Attached files
file | filename |
---|---|
EX-31.2 - CERTIFICATION - CEREBAIN BIOTECH CORP. | cbbt_ex312.htm |
EX-32.2 - CERTIFICATION - CEREBAIN BIOTECH CORP. | cbbt_ex322.htm |
EX-31.1 - CERTIFICATION - CEREBAIN BIOTECH CORP. | cbbt_ex311.htm |
EX-32.1 - CERTIFICATION - CEREBAIN BIOTECH CORP. | cbbt_ex321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
CEREBAIN BIOTECH CORP.
(Exact name of registrant as specified in its charter)
Nevada |
| 000-54381 |
| 26-1974399 |
(State or other jurisdiction of incorporation or organization) |
| (Commission File Number) |
| (I.R.S. Employer Identification No.) |
13727 Noel Road, Tower II, Suite 200 Dallas, TX 75240
(Address of principal executive offices)
949-415-7478
(Registrant's telephone number, including area code)
_________________________________________________________
(Former name, address, if changed since last report)
_________________________________________________________
(Former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
(Do not check if a smaller reporting company) |
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2014 is approximately $3,330,000.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.
Class of Securities | Shares Outstanding at September 17, 2015 |
Common Stock, $0.001 par value | 4,835,347 |
DOCUMENTS INCORPORATED BY REFERENCE:NONE
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-K (this "Amendment") amends the Annual Report on Form 10-K for the fiscal year ended June 30, 2015 originally filed on September 22, 2015 (the "Original Filing") by Cerebain Biotech Corp., a Nevada corporation ("Cerebain," the "Company," "we," or "us"). In the Original Filing, the second paragraph of the report provided by our independent registered public accountant stated that they conducted their audits "in accordance with auditing standards of the Public Company Accounting Oversight Board (United States)." The report should have referenced the "standards" of the Public Company Accounting Oversight Board (United States). The report has been revised accordingly.
Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.
3
Item 15. Exhibits, Financial Statement Schedules.
(a) The Exhibits listed below are filed as part of this Annual Report.
Item No. | Description | |
|
|
|
3.1 (1) | Articles of Incorporation of Cerebain Biotech Corp., a Nevada corporation, filed with the Secretary of State for the State of Nevada on December 18, 2007 | |
3.2 (1) | Bylaws of Cerebain Biotech Corp., a Nevada corporation | |
10.1 (1) | Agreement by and between Cerebain Biotech Corp. and R. Douglas Barton dated January 2, 2009 | |
10.2 (1) | Agreement by and between Cerebain Biotech Corp. and R. Douglas Barton dated January 2, 2009 | |
10.3 (2) | Share Exchange Agreement by and between Cerebain Biotech Corp. and the shareholders of Cerebain Operating, Inc. dated January 17, 2012 | |
10.4 (2) | Spinoff Agreement by and between Cerebain Biotech Corp. and R. Douglas Barton dated January 17, 2012 | |
10.5 (2) | Stock Purchase Agreement by and between Cerebain Operating, Inc. and certain shareholders of Cerebain Biotech Corp. dated January 17, 2012 | |
10.6 (2) | Patent License Agreement by and between Cerebain Operating, Inc. and Dr. Surinder Singh Saini dated June 10, 2010 | |
10.7 (3) | Letter Agreement with Sonos Models, Inc. dated September 24, 2012 | |
10.8 (4) | $240,000 Principal Amount Convertible Promissory Note dated June 18, 2012 | |
10.9 (6) | $235,000 Amended and Consolidated Promissory Note dated November 1, 2012 | |
10.10 (5) | Termination Agreement and General Release with Gerald A. DeCiccio dated January 18, 2013 |
4 |
10.11 (5) | Termination Agreement and General Release with Eric Clemons dated January 18, 2013 | |
10.12 (5) | Termination Agreement and General Release with Paul Sandhu dated January 18, 2013 | |
10.13 (5) | Promissory Note Issued to Gerald A. DeCiccio dated January 18, 2013 | |
10.14 (5) | Promissory Note Issued to Eric Clemons dated January 18, 2013 | |
10.15 (5) | Promissory Note Issued to Paul Sandhu dated January 18, 2013 | |
10.16 (7) | $600,000 Amended and Consolidated Promissory Note dated March 14, 2013 | |
10.17 (8) | Employment Agreement with Eric Clemons dated June 15, 2013 | |
10.18 (8) | Employment Agreement with Wesley Tate dated June 15, 2013 | |
10.19 (8) | Consulting Agreement with Gerald DeCiccio dated June 15, 2013 | |
10.20 (8) | Consulting Agreement with IDC Consulting & Investors LLC dated April 15, 2013 | |
10.21 (10) | Consulting Agreement with Superior Inc. dated October 15, 2013 | |
10.22 (10) | $970,000 Amended and Consolidated Promissory Note dated October 15, 2013 | |
10.23 (9) | Stock Purchase Agreement with Eric Clemons from Conversion of Debt dated December 30, 2013 | |
10.24 (9) | Stock Purchase Agreement with Gerald DeCiccio from Conversion of Debt dated December 30, 2013 | |
10.25 (11) | $1,245,000 Amended and Consolidated Promissory Note dated February 25, 2014 | |
10.26 (12) | Resignation of Gerald DeCiccio from Board of Directors dated June 10, 2014 | |
10.27 (14) | $1,345,000 Amended and Consolidated Promissory Note dated May 29, 2014 |
5 |
10.28 (14) | Stock Purchase Agreement with Wesley Tate from Conversion of Debt dated June 16, 2014 | |
10.29 (13) | 2014 Cerebain Biotech Corp. Omnibus Stock Grant and Option Plan | |
14 (1) | Code of Ethics of Cerebain Biotech Corp. | |
21 (14) | Cerebain Biotech Corps. Domestic and International Subsidiaries | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. * | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. * | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. * | |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. * | |
101** | Interactive Data File (Form 10-K for the fiscal year ended June 30, 2015 furnished in XBRL). | |
101.INS | Interactive Data File (Form 10-K for the fiscal year ended June 30, 2015 furnished in XBRL). | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
filed herewith Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections Incorporated by reference from our Registration Statement on Form S-1 filed with the Commission on January 27, 2009. Incorporated by reference from our Form 8-K filed with the Commission on February 10, 2012. Incorporated by reference from our Form 8-K filed with the Commission on September 28, 2012. Incorporated by reference from our Form 10-Q filed with the Commission on November 14, 2012. Incorporated by reference from our Form 8-K filed with the Commission on January 24, 2013. Incorporated by reference from our Form 10-Q filed with the Commission on February 12, 2013. Incorporated by reference from our Form 10-Q filed with the Commission on May 3, 2013. Incorporated by reference from our Form 10-K/A filed with the Commission on October 4, 2013. Incorporated by reference from our Form 8-K filed with the Commission on January 6, 2014. Incorporated by reference from our Form 10-Q filed with the Commission on February 10, 2014. Incorporated by reference from our Form 10-Q filed with the Commission on May 14, 2014. Incorporated by reference from our Form 8-K filed with the Commission on May 11, 2014. Incorporated by reference from our Form DEF 14A filed with the Commission on March 14, 2014. (14) Incorporated by reference from our Form 10-K filed with the Commission on August 11, 2014.
