UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________

 

Commission file number 000-52218

 

ONCBIOMUNE PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		20-2590810
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

11441 Industriplex Blvd, Suite 190 Baton Rouge, LA		70809
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (225) 227-2384

 

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

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 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. (Check one):

 

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]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 57,436,191 shares as of August 12, 2016.

 

 

 

ONCBIOMUNE PHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets - As of June 30, 2016 (unaudited) and December 31, 2015	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited)	4
	Condensed notes to Unaudited Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
Signatures		20

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Excel Financials

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

		June 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	12,793			$	672,769
Due from related parties			2,592				17,800
Prepaid expenses and other current assets			76,669				18,968
Total Current Assets			92,054				709,537
OTHER ASSETS:
Property and equipment, net			10,153				10,702
Security deposit			6,400				6,400
TOTAL ASSETS		$	108,607			$	726,639
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit		$	57,741			$	49,708
Accounts payable			133,939				102,273
Accrued liabilities			68,480				19,277
Derivative liability			180,506				—
Convertible promissory note, Net			4,167				—
Total Current Liabilities			444,833				171,258
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value; 20,000,000 authorized;
Series A Preferred stock ($0.0001 Par Value; 1,000,000 Shares Authorized; 1,000,000 and none issued and outstanding at June 30, 2016 and 2015, respectively)			100				100
Common stock: $.0001 par value, 500,000,000 shares authorized; 57,436,191 and 57,107,809 issued and outstanding at June 30, 2016 and December 31, 2015, respectively			5,744				5,711
Additional paid-in capital			1,811,557				1,678,789
Accumulated deficit			(2,153,627	)			(1,129,219	)
Total Stockholders' Equity			(336,226	)			555,381
Total Liabilities and Stockholders' Equity		$	108,607			$	726,639

 

See accompanying notes to unaudited consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Month Ended								For the Six Month Ended
		June 30,								June 30,
		2016				2015				2016				2015
REVENUES		$	-			$	-			$	-			$	-
OPERATING EXPENSES:
Professional fees			184,096				14,500				311,099				27,250
Compensation expense			156,331				41,317				369,618				71,272
Research and development expense			50,449				14,133				80,535				14,148
General and administrative expenses			37,748				6,284				111,373				12,991
Total Operating Expenses			428,624				76,234				872,625				125,661
LOSS FROM OPERATIONS			(428,624	)			(76,234	)			(872,625	)			(125,661	)
OTHER INCOME (EXPENSE):
Interest expense			(6,938	)			(447	)			(7,277	)			(873	)
Derivative expense			(144,506	)			-				(144,506	)			-
Other			-				400				-				6,000
Total Other Income (Expense)			(151,444	)			(47	)			(151,783	)			5,127
NET LOSS		$	(580,068	)		$	(76,281	)		$	(1,024,408	)		$	(120,534	)
NET LOSS PER COMMON SHARE - Basic and Diluted:		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.00	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted			57,341,686				47,000,000				57,261,899				47,000,000

 

See accompanying notes to unaudited consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For The Six Months Ended
		June 30,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(1,024,408	)		$	(120,534	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			549				-
Stock-based compensation			35,000				-
Amortization of debt discount			4,167				-
Derivative expense			144,506				-
Change in operating assets and liabilities:
Due from related parties			15,208				(3,150	)
Prepaid expenses and other current assets			(6,701	)			-
Accounts payable			133,939				153
Accrued liabilities			(53,070	)			(47,403	)
NET CASH USED IN OPERATING ACTIVITIES			(750,810	)			(170,934	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party advances			-				18,000
Payments of related party advances			-				(11,000	)
Proceeds from line of credit			11,692				19,000
Payments to line of credit			(3,659	)			(26,050	)
Proceeds from convertible debt			36,000				100,000
Proceeds from sale of common stock			46,801				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			90,834				99,950
NET DECREASE IN CASH			(659,976	)			(70,984	)
CASH, beginning of year			672,769				100,760
CASH, end of period		$	12,793			$	29,776
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	339			$	873
Income taxes		$	-			$	-
Non-cash financing activities:
Increase in debt discount and derivative liability		$	36,000			$	-
Issuance of common stock for services		$	68,000			$	-

 

See accompanying notes to unaudited consolidated financial statements.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

OncBioMune Pharmaceuticals, Inc. (formerly Quint Media Inc.) (the “Company,” “we,” “us” or “our”) was incorporated under the laws of the State of Nevada on March 18, 2005, as PediatRx, Inc. From July 23, 2010 until early fiscal year 2014, the Company engaged in the pharmaceutical business. During the fiscal year ended February 28, 2014, the Company decided to divest itself of the balance of its pharmaceutical assets and engage in the digital media business, which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.

