PROSPECTUS
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Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-208129
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1,375,679
Shares
OncBioMune
Pharmaceuticals, Inc.
Common
Stock
This
prospectus relates to the offer and sale of up to 1,375,679 shares of common stock, par value $0.0001, of OncBioMune Pharmaceuticals,
Inc., a Nevada corporation, by Lincoln Park Capital Fund, LLC, or Lincoln Park or the selling stockholder.
The
shares of common stock being offered by the selling stockholder have been or may be issued pursuant to the purchase agreement
dated October 20, 2015 that we entered into with Lincoln Park. See “The Lincoln Park Transaction” for a description
of that agreement and “Selling Stockholders” for additional information regarding Lincoln Park. The prices at which
Lincoln Park may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.
We
are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling
stockholder.
The
selling stockholder may sell the shares of common stock described in this prospectus in a number of different ways and at varying
prices. See “Plan of Distribution” for more information about how the selling stockholder may sell the shares of common
stock being registered pursuant to this prospectus. The selling stockholder is an “underwriter” within the meaning
of Section 2(a)(11) of the Securities Act of 1933, as amended.
We
will pay the expenses incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution”.
Our
common stock is currently quoted on the OTCQB operated by the OTC Markets Group, Inc. under the symbol “OBMP.” On
April 25, 2017, the last reported sale price of our common stock on the OTCQB was $0.2052.
The
date of this prospectus is May 16, 2017.
TABLE
OF CONTENTS
No
dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those
contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by us or the selling stockholders. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not
authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in our affairs or that information contained herein is
correct as of any time subsequent to the date hereof.
For
investors outside the United States: We have not and the selling stockholders have not done anything that would permit this offering
or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in
the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe
any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the
United States.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus includes “forward-looking statements” within the meaning of the federal securities laws that involve risks
and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies,
future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical
information. Some forward-looking statements appear under the headings “Prospectus Summary,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations’” and “Business.”
When used in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,”
“forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,”
“likely,” “may,” “might,” “will,” “should,” “goal,” “target”
or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are
intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on
the date of this prospectus.
We
caution that the factors described herein and other 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.
INDEX
OF CERTAIN DEFINED TERMS USED IN THIS PROSPECTUS
When
used in this prospectus, the terms:
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“OncBioMune
Pharmaceuticals”, “we”, “us” or “our” refers to OncBioMune Pharmaceuticals, Inc.,
a Nevada corporation, and/or its subsidiaries as the context may require;
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“Vitel
Laboratorios”, refers to Vitel Laboratorios, S.A. de C.V., a Mexican variable stock corporation, and a wholly owned
subsidiary of OncBioMune Pharmaceuticals effective as of March 10, 2017;
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“Oncbiomune
México” refers to Oncbiomune México, S.A. De C.V., a Mexican company and a 50% owned subsidiary of OncBioMune
Pharmaceuticals and 50% owned subsidiary of Vitel Laboratorios; and
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Oncbiomune”
refers to Oncbiomune, Inc., a Louisiana corporation and a wholly-owned subsidiary of OncBioMune Pharmaceuticals.
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INDUSTRY
AND MARKET DATA
We
are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal
surveys, market research, publicly available information and industry publications. The market research, publicly available information
and industry publications that we use generally state that the information contained therein has been obtained from sources believed
to be reliable. The information therein represents the most recently available data from the relevant sources and publications
and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus.
Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding
the other forward-looking statements in this prospectus.
PROSPECTUS
SUMMARY
This
summary highlights material information concerning our business and this offering. This summary does not contain all of the information
that you should consider before making your investment decision. You should carefully read the entire prospectus and the information
incorporated by reference into this prospectus, including the information presented under the section entitled “Risk Factors”
and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking
statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding
Forward-Looking Statements.”
In
this prospectus, unless the context indicates otherwise, the “Company,” “we,” “our,” “ours”
or “us” refer to OncBioMune Pharmaceuticals, Inc., a Nevada corporation, and its subsidiaries.
Our
Company
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 the balance of our 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.
Effective
September 2, 2015, we became a biotechnology company specializing in the development of novel cancer immunotherapy products, with
a proprietary vaccine technology that is designed to stimulate the immune system to attack its own cancer while not hurting the
patient. We are also developing and commercializing specialty drugs in Mexico and other Latin American countries following our
March 10, 2017 acquisition of Vitel Laboratorios discussed below.
ProscaVax
Update
Our
lead product, ProscaVax™ is scheduled to commence a Phase 2 clinical study in 2017. Since the beginning of 2016, we have
been conducting a Phase 1 clinical trial evaluating our novel cancer vaccine, ProscaVax, in PSA (Prostate Specific Antigen) recurrent
prostate cancer in both hormone-naïve and hormone-independent patients. The trial is being hosted at the University of California
San Diego Moores Cancer Center and Veterans Hospital in La Jolla, California under the U.S. Food and Drug Administration’s
Investigational New Drug (IND) program with funding from the U.S. Navy Cancer Vaccine Program. Based on the positive preliminary
data, we have commenced with a significantly larger Phase 2/3 trial of ProscaVax that was initiated by our subsidiary Oncbiomune
México in conjunction with our joint venture with Vitel Laboratorios S.A. de C.V. in Mexico. We acquired Vitel Laboratorios
in the first quarter of 2017.
Vitel
Operations
On
March 10, 2017, we completed the acquisition of Vitel Laboratorios (the “Vitel Acquisition”). The Vitel Acquisition
is expected to transform OncBioMune into a revenue-generating international pharmaceutical company with a more diverse product
line with a particularly deep reach throughout Mexico, Central and Latin America, and relationships across Europe and Asia. The
Vitel Acquisition includes the acquisition of two drugs it licenses and sells in Mexico, Bekunis® for constipation and Cirkused®
for stress. Approved for sale in the fourth quarter of 2016, the two over-the-counter products have generated significant sales
that have exceeded Vitel’s early projections. Vitel has a total of seven other products that are either already in the registration
stage or planned for launch later in 2017.
By
acquiring Vitel, we indirectly acquired Vitel’s 50% ownership interest in Oncbiomune México, an entity in which we
acquired a 50% interest when we jointly launched this company with Vitel in August 2016. Oncbiomune Mexico was launched for the
purposes of developing and commercializing our PROSCAVAX vaccine technology and cancer technologies in México, Central
and Latin America (“MALA”) for the treatment of prostate, ovarian and various other types of cancer and includes a
portfolio of owned products and licenses with OncBioMune.
Vitel
has license agreements covering the Mexican market with Roha Arnzemittel, GmbH (“Roha”) for Bekunis® (for constipation)
and Cirkused® (for stress), as well as licensing rights to the remainder of Roha’s pipeline at Vitel’s discretion.
Vitel
also has Mexican territorial rights through licensing agreements with; Kamada for KamRab® (for rabies), KamRho® (an Rh
immunization) and Glassia® (for Anti-D deficiency); Aqvida for Imatinib (for cancer), and other oncology products; QPharma
for Androferti (a male fertility drug) and is currently developing two innovative orphan drugs through their own research and
development.
Emerging
Growth Company Status
We
are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of all of these
exemptions.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards,
and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have
elected to take advantage of the benefits of this extended transition period.
We
could be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common
equity offering, although circumstances could cause us to lose that status earlier if our annual revenues exceed $1.0 billion,
if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated
filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Company
Information
Our
principal office is located at 11441 Industriplex Blvd, Suite 190, Baton Rouge, LA 70809 and our phone number is (225) 227-2384.
Our corporate website address is
www.oncbiomune.com
. Information contained on, or accessible through, our website is not
a part of, and is not incorporated by reference into, this prospectus.
The
Offering
On
October 20, 2015, we entered into a purchase agreement with Lincoln Park, which we refer to in this prospectus as the Purchase
Agreement, pursuant to which Lincoln Park has agreed to purchase from us up to $10,100,000 of our common stock (subject to certain
limitations) from time to time over a 36-month period. Also on October 20, 2015, we entered into a Registration Rights Agreement,
or the Registration Rights Agreement, with Lincoln Park, pursuant to which we have filed with the SEC the registration statement
that includes this prospectus to register for resale under the Securities Act of 1933, as amended (the “Securities Act”),
the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
Other
than (i) 333,334 shares of our common stock that we have already issued to Lincoln Park for a total purchase price of $100,000
as an initial purchase under the Purchase Agreement (the “Initial Purchase”) and (ii) 1,000,000 shares of our common
stock that we have already issued to Lincoln Park pursuant to the terms of the Purchase Agreement as consideration for its commitment
to purchase additional shares of our common stock under the Purchase Agreement, we do not have the right to commence any further
sales to Lincoln Park under the Purchase Agreement until the SEC has declared effective the registration statement of which this
prospectus forms a part. Thereafter, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase up
to 100,000 shares of our common stock on any such business day;
provided, however,
that Lincoln Park’s committed
obligation shall not exceed $50,000 for any such purchase, except that under certain circumstances the limit may increase to up
to $500,000 worth of our common stock on any single business day, plus an additional “accelerated amount” under certain
circumstances. Except as described in this prospectus we will control the timing and amount of any sales of our common stock to
Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement will be based on
the market prices of our common stock preceding the time of sale as computed under the Purchase Agreement without any fixed discount;
provided that in no event will such shares be sold to Lincoln Park when our closing sale price is less than $0.10 per share, subject
to adjustment as provided in the Purchase Agreement. The purchase price per share will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute
such price. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or cost upon one business
day notice. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
As
of April 27, 2017, there were 132,068,995 shares of our common stock outstanding, of which 48,464,904 shares were held by non-affiliates,
excluding the 1,333,334 shares that we have already issued to Lincoln Park under the Purchase Agreement. Although the Purchase
Agreement provides that we may sell up to an additional $10,000,000, excluding the $100,000 Initial Purchase, of our common stock
to Lincoln Park, only 1,375,679 shares of our common stock are being offered under this prospectus, which represents:
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500,000
shares that we issued to Lincoln Park as part of a commitment fee, and
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An
additional 875,679 shares which may be issued to Lincoln Park in the future under the Purchase Agreement, less the 200,000
shares which have already been issued to Lincoln Park under the Purchase Agreement.
