Basic net loss per share is calculated by dividing
the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted net income per share
is calculated by dividing income for the period by the weighted-average number of common shares outstanding during the period, increased
by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include
stock options and warrants granted, convertible debt, and convertible preferred stock.
The weighted average number of common stock equivalents
not included in diluted income per share, because the effects are anti-dilutive, was 39,843,027 and 4,113,729 for the nine months ended
September 30, 2021 and 2020, respectively.
NOTE
7 – LOAN PAYABLE
Schedule of Loans Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Loan payable at 8%, matures December 31, 2021
|
|
|
*
|
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
Loan payable at 0.25%, matures July 26, 2023
|
|
|
|
|
|
|
82,910
|
|
|
|
—
|
|
Loan payable at 1%, matured June 11, 2011
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
Total
|
|
|
|
|
|
|
900,000
|
|
|
|
950,000
|
|
Less: short term loans
|
|
|
|
|
|
|
900,000
|
|
|
|
—
|
|
Total long-term loans
|
|
|
|
|
|
$
|
—
|
|
|
$
|
950,000
|
|
* - unsecured note
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 26, 2021, the Company entered into a promissory
note purchase agreement, with Cross & Company pursuant to which the purchaser agreed to purchase a promissory note in the principal
amount of $100,000. The note matures on July 26, 2023. The note bears interest at 0.25% per annum. The note holds a right of offset for
the holder of the note, whereby the holder shall have the right to offset any proceeds due to the Debtor for “Puts” delivered
to Holder pursuant to a Equity Purchase Agreement by and between Holder and Debtor dated September 16, 2020. On July 26, 2021, Cross &
Company exercised its right of offset under the promissory note agreement with the Company and the Company put 250,000 shares of its common
stock to Cross & Company with net proceeds of $8,288. On August 10, 2021, Cross & Company exercised its right of offset under
the promissory note agreement with the Company and the Company put 172,701 shares of its common stock to Cross & Company with net
proceeds of $8,803. After the effect on the offsets, the promissory note has a remaining balance of $82,910 as of September 30, 2021.
Total
interest expense on notes payable, amounted to $16,767 and $13,753 for the three months ended September 30, 2021 and 2020, respectively.
Total interest expense on notes payable, amounted to $50,301 and $38,352 for the nine months ended September 30, 2021 and 2020, respectively.
Accrued interest related to these notes was $178,126 and $127,825 as of September 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 September 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 $21,505, secured by equipment with carrying value of $22,457, as of September 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 $15,407, secured by equipment with carrying value of $23,404, as of September 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 September 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 September 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 nine months ended September 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. During the third quarter of 2021, the anti-dilution clause was triggered and the exercise price was reset to $0.03 resulting
in the number of warrants to be increased to 4,524,902. 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 $49,315 and $92,466, amounted to $60,568 and $107,161 for the three months ended September
30, 2021 and 2020, respectively. Total interest expense on convertible notes payable, inclusive of amortization of debt discount of $190,119
and $195,616, amounted to $225,122and $226,240 for the nine months ended September 30, 2021 and 2020, respectively.
Total accrued interest on convertible notes payable,
as of September 30, 2021 and December 31, 2020, was $63,872 and $26,105, respectively.
NOTE
11 – CONVERTIBLE NOTES PAYABLE – RELATED PARTY
In
January 2020, the Company sold $100,000, convertible note 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 $18,493,
amounted to $21,493 and $21,493 for the three months ended September 30, 2021 and 2020, respectively. Total interest expense on convertible
notes payable – related party, inclusive of amortization of debt discount of $55,479 and $51,507, amounted to $64,479 and $59,685
for the nine months ended September 30, 2021 and 2020, respectively.
Total
accrued interest on convertible notes payable – related party, as of September 30, 2021 and December 31, 2020, was $20,178 and
$11,178, respectively.
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.
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 nine months ended September 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
|
|
|
(460
|
)
|
|
|
163,810
|
|
|
|
163,350
|
|
Change
due to exercise / redemptions
|
|
|
(68,072
|
)
|
|
|
—
|
|
|
|
(68,072
|
)
|
Balance
as of September 30, 2021
|
|
$
|
84,608
|
|
|
$
|
326,859
|
|
|
$
|
411,467
|
|
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
|
|
$0.068
– 0.124
|
Expected
volatility
|
|
|
55.9%
- 57.5
|
%
|
Expected
term (in years)
|
|
|
0.17
– 2.00
|
|
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
|
|
$0.068
– 0.124
|
Expected
volatility
|
|
|
80.5%
- 104.7
|
%
|
Expected
term (in years)
|
|
|
1.23
– 5.00
|
|
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, 2024. 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.