 

On June 22, 2015 and amended and effective on September 2, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”) with OncBioMune, Inc. (“ONC”) and the shareholders of ONC. Pursuant to the Exchange Agreement, the Company acquired 100% of ONC’s issued and outstanding common stock from the ONC shareholders in exchange for the issuance of 47,000,000 shares of the Company’s common stock, representing 91.3% of the outstanding common stock, and 1,000,000 shares of the Company’s Series A Preferred Stock, representing 100% of the outstanding Series A Preferred Stock, (the “Exchange”), after giving effect to a 1-for-139.2328 reverse stock split (the “Reverse Stock Split”) which resulted in 4,493,390 common shares outstanding prior to the Exchange. Accordingly, the ONC shareholders became shareholders of the Company and ONC became a subsidiary of the Company. The Exchange has been accounted for as a reverse-merger and recapitalization since the stockholders of ONC obtained voting and management control of the Company. ONC is the acquirer for financial reporting purposes and the Company is acquired company. Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Exchange are those of ONC and was recorded at the historical cost basis of ONC, and the consolidated financial statements after completion of the Share Exchange included the assets and liabilities of both the Company and ONC and the Company’s consolidated operations from the closing date of the Share Exchange. All share and per share data in the accompanying consolidated financial statements have been retroactively restated to reflect the effect of the Reverse Stock Split and recapitalization.

 

ONC was formed under the laws of the State of Louisiana in March 2005 as a limited liability company. On June 3, 2015 ONC converted from a Louisiana limited liability company to a Louisiana corporation. ONC is a biotechnology company specializing in innovative cancer treatment therapies. ONC has proprietary rights to a breast and prostate patent vaccine, as well as a process for the growth of cancer tumors. ONC’s mission is to improve the overall patient condition through innovative bio immunotherapy with proven treatment protocols, to lower deaths associated with cancer and reduce the cost of cancer treatment. ONC’s technology is safe, and utilizes clinically research proven methods of treatment to provide optimal success of patient recovery.

 

On August 12, 2015, the Company filed amended and restated Articles of Incorporation with the Nevada Secretary of State which:

 

	a.	changed the Company’s name to OncBioMune Pharmaceuticals, Inc.;
	b.	amended the authorized shares of the Company to 520,000,000, of which 500,000,000 shares are common stock, with a par value of $0.0001 per share (“Common Stock”), and 20,000,000 shares are preferred stock, with a par value of $0.0001 per share (“Preferred Stock”); and
	c.	effected the Reverse Stock Split, which became effective on August 27, 2015.

 

On August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,000,000 shares of the authorized 20,000,000 Preferred Stock as Series A Preferred Stock (“Series A Preferred Stock”). Each holder of Series A Preferred Stock is entitled to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent they are entitled to vote with holders of Common Stock as set forth in the Certificate of Designation) for the taking of any corporate action.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS (continued)

 

Basis of presentation and principles of consolidation

 

The Company’s consolidated financial statements include the financial statements of its wholly owned subsidiary, ONC. All significant intercompany accounts and transactions have been eliminated in consolidation

 

Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements These unaudited condensed financial statements should be read in conjunction with the summary of significant accounting policies and notes to the financial statements for the years ended December 31, 2015 and 2014 of ONC which were included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on April 13, 2016.

 

Going concern

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss of $1,024,408 and $120,534 for the six months ended June 30, 2016 and 2015, respectively. The net cash used in operations were $750,810 and $170,934 for six months ended June 30, 2016 and 2015, respectively. Additionally, the Company had an accumulated deficit of $2,153,627 and $1,129,219, at June 30, 2016 and December 31, 2015, and had no revenues for the six months ended June 30, 2016 and 2015. Effective September 2, 2015, the Company entered into the Exchange Agreement which changed the nature of its business and management. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy for the fiscal year ending December 31, 2016. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the six months ended June 30, 2016 and 2015 include the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances and the fair value of non-cash equity transactions.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair value of financial instruments and fair value measurements

 

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

	●	Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
	●	Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
	●	Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the consolidated balance sheets for cash, employee loans, prepaid expenses, loans payable, line of credit payable, payroll liabilities, and accounts payable and accrued liabilities, approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with ASC Topic 820.

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is recognized over the service period of the award.

 

Basic and diluted earnings per share

 

Pursuant to ASC 260-10-45, basic earnings per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s income (loss) subject to anti-dilution limitations.

 

Potentially dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method). These common stock equivalents may be dilutive in the future. All potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

 

		June 30, 2016				June 30, 2015
Total stock warrants			2,694				2,694

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recent accounting pronouncements

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, that will require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application of this standard is permitted. This standard is not expected to have a material effect on the Company’s financial position, results of operations and cash flows.

 

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the current guidance in ASC Topic 740, Income Taxes, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material to its consolidated financial statements.