* ** (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
6 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Cerebain Biotech Corp. a Nevada corporation | |||
| |||
Dated: February 22, 2016 | By: | /s/ Eric Clemons |
|
Eric Clemons |
| ||
President |
|
7 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARIES
(FORMERLY DISCOUNT DENTAL MATERIALS, INC.)
Index to Consolidated Financial Statements
CONTENTS
| Page | |
Report of Independent Registered Public Accounting Firm |
| F-2 |
Consolidated Balance Sheets |
| F-3 |
Consolidated Statements of Operations |
| F-4 |
Consolidated Statements of Changes in Stockholders' Deficit |
| F-5 |
Consolidated Statements of Cash Flows |
| F-6 |
Notes to Consolidated Financial Statements |
| F-7 |
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Cerebain Biotech Corp. (formerly Discount Dental Materials, Inc.):
We have audited the consolidated balance sheet of Cerebain Biotech Corp. (formerly Discount Dental Materials, Inc.) as of June 30, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the entity's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cerebain Biotech Corp. (formerly Discount Dental Materials, Inc.) as of June 30, 2015 and 2014, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. The entity has no revenues, has suffered recurring losses from operations and has limited cash. The Company may not have adequate readily available resources to fund operations through fiscal 2016. This raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Hartley Moore Accountancy Corporation
Irvine, California
September 22, 2015
F-2 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARY
(FORMERLY DISCOUNT DENTAL MATERIALS, INC.)
CONSOLIDATED BALANCE SHEETS
| June 30, | |||||||
| 2015 |
|
| 2014 |
| |||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 486 |
|
| $ | 1,688 |
|
Prepaid expenses |
|
| 185,227 |
|
|
| 694,292 |
|
Total current assets |
|
| 185,713 |
|
|
| 695,980 |
|
|
|
|
|
|
|
|
| |
Long-term assets: |
|
|
|
|
|
|
|
|
Patent rights |
|
| 183,900 |
|
|
| 133,900 |
|
Total long-term assets |
|
| 183,900 |
|
|
| 133,900 |
|
|
|
|
|
|
|
|
| |
Total assets |
| $ | 369,613 |
|
| $ | 829,880 |
|
|
|
|
|
|
|
|
| |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 399,486 |
|
| $ | 133,200 |
|
Related party payables |
|
| 530,459 |
|
|
| 288,009 |
|
Convertible note to stockholders, current portion, net of debt discount of $66,969 and $0, respectively |
|
| 210,531 |
|
|
| - |
|
Notes payable to stockholders |
|
| 18,000 |
|
|
| - |
|
Related party notes payable |
|
| 113,000 |
|
|
| 144,153 |
|
Total current liabilities |
|
| 1,271,476 |
|
|
| 565,362 |
|
|
|
|
|
|
|
|
| |
Long term liabilities: |
|
|
|
|
|
|
|
|
Convertible note to stockholders, net of debt discount of $0 and $444,127, respectively |
|
| 1,475,000 |
|
|
| 1,058,373 |
|
Total Long term liabilities |
|
| 1,475,000 |
|
|
| 1,058,373 |
|
|
|
|
|
|
|
|
| |
Total liabilities |
|
| 2,746,476 |
|
|
| 1,623,735 |
|
|
|
|
|
|
|
|
| |
Commitments and contingencies (Note 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stockholders' deficit |
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value: 1,000,000 shares authorized; none issued and outstanding) |
|
| - |
|
|
| - |
|
Common stock ($0.001 par value: 249,000,000 shares authorized; |
|
|
|
|
|
|
|
|
4,835,347 and 4,176,323 shares issued and outstanding at June 30, 2015 and 2014, respectively |
|
| 4,835 |
|
|
| 4,176 |
|
Additional paid in capital |
|
| 6,712,747 |
|
|
| 5,356,697 |
|
Accumulated deficit |
|
| (9,094,445 | ) |
|
| (6,154,728 | ) |
Total stockholders' deficit |
|
| (2,376,863 | ) |
|
| (793,855 | ) |
|
|
|
|
|
|
|
| |
Total liabilities and stockholders' deficit |
| $ | 369,613 |
|
| $ | 829,880 |
|
F-3 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARY
(FORMERLY DISCOUNT DENTAL MATERIALS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
| For The Fiscal Year EndedJune 30, | |||||||
| 2015 |
|
| 2014 |
| |||
Operating Expenses |
|
|
|
|
|
| ||
Selling, general and administrative expenses |
| $ | 1,575,681 |
|
| $ | 2,342,555 |
|
Research and development costs |
|
| 379,125 |
|
|
| 349,035 |
|
Marketing expenses |
|
| 172,039 |
|
|
| 171,638 |
|
Depreciation |
|
| - |
|
|
| - |
|
Total operating expenses |
|
| 2,126,845 |
|
|
| 2,863,228 |
|
Other (income) expense |
|
|
|
|
|
|
|
|
Accretion of debt discount |
|
| 612,158 |
|
|
| 363,755 |
|
Interest Expense |
|
| 200,714 |
|
|
| 141,716 |
|
Total other (income) expense |
|
| 812,872 |
|
|
| 505,471 |
|
Net operating loss |
|
| (2,939,717 | ) |
|
| (3,368,699 | ) |
|
|
|
|
|
|
|
| |
Loss before income taxes |
|
| (2,939,717 | ) |
|
| (3,368,699 | ) |
Income taxes |
|
| - |
|
|
| - |
|
Net loss |
| $ | (2,939,717 | ) |
| $ | (3,368,699 | ) |
|
|
|
|
|
|
|
| |
Loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
| $ | (0.65 | ) |
| $ | (0.93 | ) |
Basic and diluted weighted average shares outstanding |
|
| 4,507,047 |
|
|
| 3,615,160 |
|
See accompanying notes to the consolidated financial statements
F-4 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARY
(FORMERLY DISCOUNT DENTAL MATERIALS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
| Common Stock # of Shares |
|
| Common Stock Amount |
|
| Additional Paid in Capital |
|
| Accumulated Deficit |
