
1,787,465
|
|
NOTE
12 – PATENT PURCHASE LIABILITY
On
December 17, 2020, the Company entered into an Intellectual Property Rights Purchase and Transfer Agreement (the “IP Purchase
Agreement”) by and between Advanced Neural Dynamics (“AND”), Fox Chase, Dr. Douglas Brenneman (“Brenneman”)
and the Company to acquire the IP Rights and concurrently entered into a Pharmaceutical Royalty Agreement with AND and Fox Chase.
Pursuant
to the IP Purchase Agreement, the Company acquired the IP Assets for a $570,000 aggregate purchase price payable in restricted
common stock of the Company to Fox Chase, Brenneman and AND, payable as follows:
|
•
|
1,000,000
shares of restricted common stock of the Company were issued to Fox Chase at a price per share of $0.27 for an aggregate of
$270,000; and
|
|
•
|
$300,000
in common stock will be issued to AND/Brenneman in five annual installments which shall be calculated as $60,000 divided by
the average ten day closing price prior to each installment date with the initial installment date occurring on January 5,
2021; provided, however, that for the initial installment issuance price only, the price per share shall not be below $0.30
or above $0.60 per share.
|
In
addition, AND/Brenneman shall receive cash payments of $15,000 annually, payable in quarterly installments to offset against tax
payments, netted out against actual tax costs incurred. In the event such payments are not made, there will be a 10% penalty assessed
on said late tax offset payment.
The
liabilities from the IP purchase agreement are recognized at the commencement date based on the present value of remaining payments
over the payment term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable.
The
Company’s IP purchase agreement does not provide an implicit rate that can readily be determined. Therefore, the Company
uses an 8% discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term
debt as of December 17, 2020.
Schedule of patent purchase
|
|
|
|
|
Maturity
of Patent Purchase Liability
|
|
|
Year
Ending December 31,
|
|
|
2021
- remainder of the year
|
|
$
|
7,500
|
|
2022
|
|
|
75,000
|
|
2023
|
|
|
75,000
|
|
2024
|
|
|
75,000
|
|
2025
|
|
|
75,000
|
|
Total
undiscounted payments
|
|
|
315,000
|
|
Less:
Imputed interest
|
|
|
(57,038
|
)
|
Present
value of Patent Purchase liabilities
|
|
$
|
250,562
|
|
NOTE
13 – DERIVATIVE LIABILITIES
The
Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company
issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based
on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued
is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion
of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion
option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.
Based
on the various convertible notes described in Note 10 and 11, the fair value of applicable derivative liabilities on notes, warrants
and change in fair value of derivative liability are as follows for the six months ended June 30, 2021:
Schedule of Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability - Convertible Notes
|
|
Derivative
Liability - Warrants
|
|
Total
|
Balance
as of December 31, 2020
|
|
$
|
153,140
|
|
|
$
|
163,049
|
|
|
$
|
316,189
|
|
Additions
during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Change
in fair value
|
|
|
24,512
|
|
|
|
64,855
|
|
|
|
89,367
|
|
Change
due to exercise / redemptions
|
|
|
(68,072
|
)
|
|
|
—
|
|
|
|
(68,072
|
)
|
Balance
as of June 30, 2021
|
|
$
|
109,580
|
|
|
$
|
227,904
|
|
|
$
|
337,484
|
|
The
fair value of the derivative liability – convertible notes is estimated using a Monte Carlo pricing model with the following
assumptions:
Schedule of share-based payment award, stock options, valuation assumptions
|
|
|
|
|
Market value of
common stock
|
|
$0.11
– 0.12
|
Expected volatility
|
|
|
92.8%
- 93.1
|
%
|
Expected term (in
years)
|
|
|
0.00
– 0.59
|
|
Risk-free
interest rate
|
|
|
0.00
|
%
|
The
fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
Schedule of share-based payment award, stock options, valuation assumptions
|
|
|
|
|
Market value of common stock
|
|
$0.11
– 0.12
|
Expected volatility
|
|
|
83.8%
- 108.9
|
%
|
Expected term (in years)
|
|
|
1.48
– 3.97
|
|
Risk-free
interest rate
|
|
|
0.00
|
%
|
NOTE
14 – COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
From
time to time the Company may get involved in legal proceedings arising in the ordinary course of business. Other than as set forth
in “Legal Proceedings” in Part II below, the Company believes there is no litigation pending that could have, individually
or in the aggregate, a material adverse effect on its results of operations or financial condition.