 

On January 5, 2016, the FASB issued ASU No. 2016-01 to amend the accounting guidance on the classification and measurement of financial instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished. The Company does not anticipate the guidance to have a material impact on its consolidated financial statements or notes to its consolidated financial statements.

 

On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company is currently assessing the impact of the guidance on its consolidated financial statements and notes to its consolidated financial statements.

 

On March 30, 2016, the FASB issued ASU No. 2016-09 (“ASU 2016-09”) to amend the accounting guidance for share-based payment accounting. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

 

NOTE 3 – LINE OF CREDIT

 

In October 2014, ONC entered into a $100,000 revolving promissory note (the “Revolving Note”) with Regions Bank (the “Lender”). The unpaid principal balance of the Revolving Note is payable on demand and any unpaid principal and interest is payable due not later than October 27, 2017, is secured by deposits located at the Lender, and bears interest computed at a variable rate of interest which is equal to the Lender’s prime rate plus 1.7% (5.20% and 5.20% at June 30, 2016 and December 31, 2015, respectively). ONC will pay to Lender a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. The Company may, at any time or from time to time, prepay the Revolving Note in whole or in part without penalty.

 

At June 30, 2016 and December 31, 2015, the Company had $57,741 and $49,708, respectively, in borrowings outstanding under the Revolving Note with $42,259 and $50,292, respectively, available for borrowing under such note. The weighted average interest rate during the six months ended June 30, 2016 was approximately 5.20%.

 

NOTE 4 – CONVERTIBLE PROMISSORY NOTE

 

On May 23, 2016, the Company entered into a $40,000 convertible promissory note (the “Convertible Note”) with Crown Bridge Partners, LLC (the “Lender”). The unpaid principal and interest is payable no later than May 22, 2017 and bears interest computed at a rate of interest which is equal to 8.0% per annum. Any amount of principal or interest on this Convertible Note, which is not paid by the maturity date, shall bear interest at the rate of 22% per annum from the due date until paid. The Company may prepay any amount outstanding under the Convertible Note by making a payment to the Lender of an amount in cash equal as follow:

 

Time Frame after Convertible Note Date		Prepayment Penalty Amount
Initial 30 day period		115% multiplied the amount of prepayment
31st to 60th day		120% multiplied the amount of prepayment
61st to 90th day		125% multiplied the amount of prepayment
91st to 120th day		130% multiplied the amount of prepayment
120th to 150th day		135% multiplied the amount of prepayment
151st to l80th day		140% multiplied the amount of prepayment

 

The prepayment is subject to the Lender’s prior written acceptance in the Lender’s sole discretion. The Company may not prepay any amount outstanding under the Convertible Note after the 180^th day after the issuance of the Convertible Note.

 

The Lender is entitled, at their option, at any time after the issuance of the Convertible Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock. The Conversion Price is the Variable Conversion Price (“VCP”) as defined in the Convertible Note and subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. VCP means 58% multiplied by the “Market Price”, which is calculated as the lowest trading price, as defined, for the Company’s common stock during the twenty trading day period ending on the last complete trading day prior to the conversion date. If at any time while the Convertible Note is outstanding, the lowest trading prices for the Company’s common stock is equal to or lower than $0.10, then an additional discount of five percent (5%) will be factored into the VCP until the Convertible Note is no longer outstanding (resulting in a discount rate of 47% assuming no other adjustments are triggered hereunder). In the event that shares of the Company’s common stock are not deliverable via DWAC following the conversion of any amount thereunder, an additional five percent (5%) discount shall be factored into the VCP until the Convertible Note is no longer outstanding (resulting in a discount rate of 47% assuming no other adjustments are triggered hereunder).

 

In connection with the issuance of the Convertible Note above, the Company determined that the terms of the Convertible Note include a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 4 – CONVERTIBLE PROMISSORY NOTE (continued)

 

Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives was determined using the Black- Scholes Option Pricing Model. On the initial measurement date, the fair values of the embedded conversion option derivative of $76,012 was recorded as a derivative liability and was allocated as a debt discount up to the net proceeds of the Convertible Note of $36,000 with the remainder of $40,012 charged to current period operations as initial derivative expense. At June 30, 2016, the Company valued the embedded conversion option derivative liabilities resulting in a loss from change in fair value of derivative liabilities of $104,494 for the three and six months ended June 30, 2016 which is recorded as a component of other income/(expense) in the accompanying statements of operations.

 

During the six months ended June 30, 2016, the fair value of the derivative liabilities was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

Dividend rate			0
Term (in years)			0.92 to 1.0 years
Volatility			366.97	%
Risk-free interest rate			0.45% to 0.69	%

 

For the three and six months ended June 30, 2016, amortization of debt discounts related to these convertible note amounted to $4,167 and $4,167, respectively, which has been included in interest expense on the accompanying statements of operations.