|
| Total Stockholders' Deficit |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, June 30, 2013 |
|
| 3,158,000 |
|
| $ | 3,158 |
|
| $ | 1,924,039 |
|
| $ | (2,786,029 | ) |
| $ | (858,832 | ) |
Shares issued for cash |
|
| 20,000 |
|
|
| 20 |
|
|
| 29,980 |
|
|
|
|
|
|
| 30,000 |
|
Shares issued for services |
|
| 998,323 |
|
|
| 998 |
|
|
| 2,588,518 |
|
|
|
|
|
|
| 2,589,516 |
|
Warrants issued |
|
|
|
|
|
|
|
|
|
| 65,660 |
|
|
|
|
|
|
| 65,660 |
|
Options issued |
|
|
|
|
|
|
|
|
|
| 246,500 |
|
|
|
|
|
|
| 246,500 |
|
Beneficial conversion feature associated with convertible note |
|
|
|
|
|
|
|
|
|
| 502,000 |
|
|
|
|
|
|
| 502,000 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,368,699 | ) |
|
| (3,368,699 | ) |
Balance, June 30, 2014 |
|
| 4,176,323 |
|
| $ | 4,176 |
|
| $ | 5,356,697 |
|
| $ | (6,154,728 | ) |
| $ | (793,855 | ) |
Shares issued for cash |
|
| 340,198 |
|
|
| 340 |
|
|
| 416,210 |
|
|
|
|
|
|
| 416,550 |
|
Shares issued for services |
|
| 257,500 |
|
|
| 258 |
|
|
| 229,617 |
|
|
|
|
|
|
| 229,875 |
|
Shares issued for conversion of related parties payable |
|
| 48,435 |
|
|
| 48 |
|
|
| 72,605 |
|
|
|
|
|
|
| 72,653 |
|
Shares issued for conversion of convertible notes payable |
|
| 12,891 |
|
|
| 13 |
|
|
| 25,768 |
|
|
|
|
|
|
| 25,781 |
|
Options issued |
|
|
|
|
|
|
|
|
|
| 376,850 |
|
|
|
|
|
|
| 376,850 |
|
Beneficial conversion feature associated with convertible note |
|
|
|
|
|
|
|
|
|
| 235,000 |
|
|
|
|
|
|
| 235,000 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,939,717 | ) |
|
| (2,939,717 | ) |
Balance, June 30, 2015 |
|
| 4,835,347 |
|
| $ | 4,835 |
|
| $ | 6,712,747 |
|
| $ | (9,094,445 | ) |
| $ | (2,376,863 | ) |
See accompanying notes to the consolidated financial statements
F-5 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARY
(FORMERLY DISCOUNT DENTAL MATERIALS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Fiscal Year Ended | |||||||
| June 30, | |||||||
| 2015 |
|
| 2014 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (2,939,717 | ) |
| $ | (3,368,699 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Accretion of debt discount |
|
| 612,158 |
|
|
| 363,755 |
|
Warrants issued for research and development |
|
| - |
|
|
| 65,660 |
|
Stock compensation related to stock options |
|
| 293,400 |
|
|
| 246,500 |
|
Amortization of prepaid consulting compensation |
|
| 837,190 |
|
|
| 1,581,408 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid Expenses |
|
| (14,800 | ) |
|
| (2,967 | ) |
Accounts payable |
|
| 266,286 |
|
|
| 52,046 |
|
Related party payables |
|
| 234,731 |
|
|
| 200,825 |
|
Accrued Payroll and Taxes |
|
| - |
|
|
| (12,880 | ) |
Net cash used in operating activities |
|
| (710,752 | ) |
|
| (874,352 | ) |
|
|
|
|
|
|
|
| |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |
Net cash used in investing activities |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants, net of offering costs |
|
| 416,550 |
|
|
| 30,000 |
|
Notes Payable to related parties |
|
| - |
|
|
| 1,600 |
|
Repayment of notes payable to related parties |
|
| - |
|
|
| (31,068 | ) |
Repayment of notes payable to stockholders |
|
| - |
|
|
| (5,720 | ) |
Notes payable to stockholders |
|
| 293,000 |
|
|
| 881,220 |
|
Net cash flows provided by financing activities: |
|
| 709,550 |
|
|
| 876,032 |
|
|
|
|
|
|
|
|
| |
Net change in cash and cash equivalents |
|
| (1,202 | ) |
|
| 1,680 |
|
Cash and cash equivalents- beginning of period |
|
| 1,688 |
|
|
| 8 |
|
Cash and cash equivalents- end of period |
| $ | 486 |
|
| $ | 1,688 |
|
|
|
|
|
|
|
|
| |
Supplemental disclosure of non cash activities: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 6,500 |
|
| $ | 1,803 |
|
Income tax |
| $ | - |
|
| $ | - |
|
Supplemental disclosure on non-cash investing and financing activities:
Issuance of common stock issuable |
| $ | - |
|
| $ | 30,000 |
|
Beneficial conversion feature on convertible note |
| $ | 235,000 |
|
| $ | 502,000 |
|
Stock issued for prepaid asset |
| $ | 229,875 |
|
| $ | 2,271,200 |
|
Conversion of convertible notes payable and interest to stock |
| $ | 25,781 |
|
| $ | - |
|
Stock issued for satisfaction of related party payables |
| $ | - |
|
| $ | 37,822 |
|
Options issued for prepaid services |
| $ | 83,450 |
|
| $ | - |
|
Conversion of related party payable, notes payable and interest into stock |
| $ | 72,653 |
|
| $ | 288,316 |
|
Related party payable for capitalized patent cost |
| $ | 50,000 |
|
| $ | 50,000 |
|
See accompanying notes to the consolidated financial statements
F-6 |
CEREBAIN BIOTECH CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Description of Business
Cerebain Biotech Corp. (Formerly Discount Dental Materials, Inc.) ("Cerebain Biotech"), was incorporated on December 18, 2007 under the laws of Nevada. The Company is a smaller reporting biomedical company and through its wholly owned subsidiary, Cerebain Operating, Inc. (Formerly Cerebain Biotech Corp.), the Company's business revolves around the discovery of products for the treatment of Alzheimer's disease utilizing Omentum. The Company plans to produce products that will include both a medical device solution as well as a synthetic drug solution.
Cerebain Operating, Inc. was incorporated on February 22, 2010, in the State of Nevada.