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Lincoln
Park may not assign of transfer its rights and obligations under the Purchase Agreement. If all of the 1,375,679 shares offered
by Lincoln Park under this prospectus were issued and outstanding as of the date hereof, such shares would represent 1.0% of the
total number of shares of our common stock outstanding as of the date of this prospectus. If we elect to issue and sell more than
the 1,375,679 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we
must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution
to our stockholders. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares
we sell to Lincoln Park under the Purchase Agreement.
Sales
of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic
and voting interests of each of our existing stockholders will be diluted as a result of issuances of shares of common stock to
Lincoln Park. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned
by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Lincoln
Park.
The
Offering
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Issuer
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OncBioMune
Pharmaceuticals, Inc.
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Common
stock to be offered by the selling stockholders
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1,375,679
shares consisting of:
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500,000
shares issued to Lincoln Park, and
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875,679
shares that we may issue to Lincoln Park under the Purchase Agreement.
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Common
stock outstanding before this offering
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132,068,995
shares
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Common
stock to be outstanding after this offering
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132,944,674
shares
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Use
of proceeds
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We
will not receive any proceeds from the sale of common stock by Lincoln Park in this offering. However, we may receive up to
$10,100,000 under the Purchase Agreement with Lincoln Park, of which we have already received $662,726.67. Any proceeds that
we receive from sales to Lincoln Park under the Purchase Agreement will be used for general corporate purposes and working
capital requirements. See “Use of Proceeds” and “Selling Stockholders.”
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Risk
factors
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This
investment involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for a discussion
of some of the factors you should carefully consider before deciding to invest in our common stock.
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OTCQB
trading symbol
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OBMP
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SUMMARY
HISTORICAL FINANCIAL DATA
The
following table presents our summary historical financial data for the periods indicated. The summary historical financial data
for the years ended December 31, 2016 and 2015 and the balance sheet data as of December 31, 2016 and 2015 are derived from the
audited financial statements.
Historical
results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect
in future periods, and results of interim periods are not necessarily indicative of results for the entire year. You should read
the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.
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Year
Ended December 31,
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2016
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2015
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Statement
of Operations Data
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Total
revenues
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$
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-
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$
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-
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Total
operating expenses
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1,804,045
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807,645
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Loss
from operations
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(1,804,045
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)
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(807,645
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)
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Total
other expense
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(209,587
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)
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(182,751
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Net
loss
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$
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(2,013,632
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)
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$
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(990,396
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Net
loss per share, basic and diluted
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$
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(0.03
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$
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(0.02
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)
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Balance
Sheet Data (at period end)
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Cash
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$
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-
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$
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672,769
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Working
capital (deficit) (1)
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(842,637
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)
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538,279
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Total
assets
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57,313
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726,639
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Total
liabilities
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883,946
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171,258
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Shareholders’
equity (deficit)
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(826,633
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)
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555,381
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(1)
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Working
capital represents total current assets less total current liabilities.
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RISK
FACTORS
Investment
in our common stock involves a number of substantial risks. You should not invest in our stock unless you are able to bear the
complete loss of your investment. In addition to the risks and investment considerations discussed elsewhere in this prospectus,
the following factors should be carefully considered by anyone purchasing the securities offered through this prospectus. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur,
our business could be harmed. In such case, the trading price of our common stock could decline and investors could lose all or
a part of the money paid to buy our common stock.
Risks
Relating to our Product Commercialization Pursuits
If
we fail to achieve and sustain commercial success for ProscaVax, our business will suffer, our future prospects may be harmed
and our stock price would likely decline
.
We
have never sold or marketed a pharmaceutical product. Unless we can successfully commercialize ProscaVax or another product candidate
or acquire the right to market other approved products, our business will be materially adversely affected. Our ability to generate
revenues for ProscaVax will depend on, and may be limited by, a number of factors, including the following:
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Our
ability to receive approval of ProscaVax by the FDA;
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acceptance
of and ongoing satisfaction with ProscaVax by the medical community, patients receiving therapy and third-party payers in
the United States, and eventually in foreign markets if we receive marketing approvals abroad;
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our
ability to develop and expand market share for treating late stage prostate cancer patients, both in the United States and
potentially in the rest of the world if we receive marketing approvals outside of the United States, in the midst of numerous
competing products for late stage prostate cancer, many of which are in late stage clinical development;
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whether
data from clinical trials for the additional indication of early stage prostate cancer patients are positive and whether such
data, if positive, will be sufficient to achieve approval from the FDA and its foreign counterparts to market and sell ProscaVax
for this additional indication;
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adequate
coverage or reimbursement for ProscaVax by government healthcare programs and third-party payors, including private health
coverage insurers and health maintenance organizations; and
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the
ability of patients to afford any required co-payments for ProscaVax.
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If
for any reason we are unable to sell ProscaVax, our business would be seriously harmed and could fail.
If
ProscaVax were to become the subject of problems related to its efficacy, safety, or otherwise, our ability to generate revenues
from ProscaVax could be seriously harmed.
ProscaVax,
in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA,
and we cannot assure you that newly discovered safety issues will not arise. With the use of any newly marketed drug by a wider
patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself.
Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our
approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition. In the event
of a withdrawal of ProscaVax from the market, our revenues would decline significantly and our business would be seriously harmed
and could fail.
Adoption
of ProscaVax for the treatment of patients with either early stage or advanced prostate cancer may be slow or limited for a variety
of reasons, including competing therapies and perceived difficulties in the treatment process or delays in obtaining reimbursement.
If ProscaVax is not successful in broad acceptance as a treatment option for prostate cancer, our business would be harmed.
The
rate of adoption of ProscaVax for early stage or advanced prostate cancer and the ultimate market size will be dependent on several
factors, including the education of treating physicians on the patient treatment process with ProscaVax and immunotherapies generally.
A significant portion of the prospective patient base for treatment with ProscaVax may be under the care of urologists who may
be less experienced with immunotherapy than oncologists. Acceptance by urologists of ProscaVax as a treatment option may be measurably
slower than adoption by oncologists of ProscaVax as a therapy and may require more educational effort by us.
To
achieve global success for ProscaVax as a treatment, we will need to obtain approvals by foreign regulatory authorities. Data
from our completed clinical trials of ProscaVax may not be sufficient to support approval for commercialization by regulatory
agencies governing the sale of drugs outside of the United States. This could require us to spend substantial sums to develop
sufficient clinical data for licensure by foreign authorities. Submissions for approval by foreign regulatory authorities may
not result in marketing approval by these authorities for the requested indication. In addition, certain countries require pricing
to be established before reimbursement for the specific indication may be obtained. We may not receive or maintain marketing approvals
at favorable pricing levels or at all, which could harm our ability to market ProscaVax globally. Prostate cancer is common in
many regions where the healthcare support systems are limited and reimbursement for ProscaVax may be limited or unavailable, which
will likely limit or slow adoption in these regions. If we are unable to successfully achieve the full global market potential
of ProscaVax due to diagnosis practices or regulatory hurdles, our future prospects would be harmed and our stock price could
decline.
Risks
Relating to Our Financial Position and Operations
We
just completed an acquisition and have no way to predict its outcome.
On
March 10, 2017, we completed the acquisition of 100% of the issued and outstanding capital stock of Vitel Laboratorios. The acquisition
resulted in a change of control of the company such that our shareholders prior to the acquisition who held a controlling vote
are no longer in control due to the issuance of the Series B Preferred Stock and the planned amendment to our articles of incorporation
and bylaws as provided for in the Shareholders Agreement we entered into with the two controlling shareholders as part of the
Vitel Acquisition. This acquisition creates many risks for the Company and its shareholders. First, Vitel Laboratorios is located
in Mexico. In order to integrate Vitel Laboratorios into our company, it is likely that the executive officers will have to fly
between our principal executive offices in Louisiana and Mexico. This will increase our traveling expenses. Also, management will
need to focus on the integration of the two companies, which will take away from the time that management will spend on topics
such as FDA and COFEPRIS approval and commercialization. Lastly, there is a risk that the combination will not work and our company
or the Vitel Laboratorios shareholders will commence litigation, again increasing costs and taking away from the time spent on
more positive ventures. Any of these events may have a material adverse effect on the business, operations, or finances of the
Company.
Our
independent auditors have expressed substantial doubt about our ability to continue as a going concern.
We
had had net loss of $2,013,632 and $990,396 for the years ended December 31, 2016 and 2015, respectively. The net cash used in
operations were $1,544,003 and $851,841 for the years ended December 31, 2016 and 2015, respectively. Additionally, the Company
had an accumulated deficit of $3,142,851 and $1,129,219, at December 31, 2016 and 2015, respectively, had a stockholders’
deficit of $826,633 at December 31, 2016, had a working capital deficit of $842,637 at December 31, 2016, and had no revenues
for the years ended December 31, 2016 and 2015. These conditions, among others, raise substantial doubt about our ability to continue
as a going concern, as described in the explanatory paragraph to the Report of Independent Registered Public Accounting Firm in
our consolidated financial statements for the year ended December 31, 2016. Although management believes there is substantial
doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable
to continue our business. Our consolidated financial statements contain additional note disclosure describing the circumstances
that lead to this disclosure. Even if we are able to successfully realize our commercialization goals for ProscaVax, because of
the numerous risks and uncertainties associated with commercialization of a biologic, we may still require additional funding.
And in any event, we are unable to predict when we will become profitable, if at all. Even if we do produce revenues and achieve
profitability, we may not be able to maintain or increase profitability.
Risks
from Competitive Factors
Our
competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner, which may
diminish or eliminate the commercial success of any products we may commercialize.
Competition
in the cancer therapeutics field is intense and is accentuated by the rapid pace of advancements in product development. In addition,
we compete with other clinical-stage companies and institutions for clinical trial participants, which could reduce our ability
to recruit participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability
to bring a product to market prior to our competitors. Further, research and discoveries by others may result in breakthroughs
that render potential products obsolete before they generate revenue.