Occupancy
Leases
On
April 1, 2014, the Company entered into a one year lease arrangement for office space, with the option to renew the lease annually.
The lease has been renewed through April 2022. The monthly rent payment is $5,600 and the security deposit is $15,000.
On
September 15, 2015, we entered into a one year lease arrangement for additional office space, the lease has been renewed is currently
scheduled to expire on September 30, 2021. The monthly rent payment is $359, and we provided a security deposit of $183.
On
July 1, 2018, we entered into a one year lease arrangement for additional office space, with the option to renew the lease annually.
On September 1, 2018, we subleased this office space to a third party. The subleasee will pay 50% of the rent until expiration
of lease on June 30, 2021. The monthly rent payment is $2,723, and we provided a security deposit of $2,121.
Royalties
On
December 17, 2020, the Company entered into an Intellectual Property Rights Purchase and Transfer Agreement by and between AND,
Fox Chase, Brenneman and the Company to acquire the IP Rights and concurrently entered into the “Royalty Agreement with
AND and Fox Chase.
Pursuant
to the Royalty Agreement, the following royalties and license fees are payable to Fox Chase and AND as well:
|
•
|
1% royalties
on net sales up to $500,000 per year per participant (for an aggregate maximum of 2% and up to $1,000,000);
|
|
•
|
1% upfront
sublicense fees per participant; and
|
|
•
|
1% reversion
rights to each participant (for 2% aggregate), which rights include future milestone payments.
|
NOTE
15 – STOCKHOLDERS’ DEFICIT
Series
A Preferred Stock
Effective
May 3, 2018, the Company’s Board of Directors authorized and designated 75 shares of the Company’s Preferred Stock
as Series A Preferred Stock. Each share of the Series A Preferred Stock is entitled to a liquidation preference of $1,000 per
share and is convertible into 1,000 shares of the Company’s common stock. The holders of a majority of the Series A Preferred
Stock are entitled to elect up to four (4) directors to the Company’s board of directors and have preferential rights in
regard to the election of Series A directors. In all other voting matters, the holders of Series A Preferred Stock are entitled
to cast 1,000 votes per share.
Series
B Preferred Stock
Effective
May 3, 2018, the Company’s Board of Directors authorized and designated 75 shares of the Company’s Preferred Stock
as Series B Preferred Stock. Each share of the Series B Preferred Stock is entitled to a liquidation preference of $1,000 per
share and is convertible into 1,000 shares of the Company’s common stock. The holders of a majority of the Series B Preferred
Stock are entitled to elect up to three (3) directors to the Company’s board of directors and have preferential rights in
regard to the election of Series B directors. In all other voting matters, the holders of Series B Preferred Stock are entitled
to cast 1,000 votes per share.
Common
Stock
The
Company is authorized to issue 200,000,000 shares of common stock, par value of $0.0001 per share. All common stock shares have
equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders
of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company, subject to the
rights of the preferred stockholders.
Equity
Purchase Agreement with Cross & Company
On
September 18, 2020, the Company entered into an Equity Purchase Agreement with Cross and Company. We have the right to “put,”
or sell, up to 8,108,108 shares of our common stock to Cross. Unless terminated earlier, Cross’s purchase commitment
will automatically terminate on the earlier of the date on which Cross shall have purchased shares pursuant to the Equity Purchase
Agreement for an aggregate purchase price of $6,000,000 or September 18, 2023. The purchase price per share is calculated at a
fifteen percent discount of the lowest trading price of the Company’s common stock during the ten days after Cross and Co.
receives the shares.