 

At June 30, 2016 and December 31, 2015, the Convertible Note consisted of the following:

 

		June 30, 2016				December 31, 2015
Principal amount		$	40,000			$	-
Less: unamortized debt discount			(35,833	)			-
Convertible note payable, net		$	4,167			$	-

 

At June 30, 2016, the Company had $40,000, respectively, in borrowings outstanding under the Convertible Note. The weighted average interest rate during the six months ended June 30, 2016 was approximately 8.0%.

 

NOTE 5 – RELATED-PARTY TRANSACTIONS

 

From time to time, the Company receives advances from and makes advances to The Sallie Astor Burdine Breast Foundation (the “Foundation”), a not-for-profit foundation created by our chief executive officer who is also a board member of the Foundation, for working capital purposes. The advances are non-interest bearing and are payable on demand.

 

From time to time, the Company receives advances from and makes advances to the Company’s chief executive officer and chief financial officer for working capital purposes. The advances are non-interest bearing and are payable on demand.

 

For the six months ended June 30, 2016, due from/(to) related parties’ activity consisted of the following:

 

		Foundation				CEO				CFO				Total
Balance due from (to) related parties at December 31, 2015		$	3,200			$	5,900			$	8,700	)		$	17,800
Working capital advances made			3,687				-				3,250				6,937
Repayments received			(6,050	)			(5,900	)			(10,195	)			(22,145	)
Balance due from (to) related parties at June 30, 2016		$	837			$	-			$	1,755			$	2,592

 

All balances due from related parties were repaid in August 2016 and the Company does not intend to make such advances in the future.

 

 

ONCBIOMUNE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Series A Preferred Stock

 

On August 20, 2015, the Company filed the Certificate of Designation with the Nevada Secretary of State, designating 1,000,000 shares of the authorized 20,000,000 Preferred Stock as Series A Preferred Stock. Each holder of Series A Preferred Stock is entitled to 500 votes for each share of Series A Preferred Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Company. The holders of Series A Preferred Stock shall have no special voting rights and their consent is not required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. On September 2, 2015, in connection with the Exchange, the Company issued 1,000,000 shares of the Company’s Series A Preferred Stock, representing 100% of the outstanding Series A Preferred.

 

Common stock issued for services

 

On January 1, 2016, the Company issued 60,000 shares of common stock valued at $.30 per common share or $18,000 to a director for services to be rendered on the Company’s board of directors. The shares were valued at the most recent cash price paid of $.30 per share. In connection with these shares, the Company recorded stock-based compensation of $18,000.

 

On May 13, 2016, the Company entered into a six-month consulting agreement for business development services, Pursuant to the agreement, the Company shall pay the consultant a monthly fee of $4,000 beginning on May 15, 2016 and, thereafter, on the fifteenth day of each month. In addition, the Company issued the consultant and/or its affiliates 200,000 shares of the Company’s common stock. The common shares were valued at the most recent quoted trading price of $0.34 per share or $68,000. In connection with these shares, the Company recorded stock-based consulting expense of $17,000 and prepaid expenses of $51,000 which will be amortized over the remaining service period. If the Company chooses to extend the agreement, the Company shall pay the consultant a monthly fee of $7,500 beginning on November 15, 2016 and, thereafter, on the first of each month and the Company shall issue to the consultant 100,000 Shares of the Company’s common stock.

 

Common stock issued for cash

 

From January 1, 2016 to March 31, 2016, pursuant to subscription agreements, the Company issued 68,382 shares of its common stock to investors for cash proceeds of $46,801.

 

NOTE 7 – COMMITMENTS

 

Employment agreements

 

On February 2, 2016, the Company entered into an employment agreement with Jonathan F. Head, Ph.D. (“Dr. Head”) to serve as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Dr. Head provides that Dr. Head’s salary for calendar year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Head for the immediately preceding calendar year.

 

On February 2, 2016, the Company entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Mr. Kucharchuk shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.

 

The above executives shall be eligible for an annual target bonus payment in an amount equal to ten percent of his base salary (“Bonus”). The Bonus is determined based on the achievement of certain performance objectives of the Company as established by the Board of Directors. The Bonus may be greater or less than the target Bonus, based on the level of achievement of the applicable performance objectives.

 

NOTE 8 – SUBSEQUENT EVENTS

 

In July 2016, pursuant to a stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) dated October 20, 2015, whereby we have the right to sell to, and Lincoln Park is obligated to purchase, up to an $10 million in amounts of shares of the Company’s common stock, subject to certain limitations, from time to time, over the 36-month period, the Company issued 200,000 shares of its common stock to Lincoln Park for net proceeds of $41,280.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

 

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This quarterly report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC on April 13, 2016.