Products
such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense
compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could
potentially compete with ProscaVax and our other product candidates. In addition, many universities and private and public research
institutes may in the future become active in cancer research, which may be in direct competition with us.
Some
of our competitors in the cancer therapeutics field have substantially greater research and development capabilities and manufacturing,
marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical and biotechnology
companies could enhance our competitors’ resources. In addition, our competitors may obtain patent protection or FDA approval
and commercialize products more rapidly than we do, which may impact future sales of our products. We expect that competition
among products approved for sale will be based, among other things, on product efficacy, price, safety, reliability, availability,
patent protection, and sales, marketing and distribution capabilities. Our profitability and financial position will suffer if
our products receive regulatory approval, but cannot compete effectively in the marketplace.
We
face similar competition with respect to the over-the-counter products that we acquired with Vitel Laboratorios. These products
compete with other products that are owned and marketed by companies with much greater financial resources to reach consumers
and influence their buying decisions. There can be no assurance that we will be able to profitably market our over-the-counter
products and money spent on such marketing efforts will reduce our ability to focus on and develop the pharmaceutical products.
We
could face competition for ProscaVax or other approved products from biosimilar products that could impact our profitability
.
We
may face competition in Europe from biosimilar products, and we expect we may face competition from biosimilars in the future
in the United States as well. To the extent that governments adopt more permissive approval frameworks and competitors are able
to obtain broader marketing approval for biosimilars, our products will become subject to increased competition. Expiration or
successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the
validity and/or scope of our patents. We cannot predict to what extent the entry of biosimilar products or other competing products
could impact our future potential sale of ProscaVax in the E.U., where biosimilars to other innovator biological products are
already available. Our inability to compete effectively in foreign territories would reduce global sales potential, which could
have a material adverse effect on our results of operations.
On
March 23, 2010, PPACA became law and authorized FDA approval of biosimilar products. PPACA established a period of 12 years of
data exclusivity for reference products and outlined statutory criteria for science-based biosimilar approval standards. Under
this framework, data exclusivity protects the data in the innovator’s regulatory application by prohibiting, for a period
of 12 years, others from gaining FDA approval based in part on reliance or reference to the innovator’s data. FDA has not
yet announced implementation of the biosimilars regulatory approval pathway; however, PPACA does not require the agency to do
so before it may approve biosimilars. The new law does not change the duration of patents granted on biologic products. Because
of this pathway for the approval of biosimilars in the U.S., we may in the future face greater competition from biosimilar products
and downward pressure on our product prices, sales and revenues, subject to our ability to enforce our patents.
Failure
to retain key personnel could impede our ability to develop our products and to obtain new collaborations or other sources of
funding.
We
depend, to a significant extent, on the efforts of our key employees, including senior management and senior scientific, clinical,
regulatory, operational and other personnel. The development of new therapeutic products requires expertise from a number of different
disciplines, some of which are not widely available.
We
depend upon our scientific staff to discover new product candidates and to develop and conduct pre-clinical studies of those new
potential products. Our clinical and regulatory staff is responsible for the design and execution of clinical trials in accordance
with FDA requirements and for the advancement of our product candidates toward FDA approval and submission of data supporting
approval. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their
success in performing their responsibilities, may directly influence the success of our product development programs. As we pursue
successful commercialization of ProscaVax, our sales and marketing, and operations executive management staff takes on increasing
significance and influence upon our organizational success. In addition, our executive officers are involved in a broad range
of critical activities, including providing strategic and operational guidance. The loss of these individuals, or our inability
to retain or recruit other key management and scientific, clinical, regulatory, medical, operational and other personnel, may
delay or prevent us from achieving our business objectives. We face intense competition for personnel from other companies, universities,
public and private research institutions, government entities and other organizations.
Risks
Relating to Collaboration Arrangements and Reliance on Third Parties
We
must rely at present on relationships with third-party suppliers to supply necessary components used in our products, which relationships
are not easy to replace.
We
rely upon contract manufacturers for components used in the manufacture of ProscaVax. Problems with any of our suppliers’
facilities or processes could result in failure to produce or a delay in production of adequate supplies of the antigen or other
components we use in the manufacture of ProscaVax. This could delay or reduce commercial sales and materially harm our business.
Any prolonged interruption in the operations of our suppliers’ facilities could result in cancellation of orders, loss of
components in the process of being manufactured or a shortfall in availability of a necessary component. A number of factors could
cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage
to a facility due to natural disasters, changes in FDA or equivalent other country authorities’ regulatory requirements
or standards that require modifications to manufacturing processes, or action by us to implement process changes or other similar
factors. Because manufacturing processes are complex and are subject to a lengthy FDA or equivalent non-United States regulatory
approval process, alternative qualified supply may not be available on a timely basis or at all. Difficulties or delays in our
suppliers’ manufacturing and supply of components could delay our clinical trials, increase our costs, damage our reputation
and, for ProscaVax, cause us to lose revenue or market share if we are unable to timely meet market demands.
We
rely on single source vendors for some key components for ProscaVax and our active immunotherapy product candidates, which could
impair our ability to manufacture and supply our products.
We
currently depend on single source vendors for components used in ProscaVax and other active immunotherapy candidates. Any production
shortfall that impairs the supply of the antigen in ProscaVax to us could have a material adverse effect on our business, financial
condition and results of operations. If we are unable to obtain a sufficient quantity of antigen, there could be a substantial
delay in successfully developing a second source supplier. In addition, we rely on single-source unaffiliated third-party suppliers
for certain other raw materials, medical devices and components necessary for the formulation, fill and finish of our products.
Certain of these raw materials, medical devices and components are the proprietary products of these unaffiliated third-party
suppliers and are specifically cited in the drug application with regulatory agencies so that they must be obtained from that
specific sole source and could not be obtained from another supplier unless and until the regulatory agency approved such supplier.
An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements
affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages,
unexpected demands or quality issues, could adversely affect our ability to satisfy demand for ProscaVax or other products, which
could adversely affect our product sales and operating results materially or our ability to conduct clinical trials, either of
which could significantly harm our business.
If
we fail to enter into any needed collaboration agreements for our product candidates, we may be unable to commercialize them effectively
or at all.
Product
collaborations are complex and any potential discussions may not result in a definitive agreement for many reasons. For example,
whether we reach a definitive agreement for a collaboration would depend, among other things, upon our assessment of the collaborator’s
resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation
of a number of factors. Those factors may include the design or results of clinical trials, the potential market for the product
candidate, the costs and complexities of manufacturing and delivering the product candidate to patients, the potential of competing
products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to
such ownership without regard to the merits of the challenge, and industry and market conditions generally. If we were to determine
that a collaboration for a particular product is necessary to commercialize it and we were unable to enter into such a collaboration
on acceptable terms, we might elect to delay or scale back the commercialization of a product in order to preserve our financial
resources or to allow us adequate time to develop the required physical resources and systems and expertise ourselves.
If
we enter into a collaboration agreement we consider acceptable, the collaboration may not proceed as quickly, smoothly or successfully
as we plan. The risks in a collaboration agreement generally include:
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the
collaborator may not apply the expected financial resources or required expertise in developing the physical resources and
systems necessary to successfully commercialize a product;
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the
collaborator may not invest in the development of a sales and marketing force and the related infrastructure at levels that
ensure that sales of a product reach their full potential;
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disputes
may arise between us and a collaborator that delay the commercialization of the product or adversely affect its sales or profitability;
or
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the
collaborator may independently develop, or develop with third parties, products that could compete with the product.
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With
respect to a collaboration for any of our products or product candidates, we are dependent on the success of our collaborators
in performing their respective responsibilities and the continued cooperation of our collaborators. Our collaborators may not
cooperate with us to perform their obligations under our agreements with them. We cannot control the amount and timing of our
collaborators’ resources that will be devoted to activities related to our collaboration agreements with them. Our collaborators
may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. A collaborator
may have the right to terminate the collaboration at its discretion. Any termination may require us to seek a new collaborator,
which we may not be able to do on a timely basis, if at all, or require us to delay or scale back the commercialization efforts.
The occurrence of any of these events could adversely affect the commercialization of product candidates we may commercialize
and materially harm our business and stock price by slowing the pace of growth of such sales, by reducing the profitability of
the product or by adversely affecting the reputation of the product in the market.
Risks
Relating to Our Clinical Trial and Product Development Initiatives
The
costs of our product candidate development and clinical trials are difficult to estimate and will be very high for many years,
preventing us from making a profit for the foreseeable future, if ever.
Clinical
and other studies necessary to obtain approval of a new drug can be time consuming and costly, especially in the United States,
but also in foreign countries. Our estimates of the costs associated with future clinical trials and research may be substantially
lower than what we actually experience. It is impossible to predict what we will face in the development of a product candidate,
such as ProscaVax. The purpose of clinical trials is to provide both us and regulatory authorities with safety and efficacy data
in humans. It is relatively common to revise a trial or add subjects to a trial in progress. These examples of common variances
in product development and clinical investigations demonstrate how predicted costs may exceed reasonable expectations. The difficult
and often complex steps necessary to obtain regulatory approval, especially that of the FDA and the European Union’s European
Medicine’s Agency (the “EMA”), involve significant costs and may require several years to complete. We expect
that we will need substantial additional financing over an extended period of time in order to fund the costs of future clinical
trials, related research, and general and administrative expenses.
The
extent of our clinical trials and research programs are primarily based upon the amount of capital available to us and the extent
to which we receive regulatory approvals for clinical trials. We have established estimates of the future costs of the Phase 2
clinical trial for ProscaVax, but, as explained above, that estimate may not prove correct.
Our
clinical and pre-clinical candidates in the pipeline for other potential cancer immunotherapies and targeted products may never
reach the commercial market for a number of reasons.
To
sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging
in discovery research and product development, conducting pre-clinical and clinical studies, and seeking regulatory approval in
the United States for product candidates and in other countries for ProscaVax and other products we may market in the future.