On
January 4, 2021, the Company issued 109,098 shares of common stock for the conversion of $10,000 convertible notes payable and
$272 of related accrued interest at $0.09 per share.
On
January 12, 2021, the Company issued 175,000 shares of common stock at the price of $0.18 per share in exchange for a settlement
of accrued expenses.
On
January 13, 2021, the Company issued 117,609 shares of common stock for the conversion of $10,000 convertible notes payable and
$97 of related accrued interest at $0.09 per share.
On January 14, 2021, the Company sold 258,559 shares of common stock at the purchase price
of $0.11 per share for a total purchase price of $28,571.
On
January 15, 2021, the Company issued 29,167 shares of common stock at $0.23 a share, to a consultant for business development
services.
On
January 15, 2021, the Company issued 313,972 shares of common stock at the price of $0.19 per share for the purchase of intellectual
property based on a five year installment sale. This compensation is included in research and development on the consolidated
statement of operations. The issuance was an error and was intended, as per agreement to be 200,000 shares at the floor price
of $.30 per share. The Company and the recipient have discussed the cancellation of 113,972 shares which will occur in the second
quarter of 2021.
On
January 28, 2021, the Company sold 388,583 shares of common stock at the purchase price
of $0.13 per share for a total purchase price of $51,410.
On
February 1, 2021, the Company issued 517,674 shares of common stock for the conversion of $45,000 convertible notes payable and
$162 of related accrued interest at $0.09 per share.
On
February 10, 2021, the Company issued 243,688 shares of common stock for the conversion of $20,000 convertible notes payable and
$4,200 of related accrued interest at $0.10 per share.
On
February 10, 2021, the Company issued 697,714 shares of common stock in exchange of cash at $0.17 per share for
a total purchase price of $121,577.
On
February 10, 2021, the Company issued 3,500,000 shares of common stock in exchange of cash at $0.10 per share for a total purchase
price of $350,000.
On
February 22, 2021, the Company issued 715,893 shares of common stock in exchange of cash at $0.16 per share for a total
purchase price of $115,617.
On
February 26, 2021, the Company issued 1,050,045 shares of common stock in exchange of cash at $0.09 per share for a total purchase
price of $90,146.
On
March 2, 2021, the Company issued 520,000 shares of common stock at the price of $0.10 per share in exchange for a settlement
of accrued expenses.
On
March 4, 2021, the Company issued 320,833 shares of common stock at $0.23 a share, to a consultant for business development services.
On
March 12, 2021, the Company issued its CEO 692,308 shares of common stock at $0.13 a share in lieu of $90,000 of deferred salary.
On
March 25, 2021, the Company issued 657,394 shares of common stock in exchange of cash at $0.14 per share for a total purchase
price of $56,437.
Stock
Options
On
May 4, 2020, the Company granted options to purchase 6,050,000
shares of common stock at a price of $0.57
per share to certain directors and employees of the Company (including our named executive officers) and are exercisable for 10 ten
years. One quarter of these options vest on the grant day, and the remainder of the options vest equally over thirty six (36)
months starting January 1, 2020. These options were valued at $3,152,050
using a Black-Scholes Options Pricing Model.
On
May 18, 2020, the Company granted options to purchase 75,000
shares of common stock at a price of $0.51
per share to a consultant and are exercisable for 10 ten years. One quarter of these options vest on the grant day, and
the remainder of the options vest equally over twelve (12) months. These options were valued at $34,260 using a Black-Scholes
Options Pricing Model.
On
September 14, 2020 and December 24, 2020, the Company granted options to purchase 250,000
shares of common stock, respectively, at a price of $0.84
and $0.20
per share, respectively, to a consultant and are exercisable for 10 ten years. One quarter of these options vest on the grant
day, and the remainder of the options vest equally over twelve (12) months. These options were valued at $180,950 using a
Black-Scholes Options Pricing Model.