 

We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.

 

Overview

 

We were incorporated under the laws of the State of Nevada on March 18, 2005. From 2010 until 2013, we engaged in the pharmaceutical business. During 2013, we decided to divest of the balance of its pharmaceutical assets and engage in the digital media business, which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.

 

Pursuant to the Exchange (described above), effective September 2, 2015, we became a biotechnology company specializing in innovative cancer therapies. We have proprietary rights to a breast and prostate cancer therapeutic vaccines, a process for the growth of cancer cells and targeted chemotherapies. Our mission is to improve the overall patient condition through innovative immunotherapy with proven treatment protocols.

 

We are pursuing licensing and/or acquisition of our therapies and proprietary technologies. Robert L. Elliott, MD, our Chief Medical Officer and a member of our board of directors, and Jonathan F. Head, PhD, our Chief Executive Officer and a director, have conducted their research and development activities in association with their breast cancer research and treatment facility, the Elliott-Elliott-Head Breast Cancer Research and Treatment Center. The Elliott-Elliott-Head Breast Cancer Research and Treatment Center is located in Baton Rouge, Louisiana, and treats an average of 40 patients daily.

 

Our current product portfolio consists of three target therapies and a vaccine platform that allows us to create a therapeutic vaccine for any solid tumor cancer. The vaccine platform has treated over 300 patients. We are in the planning stage of a Phase 2 clinical trial of our lead product, ProscaVax®. The trial will be under the direction of Glenn Bubley, MD and the lead site will be Harvard’s Beth Israel Deaconess Medical Center, with additional other hospitals in the Harvard Health System. The trial will expand the results that we found in our Phase 1 clinical trial in a different patient population. We expect to file a new drug application after the completion of the Phase 2 trial. We also hope to develop our other proprietary technologies, such as the paclitaxel-albumin conjugate with regard to which we plan to file an orphan drug indication within the next two years.

 

 

Results of Operations

 

Three and Six Months Ended June 30, 2016 Compared to Three and Six Months Ended June 30, 2015

 

Revenue

 

We did not generate any revenues for the three and six months ended June 30, 2016 and 2015.

 

Operating Expenses

 

For the three months ended June 30, 2016, operating expenses amounted to $428,624 as compared to $76,234 for the three months ended June 30, 2015, an increase of $352,390 or 462.2%. For the six months ended June 30, 2016, operating expenses amounted to $872,625 as compared to $125,661 for the six months ended June 30, 2015, an increase of $746,964 or 594.4%. For the three and six months ended June 30, 2016 and 2015, operating expenses consisted of the following:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Professional Fees		$	184,096			$	14,500			$	311,099			$	27,250
Compensation			156,331				41,317				369,618				71,572
Research and development expense			50,449				14,133				80,535				14,148
General and administrative expenses			37,748				6,284				111,373				12,991
Total		$	428,624			$	76,234			$	872,625			$	125,661

 

	●	For the three months ended June, 2016, professional fees increased by $169,596 or 1,169.6%, as compared to the three months ended June 30, 2015. The increase was primarily attributable to an increase in investor relations fees of $129,245 related to building investor awareness, an increase in legal fees of $19,895, and an increase in accounting fees of $24,000. For the six months ended June, 2016, professional fees increased by $283,849, or 1,041.6%, as compared to the six months ended June 30, 2015. The increase was primarily attributable to an increase in investor relations fees of $193,118, an increase in legal fees of $58,747, and an increase in accounting fees of $21,500.
	●	For the three months ended June 30, 2016, compensation expense increased by $115,014 or 278.4%, as compared to the three months ended June 30, 2015. For the six months ended June 30, 2016, compensation expense increased by $298,346, or 418.6%, as compared to the six months ended June 30, 2015. On February 2, 2016, we entered into an employment agreement with Jonathan F. Head, Ph.D. (“Dr. Head”) to serve as the Company’s Chief Executive Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Dr. Head provides that Dr. Head’s salary for calendar year 2016 shall be $275,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Dr. Head shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Dr. Head for the immediately preceding calendar year. Additionally, on February 2, 2016, we entered into an employment agreement with Andrew Kucharchuk (“Mr. Kucharchuk) to serve as the Company’s President and Chief Financial Officer, the term of which runs for three years (from February 2, 2016 through February 1, 2019) and renews automatically for one year periods unless a written notice of termination is provided not less than 120 days prior to the automatic renewal date. The employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000 and for calendar year 2017 and for each calendar year thereafter during the term of the employment agreement with Mr. Kucharchuk shall be an amount determined by the Board of Directors, which in no event shall be less than the annual salary that was payable by the Company to Mr. Kucharchuk for the immediately preceding calendar year.
	●	For the three months ended June 30, 2016, research and development expense increased by $36,316 or 257.0%, as compared to the three months ended June 30, 2015 related to an increase in research activities. For the six months ended June 30, 2016, research and development expense increased by $66,387 or 469.2%, as compared to the six months ended June 30, 2015 related to an increase in research activities.