Our long-term success depends on the discovery and development of new drugs that we can commercialize. Our cancer immunotherapy
and targeted program pipeline candidates are still at a relatively early stage in the development process. There can be no assurance
that these product candidates or any other potential therapies we may pursue will become a marketed drug. In addition, we may
find that certain products cannot be manufactured on a commercial scale and, therefore, they may not be economical to produce,
or may be precluded from commercialization by proprietary rights of third parties.
A
significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify
disease targets and product candidates require substantial technical, financial and human resources, whether or not we ultimately
identify any candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail
to yield candidates for clinical development for a number of reasons, including difficulties in formulation which cannot be overcome,
timing and competitive concerns.
An
Investigative New Drug (“IND”) application must become effective before human clinical trials may commence. The IND
application is automatically effective 30 days after receipt by the FDA unless before that time, the FDA raises concerns or questions
about the product’s safety profile or the design of the trials as described in the application. In the latter case, any
outstanding concerns must be resolved with the FDA before clinical trials can proceed. Thus, the submission of an IND may not
result in FDA authorization to commence clinical trials in any given case. After authorization is received, the FDA retains the
authority to place the IND, and clinical trials under that IND, on clinical hold. If we are unable to commence clinical trials
or clinical trials are delayed indefinitely, we would be unable to develop additional product candidates and our business could
be materially harmed. Clinical trials, both in the United States and in other countries, can be delayed for a variety of reasons,
including:
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delays
or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating to
our product candidates or similar product candidates of our competitors or failure to follow regulatory guidelines;
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delays
or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidate for use in trials;
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delays
or failures in reaching agreement on acceptable terms with prospective study sites;
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delays
or failures in obtaining approval of our clinical trial protocol from an institutional review board (“IRB”) or
ethics committee (“EC”) to conduct a clinical trial at a prospective study site;
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delays
in recruiting patients to participate in a clinical trial;
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failure
of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices or equivalent
other country regulations and requirements;
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unforeseen
safety issues, including negative results from ongoing pre-clinical studies;
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inability
to monitor patients adequately during or after treatment;
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unexpected
adverse events occurring during the clinical trial;
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failure
by third-party clinical trial managers to comply with regulations concerning protection of patient health data;
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difficulty
monitoring multiple study sites;
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failure
of our third-party clinical trial managers to satisfy their contractual duties, comply with regulations or meet expected deadlines;
and
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determination
by regulators that the clinical design of the trials is not adequate.
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The
nature and efforts required to complete a prospective research and development project are typically indeterminable at very early
stages when research is primarily conceptual and may have multiple applications. Once a focus towards developing a specific product
candidate has been developed, we obtain more visibility into the efforts that may be required to reach conclusion of the development
phase. However, there are inherent risks and uncertainties in developing novel biologics in a rapidly changing industry environment.
To obtain approval of a product candidate from the FDA or other country regulatory authorities, we must, among other requirements,
submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate.
In most cases, this entails extensive laboratory tests and pre-clinical and clinical trials. The collection of this data, as well
as the preparation of applications for review by the FDA and other regulatory agencies outside the United States are costly in
time and effort, and may require significant capital investment.
We
may encounter significant difficulties or costs in our efforts to obtain FDA approvals or approvals to market products in foreign
markets. For example, the FDA or the equivalent in jurisdictions outside the United States may determine that our data is not
sufficiently compelling to warrant marketing approval, or may require we engage in additional clinical trials or provide further
analysis which may be costly and time consuming. Regardless of the nature of our efforts to complete development of our products
and receive marketing approval, we may encounter delays that render our product candidates uncompetitive or otherwise preclude
us from marketing products.
We
may be required to obtain additional funding to complete development of product candidates or in order to commercialize approved
products. However such funding may not be available to us on terms we deem acceptable or at all. Our ability to access additional
capital is dependent on the success of our business and the perception by the market of our future business prospects. In the
event we were unable to obtain necessary funding, we might halt or temporarily delay ongoing development projects.
Pre-clinical
testing and clinical trials for product candidates must satisfy stringent regulatory requirements or we may be unable to utilize
the results.
The
pre-clinical testing and clinical trials of any product candidates that we develop must comply with regulations by numerous federal,
state and local government authorities in the United States, principally the FDA, and by similar governmental authorities in other
countries. Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review
boards and must meet the requirements of these authorities in the United States and other countries, including those for informed
consent and good clinical practices. We may not be able to comply with these requirements, which could disqualify completed or
ongoing clinical trials. We may experience numerous unforeseen events during, or as a result of, the testing process that could
delay or prevent commercialization of our product candidates, including the following:
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safety
and efficacy results from human clinical trials may show the product candidate to be less effective or safe than desired or
earlier results may not be replicated in later clinical trials;
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the
results of pre-clinical studies may be inconclusive or they may not be indicative of results that will be obtained in human
clinical trials;
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after
reviewing relevant information, including pre-clinical testing or human clinical trial results, we may abandon or substantially
restructure programs that we might previously have believed to be promising;
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we,
the FDA, an IRB, an EC, or similar regulatory authorities in other countries may suspend or terminate clinical trials if the
participating patients are being exposed to unacceptable health risks or for other reasons; and
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the
effects of our product candidates may not be the desired effects or may include undesirable side effects or other characteristics
that interrupt, delay or cause us or the FDA, or equivalent governmental authorities in other countries, to halt clinical
trials or cause the FDA or non-United States regulatory authorities to deny approval of the product candidate for any or all
target indications.
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Each
phase of clinical testing is highly regulated, and during each phase there is risk that we will encounter serious obstacles or
will not achieve our goals, and accordingly we may abandon a product in which we have invested substantial amounts of time and
money. In addition, we must provide the FDA and foreign regulatory authorities with pre-clinical and clinical data that demonstrate
that our product candidates are safe and effective for each target indication before they can be approved for commercial distribution.
We cannot state with certainty when or whether any of our products now under development will be approved or launched; or whether
any products, once approved and launched, will be commercially successful.
The
FDA, other non-United States regulatory authorities, or an Advisory Committee may determine our clinical trials data regarding
safety or efficacy are insufficient for regulatory approval
.
Although
we obtain guidance from regulatory authorities on certain aspects of our clinical development activities, these discussions are
not binding obligations on regulatory authorities. Regulatory authorities may revise or retract previous guidance or may disqualify
a clinical trial in whole or in part from consideration in support of approval of a potential product for commercial sale or otherwise
deny approval of that product. Even if we obtain successful clinical safety and efficacy data, we may be required to conduct additional,
expensive trials to obtain regulatory approval. FDA, or equivalent other country authorities, may elect to obtain advice from
outside experts regarding scientific issues and/or marketing applications under FDA or other country authority review through
the FDA’s Advisory Committee process or other country procedures. Views of the Advisory Committee or other experts may differ
from those of the FDA, or equivalent other country authority, and may impact our ability to commercialize a product candidate.
If
we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected
.
Clinical
trials for our product candidates may require that we identify and enroll a large number of patients with the disease under investigation.
We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity
in a study, to complete our clinical trials in a timely manner.
Patient
enrollment is affected by factors including:
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design
of the trial protocol;
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the
size of the patient population;
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eligibility
criteria for the study in question;
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perceived
risks and benefits of the product candidate under study;
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availability
of competing therapies and clinical trials;
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efforts
to facilitate timely enrollment in clinical trials;
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patient
referral practices of physicians;
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the
ability to monitor patients adequately during and after treatment; and
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geographic
proximity and availability of clinical trial sites for prospective patients.
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Additionally,
even if we are able to identify an appropriate patient population for a clinical trial, there can be no assurance that the patients
will continue in the clinical trial through completion.
If
we have difficulty enrolling or maintaining a sufficient number of patients with sufficient diversity to conduct our clinical
trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have a negative
effect on our business.
Risks
Related to Regulation of the Pharmaceutical Industry
ProscaVax
and our other products in development cannot be sold if we do not maintain or gain required regulatory approvals.
Our
business is subject to extensive regulation by numerous state and federal governmental authorities in the United States, including
the FDA, and potentially by foreign regulatory authorities, with regulations differing from country to country. In the United
States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency,
labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. Other
applicable non-United States regulatory authorities have equivalent powers. Failure to comply with applicable requirements could
result in, among other things, one or more of the following actions: withdrawal of product approval, notices of violation, untitled
letters, warning letters, fines and other monetary penalties, unanticipated expenditures, delays in approval or refusal to approve
a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions;
and criminal prosecution. We are required in the United States and in foreign countries to obtain approval from regulatory authorities
before we can manufacture, market and sell our products.
Obtaining
regulatory approval for marketing of a product candidate in one country does not assure we will be able to obtain regulatory approval
in other countries. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on
the regulatory process in other countries. Once approved, the FDA and other United States and non-United States regulatory authorities
have substantial authority to limit the uses or indications for which a product may be marketed, restrict distribution of the
product, require additional testing, change product labeling or mandate withdrawal of our products. The marketing of our approved
products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including:
the manufacturing, testing, distribution, labeling, packaging, storage, reporting and record-keeping related to the product, advertising,
promotion, and adverse event reporting requirements. In addition, incidents of adverse drug reactions, unintended side effects
or misuse relating to our products could result in required post-marketing studies, additional regulatory controls or restrictions,
or even lead to withdrawal of a product from the market.
In
general, the FDA and equivalent other country authorities require labeling, advertising and promotional materials to be truthful
and not misleading, and marketed only for the approved indications and in accordance with the provisions of the approved label.
If the FDA or other regulatory authorities were to challenge our promotional materials or activities, they may bring enforcement
action.
Our
failure to obtain approval, significant delays in the approval process, or our failure to maintain approval in any jurisdiction
will prevent us from selling a product in that jurisdiction. Any product and its manufacturer will continue to be subject to strict
regulations after approval, including but not limited to, manufacturing, quality control, labeling, packaging, adverse event reporting,
advertising, promotion and record-keeping requirements. Any problems with an approved product, including the later exhibition
of adverse effects or any violation of regulations could result in restrictions on the product, including its withdrawal from
the market, which could materially harm our business. The process of obtaining approvals in foreign countries is subject to delay
and failure for many of the same reasons.