On
September 23, 2020, the Company granted options to purchase 200,000
shares of common stock at a price of $0.80
per share to a consultant, who is a related party, and are exercisable for 10 ten years. One quarter of these options vest
on the grant day, and the remainder of the options vest equally over twenty four (24) months. These options were valued at $109,060
using a Black-Scholes Options Pricing Model.
On
December 28, 2020, the Company granted options to purchase 200,000 shares of common stock at a price of $0.18 per share to
a consultant and are exercisable for 10 ten years. One quarter of these options vest on the grant day, and the remainder of
the options vest equally over twelve (12) months. These options were valued at $26,720 using a Black-Scholes Options Pricing Model.
On
March 12, 2021, the Company granted options to purchase 7,350,000
shares of common stock at a price of $0.13
per share to certain directors and employees of the Company (including our named executive officers) and are exercisable for 10
ten years. One quarter of these options vested on the grant day, and the remainder of the options vest equally over thirty-six
months starting March 12, 2021. These options were valued at $732,795
using a Black-Scholes Options Pricing Model.
On
March 12, 2021, the Company granted options to purchase 200,000 shares of common stock at a price of $0.13 per share to a
certain member of the Company’s corporate advisory board, as governed under agreement. One quarter of these options vested
on the grant day, and the remainder of the options vest equally over 2 twenty four months thereafter. These options were valued
at $19,940 using a Black-Scholes Options Pricing Model.
On
April 2, 2021, the Company granted options to purchase 75,000 shares of common stock at
a price of $0.16 per share to a consultant and are exercisable for ten years. One quarter of these options vest on the
grant day, and the remainder of the options vest equally over twelve (12) months. These options were valued at $9,000 using a
Black-Scholes Options Pricing Model.
The
remaining expense outstanding through March 12, 2024 is $1,790,369.
For
the six months ended June 30, 2021 and 2020, the Company recorded $751,807 and $1,182,019, respectively, as stock based compensation
which is included in the general and administrative expenses in the condensed consolidated statement of operations and $78,955
and $117,225, respectively, as research and development expense.
The
fair value of the options is estimated using a Black-Scholes Options Pricing Model with the following assumptions:
Schedule of share-based payment award, stock options, valuation assumptions
|
|
|
|
|
Market
value of common stock on issuance date
|
|
|
$0.13
– 0.84
|
|
Exercise price
|
|
|
$0.13
– 2.00
|
|
Expected
volatility
|
|
|
86%
– 138
|
%
|
Expected
term (in years)
|
|
|
5.50
– 6.50
|
|
Risk-free
interest rate
|
|
|
0.64%
– 1.73
|
%
|
Expected
dividend yields
|
|
|
—
|
|
On
August 14, 2019, the Board authorized the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) in order to
facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants
of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services
of these individuals, which is essential to our long-term success. Our 2019 Plan allows for the grant of a variety of equity vehicles
to provide flexibility in implementing equity awards, including incentive stock options, non-qualified stock options, restricted
stock grants, unrestricted stock grants and restricted stock units. There were initially 7,500,000 shares of Company common stock
authorized for issuance under our 2019 Plan.
On
May 4, 2020, the Company amended its 2019 Plan to increase the number of shares of Company common stock authorized for issuance
thereunder to 11,500,000 shares. On March 12, 2021, the Company executed a second amendment to the 2019 Plan to (i) replace all
references to “Kannalife, Inc.,” the Company’s former name, to “Neuropathix, Inc.,” and (ii) increase
the number of shares of Company common stock authorized for issuance thereunder 20,000,000 shares (the “Second Plan Amendment”).
The
Second Plan Amendment was approved by the Company’s Board of Directors on March 12, 2021. The Second Plan Amendment remains
subject to shareholder approval, which the Company shall undertake to obtain as soon as reasonably practicable, but in no event
later than one year from the amendment date. In the event that the Company does not obtain the requisite shareholder approval
of the Second Plan Amendment within one year, the Second Plan Amendment shall not be effective.