 

 

●

For the three months ended June 30, 2016, general and administrative expenses increased by $31,464 or 500.7%, as compared to the three months ended June 30, 2015. The increase was primarily to an increase in health insurance expense, travel and entertainment, rent expense and other general and administrative expenses. For the six months ended June 30, 2016, general and administrative expenses increased by $98,382 or 757.3%, as compared to the six months ended June 30, 2015. The increase was primarily to an increase in health insurance expense, travel and entertainment, rent expense and other general and administrative expenses.

 

Loss from Operations

 

For the three months ended June, 2016, loss from operations amounted to $428,624 as compared to $76,234 for the three months ended June 30, 2015, an increase of $352,390 or 462.2%. For the six months ended June, 2016, loss from operations amounted to $872,625 as compared to $125,661 for the six months ended June 30, 2015, an increase of $746,964 or 594.4%.

 

Other Income (Expense)

 

For the three months ended June 30, 2016, we had net total other expense of $(151,444) as compared to net total other expense of $(47) for the three months ended June 30, 2015, a change of $151,397. For the six months ended June 30, 2016, we had net total other expense of $(151,783) as compared to net total other income of $5,127 for the six months ended June 30, 2015, a change of $156,910. The increase was primarily due to the increase of $144,506 in derivative expense related to a debt financing, and increases in interest expense related to an increase in borrowings and an increase in the amortization of debt discount of $4,167 which has been included in interest expense.

 

Net Loss

 

For the three months ended June 30, 2016, we had a net loss of $580,068 or $(0.01) per common share (basic and diluted) as compared to a net loss of $76,281 or $(0.00) per common share (basic and diluted) for the three months ended June 30, 2015, an increase of $503,787 or 660.4%. For the six months ended June 30, 2016, we had a net loss of $1,024,408 or $(0.02) per common share (basic and diluted) as compared to a net loss of $120,534 or $(0.00) per common share (basic and diluted) for the six months ended June 30, 2015, an increase of $903,874 or 749.9%.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had working capital of $(403,779) and $12,793 of cash as of June 30, 2016 and working capital of $538,279 and $672,769 of cash as of December 31, 2015.

 

										December 31, 2015 to June 30, 2016
		June 30, 2016				December 31, 2015				Change in working capital				Percentage Change
Working capital:
Total current assets		$	92,054			$	709,537			$	(617,483	)			(87.0	)%
Total current liabilities			444,833				171,258				(273,575	)			(159.7	)%
Working capital:		$	(352,779	)		$	538,279			$	(891,058	)			(165.5	)%

 

From December 31, 2015 to June 30, 2016, our working capital decreased by $891,058, and was primarily due to a decrease in cash of $659,976, an increase in accounts payable and accrued expenses of $80,869, and an increase in derivative liability of $180,506.

 

Cash Flows

 

Changes in our cash balance are summarized as follows:

 

		Six Months Ended June 30, 2016				Six Months Ended June 30, 2015
Cash used in operating activities		$	(750,810	)		$	(170,934	)
Cash provided by investing activities			0				0
Cash provided by financing activities			90,834				99,950
Net increase (decrease) in cash		$	(659,976	)		$	(70,984	)

 

 

Cash Used in Operating Activities

 

Our cash used in operating activities for the six months ended June 30, 2016 as compared to our cash used in operating activities for the six months ended June 30, 2015 increased by $579,876. For the six months ended June 30, 2016, cash used in operating activities consisted of our net loss of $1,024,408 adjusted for the add back of non-cash items such as depreciation expense of $549, stock based compensation of $35,000, amortization of debt discount of $4,167, derivative expense $144,506 and changes in operating assets and liabilities of $89,376. The increase in use of cash in operating activities was primarily due to an increase in cash used to pay executive salaries and other employees and related payroll taxes of approximately $298,000 and increase in amounts paid for professional fees, and travel.

 

For the six months ended June 30, 2015, cash used in operating activities consisted of our net loss of $120,534 adjusted for changes in operating assets and liabilities of $(50,400).

 

Cash Provided By Financing Activities

 

Cash flows provided by financing activities for the six months ended June 30, 2016 was $90,834 as compared to $99,950 for the six months ended June 30, 2015, a decrease of $9,116. During the six months ended June 30, 2016, we received net proceeds from our bank line of credit of $8,033, net proceeds from convertible debt of $36,000 and proceeds from the sale of common stock of $46,801. During the six months ended June 30, 2015, we received net proceeds from convertible debt of $100,000 and net proceeds from related party advances of $7,000, offset by net payments on our bank line of credit of $7,050.