NOTE 2 – BASIS OF PRESENTATION
The Company operates in one segment in accordance with accounting guidance Financial Accounting Standards Board ("FASB") ASC Topic 280, Segment Reporting. Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
Reverse Stock Split
On April 15, 2014, the Company filed a Certificate of Amendment to our Certificate of Incorporation to implement a one-for-ten reverse split of our common stock (the "Reverse Stock Split"). The ratio for the Reverse Stock Split was determined by our Board of Directors pursuant to the approval of the stockholders at the Company's special meeting of stockholders held on April 15, 2014, authorizing the Board to effectuate a reverse stock split of the Company's common stock. The Company's common stock began trading on a post-split basis on June 19, 2014.
As a result of the Reverse Stock Split, each ten shares of the Company's issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, as well as common stock underlying stock options, stock appreciation rights, restricted stock, restricted stock units, warrants and convertible debentures outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Reverse Stock Split reduced the number of shares of the Company's common stock outstanding from approximately 41 million to 4.1 million at the time of the Reverse Stock Split. The Reverse Stock Split did not alter the par value of common stock, which remained $0.001 per share, or modify any voting rights or other terms of the Company's common stock. Unless otherwise indicated, all information set forth herein gives effect to such Reverse Stock Split.
F-7 |
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had a deficit accumulated during the development stage of $9,094,445 and $6,154,728 at June 30, 2015 and 2014, respectively, had a net loss of $2,939,717 and $3,368,699 for the fiscal years ended June 30, 2015 and 2014, respectively, and net cash used in operating activities of $710,752 and $874,352 for the fiscal years ended June 30, 2015 and 2014, respectively, with no revenue earned since inception, and a lack of operational history. These matters, among others, raise substantial doubt about our ability to continue as a going concern.
While the Company is attempting to commence operations and generate revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: useful lives and residual values of long-lived assets and valuation of warrants and options. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cerebain Biotech Corp. and its wholly-owned subsidiary, Cerebain Operating, Inc. (collectively referred to as the "Company"). There are no material intercompany transactions.
Revenue Recognition
The Company expects to recognize revenues in accordance with the guidelines of the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104 "Revenue Recognition".
Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.
F-8 |
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of six months or less to be cash equivalents. Accounts held at U.S. financial institutions are insured by the FDIC up to $250,000. Cash balances could exceed insured amounts at any given time, however, the Company has not experienced any such losses.
Income Taxes
The Company is subject to income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, "Income Taxes," the Company provides for the recognition of deferred tax assets if realization of such assets is more likely than not.
The Company accounts for income tax under the provisions of FASB ASC Topic 740, "Income Taxes", which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Advertising Costs
Advertising expenses are recorded as general and administrative expenses when they are incurred. Advertising expense charged to operations was approximately $172,000 for each of the years ended June 30, 2015 and 2014.
Research and Development
The Company expenses the cost of research and development as incurred. Research and development costs charged to operations for the years ended June 30, 2015 and 2014 were approximately $379,000 and $349,000, respectively.
Long-lived Assets
The Company's long-lived assets and other assets (consisting of equipment and purchased intangible assets with finite useful lives) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, "Property, Plant, and Equipment", and FASB ASC Topic 205 "Presentation of Financial Statements". The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through June 30, 2014, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company's products or services will continue, which could result in an impairment of long-lived assets in the future.
F-9 |
Convertible Debt
In accordance with ASC Topic 470-20, "Debt with Conversion and Other Options", conventional convertible debtis a financial instrument in which the holder may only realize the value of the conversion option by exercising the option and receiving the entire proceeds in a fixed number of shares or the equivalent amount of cash. Conventional convertible debt with a non-detachable conversion feature that does not contain a cash settlement option, and is not accounted for as a derivative, is recorded as a debt instrument in its entirety.
Non-Cash Equity Transactions
Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received whichever is more readily determinable.
Accounting for Derivative Financial Instruments
The Company evaluates stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity's Own Equity ("ASC 815-40"). The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised, expire or the related rights have been waived. These common stock purchase warrants do not trade in an active securities market. The Company estimates the fair value of these warrants using the binomial method.
If a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the straight-line method, which approximates the effective interest rate method. The Company has recorded a BCF to the notes issued (see Note 6).
Fair Value of Financial Instruments
The Company applies the provisions of accounting guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of June 30, 2015 and 2014, the fair value of cash, accounts payable, related party payables, and notes payable to stockholders approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
F-10 |
Fair Value Measurements
FASB ASC Topic 825 "Financial Instruments," requires disclosure about fair value of financial instruments.
The FASB ASC Topic 820, Fair Value Measurement, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
· Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
· Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
· Level 3 – significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments).
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.
Concentrations, Risks, and Uncertainties
The Company is in its early stages of its life cycle and subject to the substantial business risks and uncertainties inherent to such an entity, including the potential risk of business failure.
Basic and Diluted Earnings Per Share
Basic earnings (loss) per common share is computed by dividing net earnings applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of shares that might be issued upon exercise of common stock warrants and conversion of convertible notes. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common shares equivalents, because their inclusion would be anti-dilutive.
Basic earnings per share are based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments:
· Warrants, · Convertible notes, · Employee stock options, and · Other equity awards, which include long-term incentive awards.
F-11 |
The FASB ASC Topic 260, "Earnings Per Share", requires the Company to include additional shares in the computation of earnings per share, assuming dilution. The additional shares included in diluted earnings per share represents the number of shares that would be issued if all of the Company's outstanding dilutive instruments were converted into common stock.
Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options, warrants, and convertible notes are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Basic and diluted earnings (loss) per share are the same since the Company had net losses for all periods presented and including the additional potential common shares would have an anti-dilutive effect.