Regulatory
authorities could also add new regulations or change existing regulations at any time, which could affect our ability to obtain
or maintain approval of our products. ProscaVax and our investigational cellular immunotherapies are novel. As a result, regulatory
agencies lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay
or prevent commercialization of ProscaVax outside of the United States and with respect to our active immunotherapy products under
development. We are unable to predict when and whether any changes to regulatory policy affecting our business could occur, and
such changes could have a material adverse impact on our business. If regulatory authorities determine that we have not complied
with regulations in the research and development of a product candidate, a new indication for an existing product or information
to support a current indication, they may not approve the product candidate or new indication or maintain approval of the current
indication in its current form or at all, and we would not be able to market and sell it. If we were unable to market and sell
our products or product candidates, our business and results of operations would be materially and adversely affected.
Failure
to comply with foreign regulatory requirements governing human clinical trials and failure to obtain marketing approval for product
candidates could prevent us from selling our products in foreign markets, which may adversely affect our operating results and
financial condition.
The
requirements governing the conduct of clinical trials, manufacturing, testing, product approvals, pricing and reimbursement outside
the United States vary greatly from country to country. In addition, the time required to obtain approvals outside the United
States may differ significantly from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on the
timeframe we may desire, if at all. Approval by the FDA does not assure approval by regulatory authorities in other countries,
and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain
required approvals could impair our ability to develop foreign markets for our products and may have a material adverse effect
on our business and future prospects.
Our
product sales depend on adequate coverage and reimbursement from third-party payers
.
Our
sale of ProscaVax is dependent on the availability and extent of coverage and reimbursement from third-party payers, including
government healthcare programs and private insurance plans. We rely in large part on the reimbursement coverage by federal and
state sponsored government programs such as Medicare and Medicaid in the United States and equivalent programs in other countries.
In the event we seek approvals to market ProscaVax in foreign territories, we will need to work with the government-sponsored
healthcare systems in Europe and other foreign countries that are the primary payers of healthcare costs in those regions. Governments
and private payers may regulate prices, reimbursement levels and/or access to ProscaVax and any other products we may market to
control costs or to affect levels of use of our products. We cannot predict the availability or level of coverage and reimbursement
for ProscaVax or our product candidates and a reduction in coverage and/or reimbursement for our products could have a material
adverse effect on our product sales and results of operations.
We
use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.
Our
operations produce hazardous waste products, including chemicals and radioactive and biological materials. We are subject to a
variety of federal, state and local laws and regulations relating to the use, handling, storage and disposal of these materials.
Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed
by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.
We generally contract with third parties for the disposal of such hazardous waste products and store our low level radioactive
waste at our facilities in compliance with applicable environmental laws until the materials are no longer considered radioactive.
We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental
Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations.
OSHA and/or the EPA may promulgate regulations that may affect our research and development programs. We may be required to incur
further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental
contamination or injury from these materials, we could be held liable for any damages that result, including remediation, and
any such liability could exceed our resources.
Risks
in Protecting Our Intellectual Property
If
we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively
or operate profitably
.
We
invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through
United States and foreign patent filings, trademarks and trade secrets. We have issued patents, and applications for United States
and foreign patents in various stages of prosecution. We expect that we will continue to file and prosecute patent applications
and that our success depends in part on our ability to establish and defend our proprietary rights in the technologies that are
the subject of issued patents and patent applications.
The
fact that we have filed a patent application or that a patent has issued, however, does not ensure that we will have meaningful
protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated,
declared unenforceable or circumvented or may not cover all applications we may desire. Our pending patent applications as well
as those we may file in the future may not result in issued patents. Patents may not provide us with adequate proprietary protection
or advantages against competitors with, or who could develop, similar or competing technologies or who could design around our
patents. Patent law relating to the scope of claims in the pharmaceutical field in which we operate is continually evolving and
can be the subject of some uncertainty. The laws providing patent protection may change in a way that would limit protection.
We
also rely on trade secrets and know-how that we seek to protect, in part, through confidentiality agreements. Our policy is to
require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed
or made known to the individual during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies
that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing
that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property. It is possible,
however, that these parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible
that our trade secrets or know-how will otherwise become known to or be independently developed by competitors.
We
are also subject to the risk of claims, whether meritorious or not, that our products or immunotherapy candidates infringe or
misappropriate third-party intellectual property rights. Defending against such claims can be quite expensive even if the claims
lack merit. And if we are found to have infringed or misappropriated a third-party’s intellectual property, we could be
required to seek a license or discontinue our products or cease using certain technologies or delay commercialization of the affected
product or products, and we could be required to pay substantial damages, which could materially harm our business.
We
may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue
and uncertain in its outcome.
Our
business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships,
or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that
are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be
expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our
business.
Litigation
relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an
industry dominated by very large companies may cause us to be at a disadvantage in defending our intellectual property rights
and in defending against claims that our immunotherapy candidates infringe or misappropriate third-party intellectual property
rights. Even if we are able to defend our position, the cost of doing so may adversely affect our profitability. We may in the
future be subject to patent litigation and may not be able to protect our intellectual property at a reasonable cost if such litigation
is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require
us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant
adverse effect on our business.
We
are exposed to potential product liability claims, and insurance against these claims may not be adequate and may not be available
to us at a reasonable rate in the future.
Our
business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of drug candidates
and products. If any of our drug candidates in clinical trials or our marketed products harm people or allegedly harm people,
we may be subject to costly and damaging product liability claims. Most, if not all, of the patients who participate in our clinical
trials are already seriously ill when they enter a trial. We have clinical trial insurance coverage, and commercial product liability
insurance coverage. However, this insurance coverage may not be adequate to cover all claims against us. There is also a risk
that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful
assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such
a claim, could adversely affect our product development or product sales and could cause a decline in our product revenues. Even
a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely
affect our product development and could cause a decline in our product revenues. In addition, product liability claims could
result in an FDA or equivalent non-United States regulatory authority investigation of the safety or efficacy of our products,
our manufacturing processes and facilities, or our marketing programs. An FDA or equivalent non-United States regulatory authority
investigation could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the
indications for which they may be used, or suspension or withdrawal of approval.
Risks
Relating to the Offering
The
sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by
Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On
October 20, 2015, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase
up to $10,100,000 of our common stock. Concurrently with the execution of the Purchase Agreement on October 20, 2015, we issued
333,334 shares of our common stock to Lincoln Park for a total purchase price of $100,000 in the Initial Purchase under the Purchase
Agreement and 1,000,000 shares of our common stock to Lincoln Park as a fee for its commitment to purchase additional shares of
our common stock under the Purchase Agreement. Since October 20, 2015 through the date of this prospectus, Lincoln Park has purchased
an aggregate of an additional 3,100,000 shares of our common stock for an aggregate purchase price of $562,726. The additional
purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time
to time over a 36-month period commencing after the SEC has declared effective the registration statement that includes this prospectus.
Other
than with respect to the Initial Purchase by Lincoln Park under the Purchase Agreement, the purchase price for the shares that
we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending on market
liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We
generally have the right to control the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to
the terms of our agreements with Lincoln Park, we would be unable to sell shares to Lincoln Park if and when the closing sale
price of our common stock is below $0.10 per share, subject to adjustment as set forth in the Purchase Agreement. Additional sales
of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. As such,
other than the Initial Purchase, Lincoln Park may ultimately purchase all, some or none of the shares of our common stock that
may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those
shares. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common
stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such
sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales.
As
an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.
We
qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely
on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required
to:
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have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial
statements (i.e., an auditor discussion and analysis);
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submit
certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”;
and
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disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the chief executive officer’s compensation to median employee compensation.
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In
addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,
an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that
is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter
or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Until
such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
Trading
on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for
our stockholders to resell their shares
.
Our
common stock is quoted on the OTCQB tier of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized
by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the
trading of securities listed on a quotation system like NASDAQ or a stock exchange like the New York Stock Exchange. These factors
may result in investors having difficulty reselling any shares of our common stock.
Market
volatility may affect our stock price, and the value of an investment in our common stock may be subject to sudden decreases
.
The
trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock
trades depends on a number of factors, including the following, many of which are beyond our control:
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the
relative success of our commercialization efforts for ProscaVax;
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our
ability to integrate Vitel Laboratorios into our company and successfully market its products in Mexico, Central and South
America
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pre-clinical
and clinical trial results and other product development activities;
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our
historical and anticipated operating results, including fluctuations in our financial and operating results or failure to
meet revenue guidance;
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changes
in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors’ businesses;
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announcements
of technological innovations or new commercial products by us or our competitors;
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developments
concerning our key personnel;
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our
ability to protect our intellectual property, including in the face of changing laws;
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announcements
regarding significant collaborations or strategic alliances;
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publicity
regarding actual or potential performance of products under development by us or our competitors;
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market
perception of the prospects for biotechnology companies as an industry sector; and
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general
market and economic conditions.
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During
periods of extreme stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner
not necessarily related to their individual operating performance. Furthermore, historically our common stock has experienced
greater price volatility than the stock market as a whole.
Our
stock price is likely to be highly volatile because of several factors, including a limited public float.
The
market price of our common stock has been volatile in the past and is likely to be highly volatile in the future because there
has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact
on our stock price. You may not be able to resell shares of our common stock following periods of volatility because of the market’s
adverse reaction to volatility.
Other
factors that could cause such volatility may include, among other things:
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actual
or anticipated fluctuations in our operating results;
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the
absence of securities analysts covering us and distributing research and recommendations about us;
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we
may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
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overall
stock market fluctuations;
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announcements
concerning our business or those of our competitors;
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actual
or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
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conditions
or trends in the industry;
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litigation;
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changes
in market valuations of other similar companies;
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future
sales of common stock;
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departure
of key personnel or failure to hire key personnel; and
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general
market conditions.