On
July 13, 2021, the Company issued 250,000 shares of common stock as part of a put agreement at $0.03 per share for a total purchase price
of $8,288.
On
July 28, 2021, the Company issued its CEO 1,875,000 shares of common stock at $0.05 a share in lieu of $90,000 of deferred salary.
On
August 10, 2021, the Company issued 172,701 shares of common stock as part of a put agreement at $0.06 per share for a total purchase
price of $8,803.
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 10ten 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 10ten 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 for10 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 10ten 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 10ten 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 10ten 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 2twenty 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 10ten 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.
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 10ten 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 $17,725 using a Black-Scholes Options
Pricing Model.
The
remaining expense outstanding through March 12, 2024 is $1,790,369.
For
the three months ended September 30, 2021 and 2020, the Company recorded $333,205 and $267,521, respectively, as stock based compensation
which is included in the general and administrative expenses in the condensed consolidated statement of operations and $64,030 and $39,075,
respectively, as research and development expense.
For
the nine months ended September 30, 2021 and 2020, the Company recorded $1,042,996 and $1,215,090, respectively, as stock based compensation
which is included in the general and administrative expenses in the condensed consolidated statement of operations and $255,854 and $273,525,
respectively, as research and development expense.
For
the three months ended September 30, 2021 and 2020, the Company recorded $90,000 and $0, respectively, as common stock issued in lieu
of deferred compensation.
For
the nine months ended September 30, 2021 and 2020, the Company recorded $180,001 and $0, respectively, as common stock issued in lieu
of deferred compensation.
For
the three months ended September 30, 2021 and 2020, the Company recorded $0 and $400,000, respectively, as common stock issued for services.
For
the nine months ended September 30, 2021 and 2020, the Company recorded $105,295 and $400,000, respectively, as common stock issued for
services.
The
fair value of the options is estimated using a Black-Scholes Options Pricing Model with the following assumptions:
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 September 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
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|
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|
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Numbers
of Options
|
|
Weighted
Avg Exercise Price
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|
Weighted
Avg Remaining Years
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Outstanding
as of December 31, 2020
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7,125,000
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$
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0.58
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|
|
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9.30
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Granted
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7,625,000
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|
|
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0.13
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|
|
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9.95
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Exercised
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|
|
—
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|
|
|
—
|
|
|
|
—
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Forfeited
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|
|
—
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|
|
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—
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|
|
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—
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Expired
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|
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—
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|
|
|
—
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|
|
|
—
|
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Outstanding
as of September 30, 2021
|
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14,750,000
|
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$
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0.35
|
|
|
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9.02
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Outstanding
as of September 30, 2021, vested
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|
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7,870,313
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$
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0.43
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|
|
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8.85
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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 3three 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. During the third quarter of 2021, the anti-dilution
clause was triggered and the exercise price was reset to $0.03 resulting in the number of warrants to be increased to 4,524,902. 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
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Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
Balance
at December 31, 2020
|
|
|
1,289,343
|
|
|
$
|
0.18
|
|
Issued
|
|
|
4,194,161
|
|
|
|
0.22
|
|
Reset
|
|
|
2,828,064
|
|
|
|
0.03
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Balance
at September 30, 2021
|
|
|
8,311,568
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|
|
$
|
0.13
|
|
At
September 30, 2021, 8,311,568 warrants for common stock were exercisable and the intrinsic value of these warrants was $160,050 and the
weighted average remaining contractual life for warrants outstanding was 3.91 years.
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 September 30, 2021, the Company owes the CEO $50,000 for accrued compensation and $25,496 for expenses incurred on behalf of the Company.
During
the nine months ended September 30, 2021, the Company repaid $50,000 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.
On
July 28 2021, the Company issued its CEO 1,875,000 shares of common stock at $0.05 a share in lieu of $90,000 of accrued compensation.
See
Notes 8, 11, 14 and 15 for additional related party transactions.
NOTE
17 – SUBSEQUENT EVENTS
On
October 1, 2021, the Company put 598,385 shares of common stock as part of a put agreement. An advance of $25,000 was received for the
shares to be issued to the put holder. As of the date of issuance, no shares have been issued to the holder of the put agreement.
The
Company has evaluated subsequent events occurring after September 30, 2021, the date of our most recent balance sheet, through the date
our financial statements were issued and determined no additional subsequent events exist.