As
of June 30, 2021, there were 13,000,000 shares of Company common stock issued and outstanding under the 2019 Plan, as amended.
The
following is a summary of outstanding and exercisable options:
Schedule of outstanding and exercisable options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numbers
of Options
|
|
Weighted
Avg Exercise Price
|
|
Weighted
Avg Remaining Years
|
Outstanding
as of December 31, 2020
|
|
|
7,125,000
|
|
|
$
|
0.58
|
|
|
|
9.90
|
|
Granted
|
|
|
7,625,000
|
|
|
|
0.13
|
|
|
|
9.95
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
as of June 30, 2021
|
|
|
14,750,000
|
|
|
$
|
0.35
|
|
|
|
9.27
|
|
Outstanding
as of June 30, 2021, vested
|
|
|
6,918,750
|
|
|
$
|
0.44
|
|
|
|
9.07
|
|
Warrants
In
January and February 2020, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company
agreed to sell the investors a $100,000 and $50,000 convertible note bearing interest at 8% per annum, respectively. The Company
also sold warrants to the investors to purchase up to an aggregate of 100,000 and 50,000 shares of common stock, respectively,
with an exercise term of three (3) years, at a per share purchase price of one hundred twenty five percent (125%) of the voluntary
or involuntary conversion price of the Company’s 8% convertible note. The warrants were deemed as a derivative liability
and was recorded as a debt discount at date of issuance. See Note 10.
On
June 8, 2020, the Company entered into a Securities Purchase Agreement, dated as of June 2, 2020 (the “Purchase Agreement”)
with an accredited investor pursuant to which the investor purchased a 12% unsecured convertible promissory note (the “12%
Note”) from the Company. In connection with the Purchase Agreement and the 12% Note, the Company issued a common stock purchase
warrant to purchase 36,666 shares of the Company’s common stock at $0.75 per share which may be exercised by cashless exercise,
exercisable for a period of 3 three years. The warrants were deemed as a derivative liability and was recorded as a debt discount
at date of issuance. See Note 10.
On
June 23, 2020, the Company entered into a Securities Purchase Agreement, dated as of June 19, 2020 with an accredited investor
pursuant to which the Investor purchased a 12% convertible promissory note from the Company. In connection with the securities
purchase agreement and the note, the Company issued two common stock purchase warrants each to purchase 115,385 shares of the
Company’s common stock at $1.30 per share which may be exercised by cashless exercise, exercisable for a period of five
years. One of the warrants is to be issued only in the case of default on the note. During the first quarter of 2021, the anti-dilution
clause was triggered and the exercise price was reset to $0.09 resulting in the number of warrants to be increased to 1,696,838.
The warrants were deemed as a derivative liability and was recorded as a debt discount at date of issuance. See Note 10.
On
February 10, 2021, the Company entered into a letter agreement with Lyons Capital, pursuant to which the Company agreed to issue
and sell 3,500,000 shares of the Company’s common stock, par value $0.0001 per share, and two warrants to purchase an aggregate
of 3,500,000 additional shares of Common Stock, the terms of such warrants are further discussed below, for an aggregate purchase
price of $1,207,500. The first warrant grants Lyons Capital the right to purchase up to 1,750,000 shares of common stock at an
exercise price of $0.22 per share. The second warrant grants Lyons Capital the right to purchase up to an additional 1,750,000
shares of common stock at an exercise price of $0.27 per share. The warrants are exercisable immediately, will expire five years
from the date of issuance, and contain customary provisions allowing for adjustment to the exercise price and number of shares
of common stock issuable upon exercise in the event of any stock dividend, recapitalization, reorganization, reclassification,
or similar transaction. Lyons Capital has the right to exercise the warrants at any time; provided, however, that subject
to limited exceptions, Lyons Capital may not exercise any portion of the warrants if Lyons Capital, together with any of its affiliates,
would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to such exercise.