 

Cash Requirements

 

Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss of $1,024,408 and $120,534 for the six months ended June 30, 2016 and 2015, respectively. The net cash used in operations were $750,810 and $170,934 for six months ended June 30, 2016 and 2015, respectively. Additionally, we had an accumulated deficit of $2,153,627, at June 30, 2016, and had no revenue for the six months ended June 30, 2016. Effective September 2, 2015, we entered into the Exchange Agreement which changed the nature of our business and management. Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for the fiscal year ending December 31, 2016. We will seek to raise capital through additional debt and/or equity financings to fund our operations in the future. Although we have historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital or secure additional lending in the near future, management expects that we will need to curtail or cease operations.

 

Current and Future Financings

 

In October 2014, we entered into a $100,000 revolving promissory note (the “Revolving Note”) with Regions Bank (the “Lender”). The unpaid principal balance of the Revolving Note is payable on demand and any unpaid principal and interest is payable due not later than October 27, 2017, is secured by deposits located at the Lender, and bears interest computed at a variable rate of interest which is equal to the Lender’s prime rate plus 1.7% (5.20% at June 30, 2016). We will pay to Lender a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. We may, at any time or from time to time, prepay the Revolving Note in whole or in part without penalty. At June 30, 2016 and December 31, 2015, we had $57,741 and $49,708, respectively, in borrowings outstanding under the Revolving Note with $42,259 and $50,292, respectively, available for borrowing under such note. The weighted average interest rate during the six months ended June 30, 2016 was approximately 5.20%.

 

 

On October 20, 2015, we entered into a purchase agreement (the “Purchase Agreement”), together with a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Upon signing the Purchase Agreement, Lincoln Park agreed to purchase 333,334 shares of the Company’s common stock for $100,000 as an initial purchase under the Purchase Agreement. Under the terms and subject to the conditions of the Purchase Agreement, we have the right to sell to, and Lincoln Park is obligated to purchase, up to an additional $10 million in amounts of shares, as described below, of our common stock, subject to certain limitations, from time to time, over the 36-month period commencing on the date that a registration statement, which we agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed. We may direct Lincoln Park, at our sole discretion and subject to certain conditions, to purchase up to 50,000 shares of Common Stock on any business day (such purchases, “Regular Purchases”), provided that at least one business day has passed since the most recent purchase, and provided, however that Lincoln Park’s committed obligation under any single Regular Purchase shall not exceed $50,000, provided that the amount the Company may sell to Lincoln Park under a single Regular Purchase may increase under certain circumstances as described in the Purchase Agreement but in no event will the amount of a single Regular Purchase exceed $500,000. The purchase price of shares of Common Stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales. In addition, we may direct Lincoln Park to purchase additional amounts as accelerated purchases if on the date of a Regular Purchase the closing sale price of the Common Stock is not below the threshold price as set forth in the Purchase Agreement. Our sales of shares of Common Stock to Lincoln Park under the Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 4.99% of the then outstanding shares of the Common Stock.

 

In connection with the Purchase Agreement, we issued as a commitment fee to Lincoln Park 1,000,000 shares of Common Stock. Lincoln Park represented to us, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of our Common Stock and determinations by us as to the appropriate sources of funding for us and our operations. Lincoln Park has no right to require any sales by us, but is obligated to make purchases from us as we direct in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.

 

The net proceeds under the Purchase Agreement to us will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. We expects that any proceeds received by us from such sales to Lincoln Park under the Purchase Agreement will be used for general corporate purposes and working capital requirements. During the six months ended June 30, 2016 and the year ended December 31, 2015, we received $0 and $95,000 under the Purchase Agreement, respectively.

 

There can be no assurance that funding will be available under the Purchase Agreement or if additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

On May 23, 2016, we entered into a $40,000 convertible promissory note (the “Convertible Note”) with Crown Bridge Partners, LLC (the “Lender”). The unpaid principal and interest is payable no later than May 22, 2017 and bears interest computed at a rate of interest which is equal to 8.0% per annum. Any amount of principal or interest on the Convertible Note, which is not paid by the maturity date, shall bear interest at the rate of 22% per annum from the due date until paid. We may prepay any amount outstanding under the Convertible Note by making a payment to the Lender of an amount in cash equal as follow:

 

Time Frame after Convertible Note Date		Prepayment Penalty Amount
Initial 30 day period		115% multiplied the amount of prepayment
31st to 60th day		120% multiplied the amount of prepayment
61st to 90th day		125% multiplied the amount of prepayment
91st to 120th day		130% multiplied the amount of prepayment
120th to 150th day		135% multiplied the amount of prepayment
151st to l80th day		140% multiplied the amount of prepayment

 

The prepayment is subject to the Lender’s prior written acceptance in the Lender’s sole discretion. The Company may not prepay any amount outstanding under the Convertible Note after the 180^th day after the issuance of the Convertible Note.