Recent Accounting Pronouncements
The Company has evaluated new accounting pronouncements that have been issued and are not yet effective for the Company and determined that there are no such pronouncements expected to have an impact on the Company's future financial statements.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period presentation.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
On June 15, 2013, the Company entered into an employment agreement with Eric Clemons. Under the terms of the agreement, Mr. Clemons shall be paid an annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000), shall be entitled to a bonus of $40,000 upon delivery to the company of a prototype medical device from Sonos Models Inc., and should he be responsible for the Company consolidating with or merge into another corporation or convey all or substantially all of its assets to another corporation, will receive a cash bonus calculated using a Lehman formula of 5% for the first $1,000,000, 4% for the second $1,000,000, 3% for the third $1,000,000, 2% for the fourth $1,000,000, and 1% thereafter. In addition, the Company also will issue Mr. Clemons an option to acquire up to 100,000 Shares of our Common Stock, fully paid and non-assessable at an exercise price of $5.00 per share subject to a vesting schedule. On August 30, 2013, the Company entered into an addendum to this agreement in which Mr. Clemons will be entitled to a stock award of 25,000 shares of our common restricted stock if, within 24 months, there is a reorganization of the company. On October 1, 2014, the Company entered into an addendum to the employment agreement with Eric Clemons. Under the terms of the addendum, the agreement has been extended one year until June 15, 2017. Mr. Clemons shall be paid an annual salary of One Hundred Ninety Five Thousand Dollars ($195,000) and the Company issued Mr. Clemons an option to acquire up to 100,000 Shares of our Common Stock under the Company's 2014 Omnibus Stock Grant and Option Plan, fully paid and non-assessable at an exercise price of $1.20 per share subject to a vesting schedule. Mr. Clemons has agreed to defer the aforementioned annual salary and accept a consulting fee for the same amount. On March 1, 2015, the Company entered into an addendum to the employment agreement with Eric Clemons. Under the terms of the addendum, Mr. Clemons shall be paid a cash placement bonus equal to an amount up to 10% of the aggregate purchase price paid by each purchaser of the Company's Securities, where the purchaser of said Securities has been directly introduced to the Company by Mr. Clemons. According to the terms of this agreement, Mr. Clemons was compensated $31,250 for the year ended June 30, 2015.
F-12 |
On June 15, 2013, the Company entered into an employment agreement with Wesley Tate. Under the terms of the agreement, Mr. Tate shall be paid an annual salary of One Hundred Five Thousand Dollars ($105,000) and shall be entitled to a bonus of $20,000 upon delivery to the company of a prototype medical device form Sonos Models, Inc. In addition, the Company also will issue Mr. Tate an option to acquire up to 50,000 Shares of our Common Stock, fully paid and non-assessable at an exercise price of $5.00 per share subject to a vesting schedule. On August 30, 2013, the Company entered into an addendum to this agreement in which Mr. Tate will be entitled to a stock award of 25,000 shares of our common restricted stock if, within 24 months, there is a reorganization of the company. On April 1, 2014, the Company entered into an addendum to this agreement in which Mr. Tate was issued stock in the amount of 25,000 of the company's common restricted shares representing a retention bonus as an incentive for him to remain in the employment of the Company. The company recognized a prepaid expense of approximately $37,500, of which $28,000 and $9,000 was expensed in the years ended 2015 and 2014, respectively. On October 1, 2014, the Company entered into an addendum to the employment agreement with Wesley Tate. Under the terms of the addendum, the agreement has been extended one year until June 15, 2017. Mr. Tate shall be paid an annual salary of One Hundred Fifty Six Thousand Dollars ($156,000) and the Company issued Mr. Tate an option to acquire up to 50,000 Shares of our Common Stock under the Company's 2014 Omnibus Stock Grant and Option Plan, fully paid and non-assessable at an exercise price of $1.20 per share subject to a vesting schedule. Mr. Tate has agreed to defer the aforementioned annual salary and accept a consulting fee for the same amount.
Contracts
On September 24, 2012, the Company entered into an agreement with Sonos Models, Inc. ("Sonos") to build up to three medical device prototypes to be used for testing. The agreement calls for a total cash payment of up to $400,000 and the issuance of warrants to purchase up to 65,000 shares of the Company's common stock, with the cash payments and warrants to be issued in stages once certain developmental thresholds are achieved. Any warrants issued under this agreement will be immediately exercisable, will be eligible for cashless exercise at the option of the holder and will have a term of three years from the date of the issuance and an exercise price based on the fair market value of the stock on the date of completion of the phase (See Note 8). On April 1, 2014, the Company entered into an addendum to the agreement with Sonos. The modifications made to the agreement state that Sonos shall receive 325,000 restricted shares of the Company's common stock for Services provided to the Company. The warrants that were to be issued for Phase 4 will not be issued and will not be due. In addition, the Company committed to pay Sonos up to One Million Dollars ($1,000,000) for Research and Development costs. The Company recorded the $488,000 value of the shares issued as a prepaid expense and is amortizing the expense associated with these issuances over a twelve-month period. For the nine and three month periods ended March 31, 2015, the Company has recognized an expense of approximately $366,000 and $122,000, respectively, associated with this agreement. The contract is fully amortized.
Consulting Agreements
The Company has service and consulting agreements with various individuals to provide assistance to the Company in several areas including the marketing of its biomedical products upon the availability of the device, capital markets and marketing strategies, advertising services and assistance in the introduction of the Company to medical device testing organization and to facilitate access to doctors in numerous countries, including Poland, Uzbekistan and China. They were compensated an aggregate 678,500 shares of the Company's common stock and cash payments of $198,000 and $185,000 for the fiscal years ended 2015 and 2014, respectively. These contracts are for twelve months to 24 months beginning between December 2013 and June 2015 and may be renewed or extended for any period as may be agreed by the parties. As of June 30, 2015 the Company has extended some of the contracts for additional periods. Any of the parties may terminate their respective agreement by providing thirty (30) days written notice of such termination. The Company has recognized $30,000 in accounts payable which is in arrears with one contractual obligation and is in discussions with the consultant to renegotiate the terms of the contract. As these contracts are for a period of up to twelve months to twenty four months, the Company recorded approximately $1,976,000 as the value of the shares issued to prepaid expense and is amortizing the expense associated with these issuances over a twelve to twenty four month period. For the fiscal year ended June 30, 2015 and 2014, the Company recognized an expense of approximately $395,000 and $1,450,000, respectively. The unamortized portions of these contracts are approximately $130,000 and included in prepaid expenses on the balance sheet at June 30, 2015.
The Company has entered into consulting agreements with two individuals to provide business consulting services. For compensation of these services, they were issued options to acquire up to 100,000 shares of our common stock, fully paid and non-assessable at an exercise price of $1.30 per share. These agreements are for twelve months beginning December 2014 (See Note 8) and the company recorded approximately $83,000 as a prepaid expense to be amortized over the twelve month period. For the fiscal year ended June 30, 2015 and 2014, the Company recognized an expense of approximately $49,000 and $0, respectively. The unamortized portions of these contracts are approximately $35,000 and included in prepaid expenses on the balance sheet at June 30, 2015.
F-13 |
The Company has entered into a consulting agreement with an individual to provide marketing and social media strategy services. For compensation of these services, they were paid an engagement fee of $30,000 and a monthly consulting fee of $3,500. This agreement is for twelve months beginning March 2015 and the company recorded approximately $30,000 of the engagement fee as a prepaid expense to be amortized over the twelve month period. For the fiscal year ended June 30, 2015 and 2014, the Company recognized an expense of approximately $10,000 and $0, respectively. The unamortized portion of this contract is approximately $20,000 and included in prepaid expenses on the balance sheet at June 30, 2015.