The
following is a summary of outstanding and exercisable warrants:
Schedule of outstanding and exercisable warrants
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
Balance
at December 31, 2020
|
|
|
1,289,343
|
|
|
$
|
0.18
|
|
Issued
|
|
|
4,194,161
|
|
|
|
0.22
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Balance
at June 30, 2021
|
|
|
5,483,504
|
|
|
$
|
0.19
|
|
At
June 30, 2021, 5,483,504 warrants for common stock were exercisable and the intrinsic value of these warrants was $62,618 and
the weighted average remaining contractual life for warrants outstanding was 4.26 years.
Amendment to Registration Statement
On September 22, 2020, the Company filed a registration
statement with the SEC on Form S-1 (File No. 333-248966) (the “Registration Statement”) covering the resale
of up to 8,108,108 shares of the Company’s common stock, par value $0.0001 per share, that the selling stockholder identified in
the Registration Statement may acquire pursuant to that Equity Purchase Agreement by and between the Company and Cross & Company,
dated September 18, 2020. The Registration Statement was originally declared effective by the SEC on October 2, 2020.
On June 23, 2021, the Company filed a Post-Effective
Amendment No. 1 to the Registration Statement (the “Post-Effective Amendment”) in order to (i) include information from the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on March 30,
2021, and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which was filed with the SEC on May
13, 2021; (ii) incorporate by reference all future filings that the Company makes with the SEC under Sections 13(a), 13(c), 14 or 15 of
the Securities Exchange Act of 1934, as amended, subsequent to the filing date of the Post-Effective Amendment until the termination of
the offering of the securities made under the prospectus therein (excluding any documents or information or portions of such documents
that are deemed to be furnished and not filed with the SEC); and (iii) update certain other information in the Registration Statement.
No additional securities were registered under the
Post-Effective Amendment. Accordingly, the Post-Effective Amendment covers only resales from time to time by the selling stockholder
of up to 8,108,108 shares of the Company’s common stock registered under the Registration Statement.
NOTE
16 – RELATED PARTY TRANSACTIONS
The
Company’s Chief Executive Officer (“CEO”) shares the use of the leased office space for personal living quarters.
The CEO reimburses the Company for 50% of the monthly rent, or $2,800 per month.
As
of June 30, 2021, the Company owes the CEO $160,000 for accrued compensation and $25,496 for expenses incurred on behalf of the
Company.
During
the six months ended June 30, 2021, the Company repaid $40,000 to its CEO in exchange for the discharge of a portion of his accrued
expenses.
On
March 12, 2021, the Company issued its CEO 692,308 shares of common stock at $0.13 a share in lieu of $90,000 of accrued compensation.
In
May 2021, the Company repaid $10,000 to its CEO in exchange for the discharge of a portion of his accrued expenses.
See
Notes 8, 11, 14, and 17 for additional related party transactions.
NOTE
17 – SUBSEQUENT EVENTS
On
July 13, 2021, the Company granted options to purchase 250,000 shares of common stock at
a price of $0.12 per share to a consultant and are exercisable for ten years. One quarter of these options vest on the
grant day, and the remainder of the options vest equally over twelve (12) months. provided, however, that there has not been a
termination of service as of each such date. In no event will the option become exercisable for any additional option shares after
a termination of service.
On July 7, 2021, the company put 250,000 shares of its common stock to Cross & Company with net proceeds
of $8,287.50. On July 26, 2021, Cross & Company exercised its right of offset under the promissory note agreement with the
Company. After the effect of the offset, the promissory note has a remaining balance of $91,712.50 with a maturity date of July
26, 2023. The note bears interest at a rate of 0.25% per annum.
On
July 28, 2021, the Company agreed to convert $90,000 of Dean Petkanas’ accrued salary to 1,875,000 shares at a market closing
price of $0.048 per share.