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Any
of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market
in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to
the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold from time to time by Lincoln Park. We will receive
no proceeds from the sale of shares of common stock by Lincoln Park in this offering. However, we may receive gross proceeds of
up to $10,100,000 under the Purchase Agreement. We estimate that the net proceeds to us from the sale of our common stock to Lincoln
Park pursuant to the Purchase Agreement will be up to $10,000,000 over an approximately 36-month period, assuming that we sell
the full amount of our common stock that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase
Agreement and other estimated fees and expenses. See “Plan of Distribution” and “Selling Stockholders”
elsewhere in this prospectus for more information.
We
expect to use any proceeds that we receive under the Purchase Agreement for general operations and the Phase 2 clinical trial
and the development and commercialization of specialty drugs in Mexico and other Latin American countries following our March
10, 2017 acquisition of Vitel Laboratorios.
PLAN
OF DISTRIBUTION
The
common stock offered by this prospectus is being offered by the selling stockholder, Lincoln Park. The common stock may be sold
or distributed from time to time by the selling stockholder directly to one or more purchasers or through brokers, dealers, or
underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered by this prospectus
could be effected in one or more of the following methods:
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Ordinary
brokers’ transactions,
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Transactions
involving cross or block trades,
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Through
brokers, dealers, or underwriters who may act solely as agents,
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“At
the market” into an existing market for the common stock,
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In
other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected
through agents,
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In
privately negotiated transactions, or
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Any
combination of the foregoing.
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In
order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for
sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
Lincoln
Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
Lincoln
Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock
that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing
or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the
meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that each such broker-dealer will receive commissions
from Lincoln Park that will not exceed customary brokerage commissions. In compliance with the guidelines of the Financial Industry
Regulatory Authority, Inc., or FINRA, the maximum consideration or discount to be received by any FINRA member or independent
broker dealer may not exceed 8% of the aggregate amount of the securities offered pursuant to this prospectus.
Brokers,
dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form
of commissions, discounts, or concessions from the selling stockholder and/or purchasers of the common stock for whom the broker-dealers
may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions.
Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent will receive.
We
know of no existing arrangements between Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating
to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus
supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation
from the selling stockholder, and any other required information.
We
will pay the expenses incident to the registration, offering, and sale of the shares to Lincoln Park. We have agreed to indemnify
Lincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common stock offered
hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required
to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act
that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus or, if
such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln
Park has represented to us that at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or
affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in
Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction, which establishes a net short
position with respect to our common stock. Lincoln Park agreed that during the term of the Purchase Agreement, it, its agents,
representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We
have advised Lincoln Park that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions,
Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates
in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which
is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases
made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing
may affect the marketability of the securities offered by this prospectus.
Our
common stock is quoted on the OTCQB under the symbol “OBMP.”
DIVIDEND
POLICY
We
have not paid any cash dividends on our common stock and do not currently anticipate paying cash dividends in the foreseeable
future. The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to
pay dividends or make other distributions on our capital stock. Payment of future dividends on our common stock, if any, will
be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements
and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We
intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.
As
of the date of this prospectus, we had 1,000,000 shares of Series A preferred stock and 7,892,000 shares of Series B preferred
stock issued and outstanding. Holders of Series A preferred stock and Series B preferred Stock are entitled to receive, share
for share with the holders of shares of common stock, such dividends if, as and when declared from time to time by the board of
directors.
DESCRIPTION
OF BUSINESS
Business
Overview
We
are a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary
vaccine technology that is designed to stimulate the immune system to attack its own cancer while not hurting the patient. We
are also developing and commercializing specialty drugs in Mexico and other Latin American countries following our March 10, 2017
acquisition of Vitel Laboratorios discussed below.
Strategy
We
seek to create a portfolio of product candidates that may be developed as therapeutics for our own proprietary programs or for
development by potential collaborative partners. We recognize that the product development process is subject to both high costs
and a high risk of failure. We believe that identifying a variety of product candidates and working in conjunction with other
pharmaceutical partners may minimize the risk of failure, fill the product pipeline gap at major pharmaceutical companies, and
ultimately increase the likelihood of advancing clinical development and potential commercialization of the product candidates.
The
key elements to our business and scientific strategy are to:
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develop
and commercialize ProscaVax as well as the other technologies that come from our vaccine platform in the United States, Mexico
and Latin America as cancer treatments where we believe a company our size can successfully compete;
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Develop
and commercialize a diverse portfolio of licensed and acquired drugs that address a focused brand of therapeutic indications
or that represent significant market opportunities;
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Develop
and commercialize drugs globally through joint ventures;
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Develop
and commercialize our targeted therapies globally;
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Develop
our drug candidates by establishing strategic collaborations with pharmaceutical and biotechnology companies to further develop
and market our product candidates; and
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Establish
infrastructure and capabilities to support the future commercialization of our products. Our management team has extensive
experience developing and/or commercializing pharmaceutical products and as our product candidates advance, we intend to add
the appropriate additional regulatory and commercial expertise to maximize the potential for successful product launches and
franchise management. In certain instances, we will seek partners to maximize the commercial potential of our product candidates,
develop drug candidates and establish strategic collaborations with pharmaceutical and biotechnology companies to further
develop and market our product candidates.
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OncBioMune
ProscaVax
Update.
Our lead product, ProscaVax™ is scheduled to commence a Phase 2 clinical study in 2017. Since the beginning
of 2016, we have experienced the following significant business events.
Company
has developed a mouse model to test a whole cell mouse mammary cancer vaccine. Laboratory research conducted by OncBioMune demonstrated
that when mice are vaccinated either subcutaneously or intraperitoneally with a series of whole cell preparations of mouse mammary
carcinoma cells combined with granulocyte-macrophage colony-stimulating factor (GM-CSF) and Interleukin-2 (IL-2) and then transplanted
with the same tumor cells, the growth of the cancerous tumor is significantly inhibited. Also, the adjuvants alone (GM-CSF and
IL-2) either injected subcutaneously or intraperitoneally do not inhibit growth of the tumor.
This
preclinical finding further supports the efficacy of the Company’s proprietary therapeutic cancer vaccine platform. OncBioMune’s
prostate cancer vaccine, ProscaVax, which is built upon the same platform, is currently being evaluated in a Phase 1 clinical
trial in PSA recurrent prostate cancer in both hormone-naïve and hormone-independent patients in the United States. A Phase
2/3 clinical trial of prostate cancer patients with biochemical progression is expected to commence in Mexico during the current
quarter, followed by a Phase 2 clinical trial of prostate cancer patients in active surveillance in the United States.
Dr.
Jonathan Head, our Chief Executive Officer noted that development of this mouse model will allow future studies to investigate
the possible use of allogeneic mammary cell lines in a whole cell vaccine with IL-2 and GM-CSF as adjuvants. This early research
is important in our efforts to expand into additional indications for our platform. Our intent is to continue studies of our technology
that we believe could lead to an off-the-shelf breast cancer therapeutic vaccine and possible preventative vaccine for high-risk
breast cancer patients.
The
latest information from the Phase 1 clinical trial evaluating our novel cancer vaccine, ProscaVax, in PSA (Prostate Specific Antigen)
recurrent prostate cancer in both hormone-naïve and hormone-independent patients. The trial is being hosted at the University
of California San Diego Moores Cancer Center and Veterans Hospital in La Jolla, California under the U.S. Food and Drug Administration’s
Investigational New Drug (IND) program with funding from the U.S. Navy Cancer Vaccine Program.
To
date, 18 patients have been enrolled in the Phase 1a trial. A strong safety profile has been established for ProscaVax. No serious
adverse events (all adverse events due to vaccine are Grade 1 with no Grade 2, 3 or 4 due to vaccine) have been reported in the
trial, further validating prior research in hundreds of patients showing minimal toxicity of the Company’s vaccine technology.
Additional
preliminary data from the trial shows ProscaVax to provide a meaningful clinical benefit to prostate cancer patients. These data
include:
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15
of 20 patients in the Phase 1a portion of the trial have received at least one vaccine injection and 14 patients have received
all 6 vaccines
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None
of the 15 patients who have had at least one vaccine have had a dose limiting adverse event (DLAE)
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None
of the 14 patients who have received all 6 vaccines in the Phase 1a have had a DLAE
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11
of 13 patients (85%) at 31 weeks post first vaccine have had an increased immune response to PSA as determined with a LBA
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9
of 14 patients (64%) have had an increase in their PSA doubling time (slowed progression)
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Four
of the 14 patients who have received all 6 vaccines have experienced disease progression (one radiological, three PSA)
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The
trial was originally designed as a Phase 1a/1b study with 20 patients to be enrolled in the Phase 1a portion and 28 in the Phase
1b. As previously disclosed, based upon encouraging preliminary data, we are foregoing the Phase 1b portion of the trial and advancing
into a larger Phase 2/3 trial of ProscaVax that was initiated through a Joint Venture with Vitel Laboratorios in Mexico. The Phase
2/3 Trial in Mexico will be similar in design to the UCSD/VA Trial in La Jolla and will evaluate ProscaVax in PSA recurrent prostate
cancer in hormone-naïve and hormone-independent patients. This trial is scheduled to begin in the second quarter of 2017
Separately,
we are working to initiate a Phase 2 trial of ProscaVax in early-stage prostate cancer patients in the “active surveillance”
stage of disease at Harvard’s Beth Israel Deaconess Medical Center with additional patients from Harvard-affiliated Hospitals
and Research Institutes.
We
now have more data from the Phase 1 trial with a median follow up of 30 months, showing that ProscaVax has provided a safe, significant
benefit to these late-stage prostate cancer patients with respect to increased immune response to PSA and increased PSA doubling
time. Given that there is ample data demonstrating the safety of ProscaVax with additional data supporting its therapeutic benefit,
we are moving into Phase 2 and 2/3 trials, where we believe that enrollment will progress at a quicker pace. As often happens,
a Phase 1 trial moves a little more slowly than expected, but the data is very compelling and leaves us excited about moving forward
with mid-stage studies.
Clinical
Trials.