As of June 30, 2015, future maturities of prepaid expenses on value of shares issued for consulting are as follows:
Fiscal year ending June 30, |
|
|
| |
|
|
| ||
2016 |
| $ | 185,000 |
|
2017 |
| $ | - |
|
Total |
| $ | 185,000 |
|
Legal
The Company is not involved in any legal matters arising in the normal course of business. While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which it might involve in the future are not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows.
NOTE 5 – PATENT RIGHTS
On June 10, 2010, the Company entered into a Patent License Agreement under which the Company acquired the exclusive rights to certain intellectual property related to using Omentum for treating dementia conditions. Under the agreement the Company has paid rights fees of $50,000 to Dr. Saini, and the Company issued Dr. Saini 825,000 shares of our common stock, valued at $6,600 (based on the fair market value on the date of grant) restricted in accordance with Rule 144. In addition, Dr. Saini will have the option to participate in the sale of equity by the Company in the future, up to ten percent (10%) of the money raised, in exchange for the applicable number of his shares.
In addition, the Patent License agreement provides for a royalty payment of six (6) percent of the value of the net sales, as defined, generated from the sale of licensed products. The agreement also provides for yearly minimum royalty payments of $50,000 for each of the fourth, fifth, and sixth anniversary of the date of the agreement, and a yearly minimum royalty payment of $100,000 for each year thereafter during the term of the agreement. The Company has recognized costs associated with the patent rights for $50,000 in accounts payable for the patent rights and is currently in arrears and in discussions to renegotiate the terms of the agreement. The term of the agreement shall continue until the patent in the intellectual property expires, unless terminated sooner under the provisions of the agreement, as defined.
The patent will have an estimated useful life of 20 years based on the term of the patent. Amortization of the patent will begin when the patent is issued by the United States Patent and Trademark Office and put in use.
F-14 |
Rights fees of $50,000 were incurred during the years ended June 30, 2015 and 2014, respectively, and legal fees totaling approximately $14,000 and $6,000 was incurred during each of the years ended June 30, 2015 and 2014, respectively.
The accrued payable of $100,000 pertaining to the rights fees at June 30, 2015 and 2014 is included in related party payables.
NOTE 6 – NOTES PAYABLE TO STOCKHOLDERS
Short Term Note Payable
On June 30, 2013, the Company converted $84,915 of related party payables owed under consulting agreements, into related party notes payable. The notes matured on December 31, 2013 and accrued interest at two (2.0) percent per annum at maturity. On June 16, 2014, the company converted $30,694 of related party notes payable to common stock. On September 30, 2014, the company converted $31,153 of related party notes payable as well as $41,500 of other related party payables to the same note holder, to common stock (See Note 7). As of June 30, 2015, the outstanding balance of the related party payables is $0.
On January 18, 2013, the Company converted $356,700 of related party payables owed under consulting agreements, into related party notes payable. The notes were scheduled to mature on December 31, 2013 and accrued interest at seven and one-half (7.5) percent per annum at maturity. However, on December 30, 2013, the Company converted $219,700 of related party notes payable to common stock. As of June 30, 2015, the outstanding balance of the related party notes payable is $113,000. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.
On May 1, 2015, the Company entered into an unsecured $10,000 promissory note with a stockholder. The note matures on June 1, 2015 and accrues interest at seven and one-half (7.5) percent per annum at maturity. As of June 30, 2015, the outstanding balance of the related party payables is $10,000. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.
On May 8 and June 6, 2015, the Company entered into an unsecured promissory note totaling $8,000 with a stockholder. The terms of the note have not been negotiated.
Long Term Note Payable
Convertible Note Payable
The Company has entered into various unsecured convertible promissory notes with non-affiliate stockholders totaling $1,752,500. Of this amount, $1,502,500 of notes was outstanding at June 30, 2014, and the remainder was issued during the fiscal year ended June 30, 2015. The principal amounts of these notes are between $15,000 and $1,475,000. Under the terms of these notes, they mature between June 2015 and June 2017, accrue interest at between 7.5% and 8.0% per annum, and are convertible into shares of our common stock at a conversion rates of between $1.00 and $5.00 per share, but only if such conversion would not cause the Noteholders to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. The Company used a recent sale of stock to determine the fair market value of these transactions. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investors were sophisticated and familiar with our operations at the time of the issuance of the shares. In December 2014, the company converted $25,000 of convertible notes payable and accrued interest of $781 and issued 12,891 shares of restricted stock (See Note 7). In addition, the Company issued to a holder 50,000 shares of the company's common stock. The Company recorded the $135,000 value of the shares issued as a prepaid expense and will amortize the expense associated with this issuance over a twenty-four month period. The Company used a recent sale of stock to determine the fair market value of the transaction. For the fiscal years ended June 30, 2015 and 2014, the company recognized an expense of approximately $68,000 and $39,000, respectively, associated with is issuance.
F-15 |
To properly account for certain Convertible Promissory Notes, the Company performed a detailed analysis to obtain a thorough understanding of the transactions, including understanding the terms of each instrument issued, and any related derivatives entered into. The Company first reviewed ASC Topic 815, to identify whether any equity-linked features in the Notes are freestanding or embedded. The Company determined that there were no free standing features. The Notes were then analyzed in accordance with Topic 815 to determine if the Note should be accounted for at fair value and remeasured at fair value in income. The Company determined that the Notes did not meet the requirements of Topic 815 and therefore accounted for the Notes as conventional debt. The Company then reviewed ASC Topic 470-20, and determined that some of Notes met the criteria of a conventional convertible note and that the Note had a beneficial conversion feature, which was recorded as a debt discount against the face amount of the Note, indicated above. The Convertible Promissory Notes had an aggregate beneficial conversion feature valued at approximately $679,000, which was recorded as a debt discount against the face amount of the Notes, which is being accreted to interest expense over the 24 month term of the Notes. The Company recognized an expense of approximately $612,000 and $364,000 for the fiscal years ended 2015 and 2014, respectively. The interest expense expected to be recognized in future years is approximately $67,000.
Accrued interest on all notes payable to stockholders and other related parties at June 30, 2015 totaled $264,267 and is included in related party payables.