 

 

The Lender is entitled, at their option, at any time after the issuance of the Convertible Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock. The Conversion Price is the Variable Conversion Price (“VCP”) as defined in the Convertible Note and subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. VCP means 58% multiplied by the “Market Price”, which is calculated as the lowest trading price, as defined, for the Company’s common stock during the twenty trading day period ending on the last complete trading day prior to the conversion date. If at any time while the Convertible Note is outstanding, the lowest trading prices for the Company’s common stock is equal to or lower than $0.10, then an additional discount of five percent (5%) will be factored into the VCP until the Convertible Note is no longer outstanding (resulting in a discount rate of 47% assuming no other adjustments are triggered hereunder). In the event that shares of the Company’s common stock are not deliverable via DWAC following the conversion of any amount thereunder, an additional five percent (5%) discount shall be factored into the VCP until the Convertible Note is no longer outstanding (resulting in a discount rate of 47% assuming no other adjustments are triggered hereunder).

 

In connection with the issuance of the Convertible Note above, we determined that the terms of the Convertible Note include a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by us or contain terms that are not fixed monetary amounts at inception.

 

During the six months ended June 30, 2016, pursuant to subscription agreements, we issued 68,382 shares of our common stock to investors for cash proceeds of $46,801.

 

On June 1, 2016, we entered into an agreement (the “Agreement”) with Dawson James Securities, Inc., a FINRA member broker-dealer (“Dawson”), pursuant to which the Company invited Dawson to introduce to the Company, on a best efforts, fully disclosed and non-exclusive basis, one or more parties that might be interest in participating in an offering (the “Offering”) of the Company’s securities by the Company pursuant to an exemption from the Securities Act.

 

Dawson’s role is to (i) refer a potential party that may be interested in the Offering to the Company (each, a “Prospect”), and (ii) if the Company so requests, assist in contacting, communicating or setting meeting with such Prospects and, if appropriate, to provide all deal services and functions relating to any transactions resulting from the Offering. Pursuant to the terms of the Agreement, in no event shall a Prospect be deemed a customer of Dawson for purposes of the Offering; nor shall Dawson be required to make a sale to the Prospect under the Agreement. To the contrary, Dawson shall not make any sales in the Offering and has no power to bind the Company.

 

At the closing of the Offering, the Company shall compensate Dawson as follows: (i) the Company shall pay to Dawson 8% of the gross proceeds invested by all Prospects in the Offering, and (ii) the Company shall issue to Dawson warrants to purchase that number of securities equal to 8% of the aggregate number of securities sold to Prospects in the Offering.

 

The Agreement may be terminated for any reason by either party upon 30 days’ prior written notice to the other party.

 

We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.

 

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.

 

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

 

 

Critical Accounting Policies

 

We have identified the following policies as critical to its business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment.

 

Research and development

 

Research and development costs incurred in the development of the Company’s products are expensed as incurred.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is recognized over the service period of the award.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2016, our disclosure controls and procedures were not effective.

 

The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting: (1) the lack of multiple levels of management review of material contracts and expenses, and (2) a lack of adequate segregation of duties relating to the initiation of transactions and payments to vendors. Until such time as we expand our staff to include additional accounting personnel, it is likely that we will continue to report material weaknesses in our internal control over financial reporting.

 

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in internal control over financial reporting

 

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On May 13, 2016, we entered into a six-month consulting agreement for business development services. Pursuant to the agreement, we issued the consultant and/or its affiliates an aggregate of 200,000 shares of our common stock. The common shares were valued at the then most recent quoted trading price of $0.34 per share or $68,000. In connection with the issuance of these shares, we recorded stock-based consulting expense of $17,000 and prepaid expenses of $51,000 which will be amortized over the remaining service period.

 

The above securities were issued in reliance upon the exemptions provided by Section 4(a)(2) and Section 2(a)(3), as applicable under the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit No.		Description of Exhibit
31.1*		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.
101.INS*		XBRL INSTANCE DOCUMENT
101.SCH*		XBRL TAXONOMY EXTENSION SCHEMA
101.CAL*		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*		XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

* Filed herewith.

 

 

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 thereunto duly authorized.

 

	ONCBIOMUNE PHARMACEUTICALS, INC.
Dated: August 15, 2016	By:	/s/ Jonathan F. Head, PhD
		Jonathan F. Head, PhD
		Chief Executive Officer (principal executive officer)
Dated: August 15, 2016	By:	/s/ Andrew Kucharchuk
		Andrew Kucharchuk
		Chief Financial Officer and President (principal financial officer and principal accounting officer)