As of June 30, 2015, future maturities of notes payable are as follows:
Fiscal year ending June 30, |
|
|
| |
|
|
| ||
2016 |
| $ | 277,500 |
|
2017 |
| $ | 1,475,000 |
|
Total |
| $ | 1,752,500 |
|
NOTE 7 – STOCK TRANSACTIONS
For the fiscal year ended June 30, 2015, the Company entered into various stock purchase agreements with third parties between July of 2014 and March of 2015, under which we issued 340,199 shares of our common stock, restricted in accordance with Rule 144, in exchange for $416,550, net of related costs of $31,250. The stock purchase agreements include piggyback registration rights. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was sophisticated and familiar with our operations at the time of the issuance of the shares.
For the fiscal year ended June 30, 2015, the Company issued 257,500 shares of common stock to various individuals as payment for consulting services per contracts dated between July 2014 and June 2015 (See Note 4). The aggregate Fair Market Value of these shares was approximately $230,000 as the fair market value of the stock was between $0.67 and $1.09 per share. The Company used recent sales of stock to determine the fair market value of these transactions. These issuances were completed in accordance with Section 4(a)(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
For the fiscal year ended June 30, 2015, the Company issued 61,326 shares of our common stock to individuals for conversions of a convertible note payable, related note payable and interest payable (See Note 6). The aggregate Fair Market Value of these shares was approximately $98,000 as the conversion price was between $1.50 and $2.00 per share. This issuance was completed in accordance with Section 4(a)(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On November 26, 2014, the Company issued a Private Placement Memorandum ("PPM"). The PPM authorized the sale of up to 4,000,000 units, with each Unit consisting of one share of our common stock and a Warrant to purchase one share of our common stock, at a price of $1.25 per Unit. Each Unit included a non-cashless Warrant to purchase one (1) share of the Company's common stock, $.001 par value, at the exercise price of $2.50 per share. The Offering terminated on March 26, 2015. The Company received no subscriptions.
F-16 |
NOTE 8 – OPTIONS AND WARRANTS
Stock Award Plans
On April 15, 2014, shareholders of the company approved the 2014 Cerebain Biotech Corp. Omnibus Stock Grant and Option Plan ("The Plan"). The purpose of the plan is to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, to encourage such selected persons to remain in the employ of the Company, and to attract new employees with outstanding qualifications. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares and Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options) as well as the direct award or sale of Shares of the Company's Common Stock. The aggregate number of shares which may be issued or transferred as common stock pursuant to an award under the Plan shall not exceed ten percent (10%) of the Company's outstanding common stock on the date the Plan is approved.
Options granted under the Plan expire no later than ten years from the date of grant. The exercise price of each incentive stock option shall not be less than 100% of the fair value of the stock on the date of grant. An option shall become exercisable no less rapidly than the rate of twenty percent (20%) per year for each of the first five (5) years from the date of grant, subject to the discretion of the Compensation Committee.
Awards granted under this Plan expire thirty (30) days after the grant if not exercised by the Offeree. The exercise price of each award shall not be less than 85% of the fair value of the stock on the date of grant (100% for officers, directors and 10% shareholders). An award shall become exercisable no less rapidly than the rate of twenty percent (20%) per year for each of the first five (5) years from the date of grant, subject to the discretion of the Compensation Committee.
The following represents a summary of the Equity Compensation grants and options awards outstanding at June 30, 2015 and changes during the years then ended:
2015 | ||||||||||||
Plan category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted-average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
| 150,000 |
|
| $ | 1.20 |
|
|
| 3,605,000 |
|
Equity compensation plans not approved by security holders |
|
| 250,000 |
|
| $ | 1.24 |
|
|
| - |
|
Total |
|
| 400,000 |
|
| $ | 2.65 |
|
|
| 3,605,000 |
|
Options
In December 2014, the Company entered into consulting agreements with two individuals (See Note 4). The agreements call for an issuance of options to purchase up to a total of 100,000 shares of the Company's common stock at an exercise price of $1.30 per share. Fair Market Value of these options totaled approximately $83,000. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 0.49%; expected term of 2 years; and 0% dividend yield. The options were fully vested on date of issuance.. For the fiscal year ended June 30, 2015 and 2014, the Company recognized an expense of approximately $49,000 and $0, respectively. The expense expected to be recognized is approximately $35,000.
F-17 |
In October 2014, the Company entered into employee agreements addendums with two individuals (See Note 4). The agreements call for an issuance of options to purchase up to a total of 150,000 shares of the Company's common stock at an exercise price of $1.20 per share, subject to a vesting schedule. Fair Market Value of these options totaled approximately $134,000. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of June 30, 2015, 30,000 options to purchase the Company's common stock have vested. For the fiscal year ended June 30, 2015 and 2014, the Company recognized an expense of approximately $47,000 and $0, respectively. The compensation expected to be recognized in future years is approximately $87,000.
In June 2013, the Company entered into employee agreements with two individuals (See Note 4). The agreements call for an issuance of options to purchase up to a total of 150,000 shares of the Company's common stock at an exercise price of $5.00 per share, subject to a vesting schedule. Fair Market Value of these options totaled approximately $1.2 million. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.04%; expected term of 5 years; and 0% dividend yield. As of June 30, 2015, 90,000 options to purchase the Company's common stock have vested. For each of the fiscal years ended June 30, 2015 and 2014, the Company recognized an expense of approximately $247,000. The compensation expected to be recognized in future years is approximately $493,000.
The following represents a summary of the Options outstanding at June 30, 2015 and changes during the periods then ended:
| Options |
|
| Options Average Exercise Price |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding July 1, 2013 |
|
| 150,000 |
|
| $ | 5.00 |
|
| $ | - |
|
Granted |
|
| - |
|
|
| - |
|
|
|
|
|
Exercised |
|
| - |
|
|
| - |
|
|
|
|
|
Expired/Forfeited |
|
| - |
|
|
| - |
|
|
|
|
|
Outstanding, June 30, 2014 |
|
| 150,000 |
|
| $ | 5.00 |
|
| $ | - |
|
Granted |
|
| 250,000 |
|
|
| 1.24 |
|
| $ | - |
|
Exercised |
|
| - |
|
|
| - |
|
|
|
|
|
Expired/Forfeited |
|
| - |
|
|
| - |
|
|
|
|
|
Outstanding, June 30, 2015 |
|
| 400,000 |
|
| $ | 2.65 |
|
| $ | - |
|
Exercisable at June 30, 2015 |
|
| 220,000 |
|
| $ | 2.65 |
|
| $ | - |
|
Expected to be vested |
|
| 400,000 |
|
| $ | 2.65 |
|
| $ | - |
|
Compensation to be recognized |
| $ | 614,500 |
|
|
|
|
|
|
|
|
|
Forfeiture Rate |
|
| - |
|
|
| - |
|
|
|
|
|
F-18 |
Warrants
On December 11, 2013, the Company issued Sonos warrants to purchase 20,000 shares of the Company's common stock, valued at $65,660 (based on the fair market value of the date of grant). The Company recognized an expense of $49,200 as research and development during the three months ended September 30, 2013 related to 10,000 of these warrants to be issued for completion of phases 1b and 2 during that period. The fair value was determined using Black-Scholes option pricing model with a volatility of 100%, a risk free interest rate of 1.04% and 0% dividend yield. The Company has recognized no research and development costs related to issued warrants during the year ended June 30, 2015. The warrants are exercisable, cashless at the option of the holder, and have a term of three years and an exercise price of $2.00 per share.
On January 27, 2015, the Company entered into a stock purchase agreement with a third party, under which the Company issued him 10,000 restricted common shares along with warrants to purchase an additional 10,000 shares. The warrants have an exercise price of $2.50 and are exercisable for a term of three years.
The following represents a summary of the Warrants outstanding at June 30, 2015 and changes during the periods then ended:
| Warrants |
|
| Weighted Average Exercise Price |
| |||
Outstanding, June 30, 2013 |
|
| 6,250 |
|
|
| 3.20 |
|
Granted |
|
| 20,000 |
|
|
| 2.00 |
|
Exercised |
|
| - |
|
|
| - |
|
Expired/Forfeited |
|
| (1,250 | ) |
|
| 8.00 |
|
Outstanding, June 30, 2014 |
|
| 25,000 |
|
| $ | 2.00 |
|
Granted |
|
| 10,000 |
|
|
| 2.50 |
|
Exercised |
|
| - |
|
|
| - |
|
Expired/Forfeited |
|
| - |
|
|
| - |
|
Outstanding, June 30, 2015 |
|
| 35,000 |
|
|
| 2.14 |
|
Exercisable at June 30, 2015 |
|
| 35,000 |
|
| $ | 2.14 |
|
NOTE 9 – Related Party Transactions
Other than as set forth below, and as disclosed in Notes 4, 6, 7, and 8, the Company has not entered into or been a participant in any transaction in which a related person had or will have a direct or indirect material interest.
F-19 |
NOTE 10 – EARNINGS PER SHARE
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.
Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The total number of potential additional dilutive options and warrants outstanding was 435,000 and 175,000 for the fiscal year ended June 30, 2015 and 2014, respectively. In addition, the convertible notes convert at an exercise price of between $1.00 and $5.00 per share of common stock. The options, warrants and shares underlying the convertible note were considered for the dilutive calculation but in periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share:
| For The Fiscal Years Ended June 30, | |||||||
| 2015 |
|
| 2014 |
| |||
Net loss attributable to the common stockholders |
| $ | (2,939,717 | ) |
| $ | (3,368,699 | ) |
|
|
|
|
|
|
|
| |
Basic weighted average outstanding shares of common stock |
|
| 4,507,047 |
|
|
| 3,615,160 |
|
Dilutive effect of options and warrants |
|
| - |
|
|
| - |
|
Diluted weighted average common stock and common stock equivalents |
|
| 4,507,047 |
|
|
| 3,615,160 |
|
|
|
|
|
|
|
|
| |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | (0.65 | ) |
| $ | (0.93 | ) |
NOTE 11 – INCOME TAXES
The provision (benefit) for income taxes for the period ended June 30, 2015 and 2014, assumes a 34% effective tax rate for federal income taxes. The Company has no state income taxes liability:
| June 30, 2015 |
|
| June 30, 2014 |
| |||
Current tax provision: |
|
|
|
|
|
| ||
Federal |
| $ | -- |
|
| $ | -- |
|
Taxable income - federal |
| $ | -- |
|
| $ | -- |
|
|
|
|
|
|
|
|
| |
State |
| $ | -- |
|
| $ | -- |
|
Taxable income - state |
| $ | -- |
|
| $ | -- |
|
Total current tax provision |
| $ | -- |
|
| $ | -- |
|
|
|
|
|
|
|
|
| |
Deferred tax provision: |
|
|
|
|
|
|
|
|
Federal and State |
|
|
|
|
|
|
|
|
Total deferred tax provision |
| $ | -- |
|
| $ | -- |
|
F-20 |
The Company had deferred income tax assets as of June 30, 2015 and 2014 are as follows:
| June 30, 2015 |
|
| June 30, 2014 |
| |||
|
|
|
|
|
| |||
Loss carryforwards |
| $ | 2,906,000 |
|
| $ | 2,062,000 |
|
Less – valuation allowance |
|
| (2,906,000 | ) |
|
| (2,062,000 | ) |
Total net deferred tax assets |
| $ | -- |
|
| $ | -- |
|
The Company provided a valuation allowance equal to the deferred income tax assets for the fiscal years ended June 30, 2015 and 2014, respectively, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
At June 30, 2015, the Company had approximately $8,637,000 in Federal and State tax loss carryforwards that can be utilized in future periods to reduce taxable income, and begin to expire in 2030. Pursuant to Internal Revenue Code Section 382, the future utilization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.
The Company did not identify any material uncertain tax positions on tax returns that will be filed.
The Company has not filed any of its income tax returns. The fiscal years ended June 30, 2015, 2014, 2013, 2012, 2011 and 2010 are open for examination.
NOTE 12 – SUBSEQUENT EVENTS
The company evaluated events occurring between the end of our most recent fiscal year and the date the financial statements were issued and noted the following subsequent events:
In September 2015, the Company amended a Stock Purchase Agreement, dated May 18, 2015. Under the terms of the amendment, the Purchaser has agreed to purchase up to One Million Six Hundred Thousand (1,600,000) shares of the Company's common stock at a per-share price of One Dollar and Twenty Five Cents ($1.25) per share, for a total purchase price of up to Two Million Dollars ($2,000,000). To date, the Purchaser has acquired Two Hundred Forty Thousand (240,000) shares of the Company's common stock providing Three Hundred Thousand Dollars ($300,000) to the Company, at a price of $1.25 per share, with the remainder to be acquired by December 31, 2015.
In September 2015, the Company issued 500,000 shares of the Company's common stock to two individuals for conversion of accounts payable. The aggregate Fair Market Value of these shares was approximately $155,000 as the conversion price was $0.31 per share. This issuance was completed in accordance with Section 4(a)(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
In August 2015, the Company entered into an unsecured $75,000 promissory note with a stockholder. The note matures on September 17, 2015, accrues no interest and the Company reduced the conversion price of the stockholder's Consolidated Convertible Promissory Note, dated June 9, 2015, to a conversion rate of $0.75. As of September 23, 2015, the outstanding balance of the related party payable is $75,000. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.
F-21