Progress continues as 18 patients are now currently enrolled in the Phase 1a trial, 15 of whom have received at least
one vaccine, 14 of whom have received all mandated vaccines. None of the patients that have received the vaccine on any level
have experienced a dose limiting adverse event.
Based
on the positive preliminary data, we have commenced with a significantly larger Phase 2/3 trial of ProscaVax that was initiated
by our subsidiary Oncbiomune México in conjunction with our joint venture with Vitel Laboratorios S.A. de C.V. in Mexico.
We acquired Vitel Laboratorios in the first quarter of 2017.
Additionally,
our contract research organization partner, Theradex Oncology, is currently reviewing the protocol for its trial of ProscaVax
in early-stage prostate cancer patients in the “active surveillance” stage of disease to be initiated at Harvard-affiliated
Hospitals and Research Institutes.
With
a strong safety profile now established for ProscaVax with no serious adverse events reported, we believe we have further validated
prior research in hundreds of patients showing minimal toxicity of our vaccine technology. We believe that the additional clinical
trials will further support the previously reported efficacy of ProscaVax in both early and late stage prostate cancer.
Vitel
Operations
On
March 10, 2017, we completed the acquisition of Vitel Laboratorios (the “Vitel Acquisition”). The Vitel Acquisition
is expected to transform OncBioMune into a revenue-generating international pharmaceutical company with a more diverse product
line with a particularly deep reach throughout Mexico, Central and Latin America, and relationships across Europe and Asia. The
Vitel Acquisition includes the acquisition of two drugs it licenses and sells in Mexico, Bekunis® for constipation and Cirkused®
for stress. Approved for sale in the fourth quarter of 2016, the two over-the-counter products have generated significant sales
that have exceeded Vitel’s early projections. Vitel has a total of seven other products that are either already in the registration
stage or planned for launch later in 2017.
By
acquiring Vitel, we indirectly acquired Vitel’s 50% ownership interest in Oncbiomune México, an entity in which we
acquired a 50% interest when we jointly launched this company with Vitel in August 2016. Oncbiomune Mexico was launched for the
purposes of developing and commercializing our PROSCAVAX vaccine technology and cancer technologies in México, Central
and Latin America (“MALA”) for the treatment of prostate, ovarian and various other types of cancer and includes a
portfolio of owned products and licenses with OncBioMune.
Vitel
has license agreements covering the Mexican market with Roha Arnzemittel, GmbH (“Roha”) for Bekunis® (for constipation)
and Cirkused® (for stress), as well as licensing rights to the remainder of Roha’s pipeline at Vitel’s discretion.
Vitel
also has Mexican territorial rights through licensing agreements with; Kamada for KamRab® (for rabies), KamRho® (an Rh
immunization) and Glassia® (for Anti-D deficiency); Aqvida for Imatinib (for cancer), and other oncology products; QPharma
for Androferti (a male fertility drug) and is currently developing two innovative orphan drugs through their own research and
development.
For
Mexico, Central and Latin America, Vitel has relationships that are expected to forge development and commercialization of several
products, including, Gem Pharmaceuticals for GPX-150 (for sarcoma); EOC Pharma for Telatinib (for first line oral gastric cancer
treatment); and Rational Vaccines for the first and only herpes Vaccine technology for the treatment of HSV-2 and HSV-1.
In
addition to its product pipeline and relationships, Vitel’s network channel partners cover a wide range of drug development
and marketing. A sampling of relationships includes, CID Information Systems (marketing intelligence), Grupo Nichos (pharmaceutical
salesforce, demand generation), CeroGrados (pharmaceutical warehousing, and old chain), CRO’s authorized by the Federal
Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico and Regulatory Affairs parties that are authorized
by the COFEPRIS for dossier build up and pre-inspection.
In
addition to the assets we acquired through the Vitel Acquisition, 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. We anticipate that the trial will expand the results that we found in
our Phase 1 clinical trial in a different patient population. 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.
Intellectual
Property
As
a matter of regular course, we have obtained, and intend to actively seek to obtain, when appropriate, protection for our current
and prospective products and proprietary technology by means of United States and foreign patents, trademarks, and applications
for each of the foregoing. In addition, we rely upon trade secrets and contractual agreements to protect certain of our proprietary
technology and products. ProscaVax is a novel biologic, and it is difficult to predict how competition could develop and accordingly
which aspects of our related intellectual property may prove the most significant in the future. We currently have a patent application
relating to protein therapeutic cancer vaccines and a provisional patent application relating to taxane- and taxoid-protein compositions.
Both United States patent applications expire in 2031. In addition, we had a patent that expired in 2014 relating to vaccination
of cancer patients using tumor-associated antigens mixed with interleukin-2 and granulocyte-macrophage colony stimulating factor.
Patent
expiration dates may be subject to patent term extension depending on certain factors. In addition, following expiration of a
basic product patent or loss of patent protection resulting from a legal challenge, it may be possible to continue to obtain commercial
benefits from other characteristics such as clinical trial data, product manufacturing trade secrets, uses for products, and special
formulations of the product or delivery mechanisms.
We
intend to continue using our scientific experience to pursue and patent new developments to enhance our position in the cancer
field. Patents, if issued, may be challenged, invalidated, declared unenforceable, circumvented or may not cover all applications
we desire. Thus, any patent that we own or license from third parties may not provide adequate protection against competitors.
Our pending patent applications, those we may file in the future, or those we may license from third parties may not result in
issued patents. Also, patents may not provide us with adequate proprietary protection or advantages against competitors with,
or who could develop, similar or competing technologies, or who could design around our patents. In addition, future legislation
may impact our competitive position in the event brand-name and follow-on biologics do not receive adequate patent protection.
From time to time, we have received invitations to license third-party patents.
We
also rely on trade secrets and know-how that we seek to protect, in part, by using confidentiality agreements. Our policy is to
require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed
or made known to the individual during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies
that receive our confidential data. For employees, consultants and contractors, we require agreements providing that all inventions
conceived while rendering services to us shall be assigned to us as our exclusive property.
Competition
The
biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a
strong emphasis on proprietary products. Pharmaceutical and biotechnology companies, academic institutions and other research
organizations are actively engaged in the discovery, research and development of products designed to address prostate cancer
and other indications. There are products currently under development by other companies and organizations that could compete
with ProscaVax or other products that we are developing. Products such as chemotherapeutics, androgen metabolism or androgen receptor
antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are
also under development by a number of companies and could potentially compete with ProscaVax and our other product candidates.
In addition, many universities and private and public research institutes may in the future become active in cancer research,
which may be in direct competition with us. Docetaxel (also referred to by its brand name Taxotere) was approved by the FDA for
the therapeutic treatment of metastatic, androgen-independent prostate cancer in 2004 and JEVTANA® (cabazitaxel) was approved
in 2010 for use in men as a second line therapy following progression after initial treatment with docetaxel.
In
2011, ZYTIGA® (abiraterone acetate) was approved for use in men with prostate cancer with progression following treatment
with a chemotherapeutic regime. In 2012, ZYTIGA was approved, in combination with prednisone, to treat men with metastatic castrate-resistant
prostate cancer prior to receiving chemotherapy, and Xtandi (Enzalutamide), an androgen receptor inhibitor, was approved to treat
men with metastatic castrate-resistant prostate cancer who previously received docetaxel chemotherapy. In 2013, Xofigo (radium
RA 223 dichloride) injection was approved for the treatment of patients with castration-resistant prostate cancer (CRPC), symptomatic
bone metastases and no known visceral metastatic disease. Other therapies such as Bavarian Nordic’s PROSTVAC® are the
subject of ongoing clinical trials in men with metastatic castrate-resistant prostate cancer. PROSTVAC®, currently in Phase
3 clinical development, is a therapeutic cancer vaccine being studied in men with asymptomatic or minimally symptomatic metastatic
castrate-resistant prostate cancer.
Our
competitors include major pharmaceutical companies. These companies may have significantly greater financial resources and expertise
in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and
marketing. In addition, smaller competitors may collaborate with these large established companies to obtain access to their resources.
Our
ability to successfully commercialize ProscaVax and our other potential products, and compete effectively with third parties will
depend, in large part, on:
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perception of physicians and other healthcare professionals of the safety, efficacy and relative benefits of ProscaVax or
our other products compared to those of competing products or therapies;
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the
effectiveness of our sales and marketing efforts in appropriately targeting a resonant clinical message to both oncologists
and urologists;
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the
willingness of physicians to adopt a new treatment regimen consisting of infusion of an immunotherapy;
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reimbursement
policies for ProscaVax or our other product candidates, if developed and approved;
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the
price of ProscaVax and that of other products we may develop and commercialize relative to competing products;
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our
ability to manufacture ProscaVax and other products we may develop on a cost-effective commercial scale;
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our
ability to accurately forecast demand for ProscaVax, and our product candidates if regulatory approvals are achieved; and
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our
ability to advance our other product candidates through clinical trials and through the FDA approval process and those of
non-United States regulatory authorities.
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Competition
among approved marketed products will be based upon, among other things, efficacy, reliability, product safety, price-value analysis,
and patent position. Our competitiveness will also depend on our ability to advance our product candidates, license additional
technology, maintain a proprietary position in our technologies and products, obtain required government and other approvals on
a timely basis, attract and retain key personnel and enter into corporate relationships that enable us and our collaborators to
develop effective products that can be manufactured cost-effectively and marketed successfully.
Regulatory
General
Government
authorities in the United States and other countries extensively regulate, among other things, the preclinical and clinical testing,
manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of biologic products.
In the United States, the FDA subjects pharmaceutical and biologic products to rigorous review under the Federal Food, Drug, and
Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.
FDA
Approval Process
To
obtain approval of our product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy
as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive
laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications
for review by the FDA, are costly in time and effort, and may require significant capital investment. We may encounter significant
difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may
develop.
A
company typically conducts human clinical trials in three sequential phases, but the phases may overlap. Phase 1 trials consist
of testing of the product in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase
1 trials in cancer are often conducted with patients who are not healthy and who have end-stage or metastatic cancer. Phase 2
trials, in addition to safety, evaluate the efficacy of the product in a patient population somewhat larger than Phase 1 trials.
Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically
dispersed test sites. Prior to commencement of each clinical trial, a company must submit to the FDA a clinical plan, or “protocol,”
which must also be approved by the Institutional Review Boards at the institutions participating in the trials. The trials must
be conducted in accordance with the FDA’s good clinical practices. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time.
To
obtain marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together
with, and among other things, detailed information on the manufacture and composition of the product, in the form of a new drug
application or, in the case of a biologic such as ProscaVax, a biologics license application.
We
are also subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether
or not FDA approval has been obtained, approval of conduct of a clinical trial or authorization of a product by the comparable
regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in
those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than
that required for FDA approval based on local regulations. In the E.U., Canada and Australia, regulatory requirements and approval
processes are similar, in principle, requiring a rigorous assessment of the data to ensure a product has satisfactorily demonstrated
an acceptable benefit/risk profile prior to regulatory approval for marketing.
Fast
Track Designation/Priority Review
Congress
enacted the Food and Drug Administration Modernization Act of 1997 (the “Modernization Act”) in part to ensure the
availability of safe and effective drugs, biologics and medical devices by expediting the development and review for certain new
products. The Modernization Act establishes a statutory program for the review of Fast Track products, including biologics. A
Fast Track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet medical needs for this condition. Under the Fast Track program, the sponsor of
a new drug or biologic may request that the FDA designate the drug or biologic as a Fast Track product at any time during the
development of the product, prior to a new drug application submission.
Post-Marketing
Obligations
The
Food and Drug Administration Amendments Act of 2007 expanded FDA authority over drug products after approval. All approved drug
products are subject to continuing regulation by the FDA, including record-keeping requirements, reporting of adverse experiences
with the product, sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing
or labeling changes, complying with certain electronic records and signature requirements, submitting periodic reports to the
FDA, maintaining and providing updated safety and efficacy information to the FDA, and complying with FDA promotion and advertising
requirements. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or
regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action, criminal prosecution,
or civil penalties.
The
FDA may require post-marketing studies or clinical trials to develop additional information regarding the safety of a product.
These studies or trials may involve continued testing of a product and development of data, including clinical data, about the
product’s effects in various populations and any side effects associated with long-term use. The FDA may require post-marketing
studies or trials to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may
require periodic status reports if new safety information develops. Failure to conduct these studies in a timely manner may result
in substantial civil fines.
Drug
and biologics manufacturers and their subcontractors are required to register their establishments with the FDA and certain state
agencies, and to list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United States
and abroad in order to assure compliance with the applicable cGMP regulations and other requirements. Facilities also are subject
to inspections by other federal, foreign, state or local agencies. In complying with the cGMP regulations, manufacturers must
continue to assure that the product meets applicable specifications, regulations and other post-marketing requirements. We must
ensure that third-party manufacturers continue to ensure full compliance with all applicable regulations and requirements. Failure
to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing
or recall or seizure of product.
Also,
newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the
addition of new warnings and contraindications, additional preclinical or clinical studies, or even in some instances, revocation
or withdrawal of the approval. Violations of regulatory requirements at any stage, including after approval, may result in various
adverse consequences, including the FDA’s withdrawal of an approved product from the market, other voluntary or FDA-initiated
action that could delay or restrict further marketing, and the imposition of civil fines and criminal penalties against the manufacturer
and Biologics License Applications (“BLA”) holder. In addition, discovery of previously unknown problems may result
in restrictions on the product, manufacturer or BLA holder, including withdrawal of the product from the market. Furthermore,
new government requirements may be established that could delay or prevent regulatory approval of our products under development,
or affect the conditions under which approved products are marketed.
We
are also subject to a variety of regulations governing post-marketing obligations for our product in the European Union. As part
of the approval process governed by European regulations, a company may be required to complete post marketing commitments as
a condition of approval to assess additional information regarding the safety of a product. The EMA may require post-marketing
studies to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may require periodic
status reports if new safety information develops. Failure to complete post-marketing requirements in a timely manner may result
in substantial fines including the risk to continued marketing in the European Union.
Biosimilars
The
Biologics Price Competition and Innovation Act (“BPCIA”) was passed on March 23, 2010 as Title VII to the Patient
Protection and Affordable Care Act. The law provides for an abbreviated approval pathway for biological products that demonstrate
biosimilarity to a previously-approved biological product. The BPCIA provides 12 years of exclusivity for innovator biological
products. The BPCIA may be applied to our product in the future and could be applied to allow approval of biosimilars to our products.
Federal
Anti-Kickback, False Claims Laws & The Federal Physician Payment Sunshine Act
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws are relevant
to certain marketing practices in the pharmaceutical industry. These laws include anti-kickback statutes, false claims statutes,
and the federal Physician Payment Sunshine Act. The federal healthcare program anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange
for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good or service
for which payment may be made under federal health care programs such as the Medicare and Medicaid programs. For example, this
statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers
and formulary managers on the other. Violations of the federal anti-kickback statute are punishable by imprisonment, criminal
fines, civil monetary penalties and exclusion from participation in federal healthcare programs. The federal Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 and subsequent legislation (collectively,
“PPACA”), among other things, amends the intent requirement of the federal anti-kickback statute. A person or entity
no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, PPACA provides that the
government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute
constitutes a false or fraudulent claim for purposes of the false claims statutes. There are a number of statutory exceptions
and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the
exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may
be subject to scrutiny.
Federal
false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent
claim for payment, or knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim.
For example, several pharmaceutical and other healthcare companies have faced enforcement actions under these laws for allegedly
inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid
reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill
federal programs for the product. In addition, anti-kickback statute violations and certain marketing practices, including off-label
promotion, may also implicate false claims laws. Federal false claims laws violations may result in imprisonment, criminal fines,
civil monetary damages and penalties and exclusion from participation in federal healthcare programs. The majority of states also
have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services
reimbursed under Medicaid and other state programs. A number of states have anti-kickback laws that apply regardless of the payer.
In
addition, the federal Physician Payment Sunshine Act will require extensive tracking of physician and teaching hospital payments,
maintenance of a payments database, and public reporting of the payment data. The Centers for Medicare & Medicaid Services
(“CMS”) recently issued a final rule implementing the Physician Payment Sunshine Act provisions and clarified the
scope of the reporting obligations, requiring manufacturers to begin tracking on August 1, 2013 and reporting payment data to
CMS by March 31, 2014. Failure to comply with the reporting obligations may result in civil monetary penalties.
State
Laws
Marketing
Restrictions and Disclosure Requirements.
A number of states, such as Minnesota, Massachusetts and Vermont, have requirements
that restrict pharmaceutical marketing activities. These state requirements limit the types of interactions we may have with healthcare
providers licensed in these jurisdictions. In addition, a number of states have laws that require pharmaceutical companies to
track and report payments, gifts and other benefits provided to physicians and other health care professionals and entities. Still
other state laws mandate implementation of specific compliance policies to regulate interactions with health care professionals.
State
Fraud and Abuse Laws.
Several states have enacted state law equivalents of federal laws, such as anti-kickback and false claims
laws. These state laws may apply to items or services reimbursed under Medicaid and other state programs or, in several states,
apply regardless of the payer.
State
Price Reporting Requirements.
Some states, including Texas, New Mexico and Vermont, have enacted state price disclosure requirements
that may apply to any drug sold in the state, subject to specific state requirements.
Healthcare
Reform.
Certain states, such as Massachusetts, are pursuing their own programs for health reform. These programs may include
cost containment measures that could affect state healthcare benefits, particularly for higher priced drugs. Under PPACA, states
will have authority to define packages of “essential health benefits” that health plans in the individual and small
group markets must offer beginning in 2014. The definition of these packages could affect coverage of our products by those plans.
Sale
of Pharmaceutical Products.
Many states have enacted their own laws and statutes applicable to the sale of pharmaceutical
products within the state, with which we must comply. We are also subject to certain state privacy and data protection laws and
regulations.
Coverage
and Reimbursement by Third-Party Payers
Our
sale of ProscaVax is dependent on the availability and extent of coverage and reimbursement from third-party payers, including
government healthcare programs and private insurance plans.
Medicare
Part B Coverage and Reimbursement of Drugs and Biologicals
In
the United States, the Medicare program is administered by CMS. Coverage and reimbursement for products and services under Medicare
are determined in accordance with the Social Security Act and pursuant to regulations promulgated by CMS, as well as the agency’s
subregulatory coverage and reimbursement determinations. Medicare Part B provides limited coverage of outpatient drugs and biologicals
that are furnished “incident to” a physician’s services. Generally, “incident to” drugs and biologicals
are covered only if they satisfy certain criteria, including that they are of the type that is not usually self-administered by
the patient and they are reasonable and necessary for a medically accepted diagnosis or treatment.
Medicare
Part B pays providers under a payment methodology using average sales price (“ASP”) information. Manufacturers are
required to provide ASP information to CMS on a quarterly basis. If a manufacturer is found to have made a misrepresentation in
the reporting of ASP, the statute provides for civil monetary penalties of up to $10,000 for each misrepresentation for each day
in which the misrepresentation was applied. This information is used to compute Medicare payment rates, updated quarterly based
on this ASP information. The Medicare Part B payment methodology for physicians is ASP plus six percent and can change only through
legislation. There is a mechanism for comparison of ASP for a product to the widely available market price and the Medicaid Average
Manufacturer Price for the product, which could cause further decreases in Medicare payment rates, although this mechanism has
yet to be utilized. The statute establishes the payment rate for new drugs and biologicals administered in hospital outpatient
departments that are granted “pass-through status” at the rate applicable in physicians’ offices (i.e., ASP
plus six percent) for two to three years after FDA approval. CMS establishes the payment rates for drugs and biologicals that
do not have pass-through status by regulation.
The
methodology under which CMS establishes reimbursement rates is subject to change, particularly because of budgetary pressures
facing the Medicare program and the federal government. Beginning April 1, 2013, Medicare payments for all items and services,
including drugs and biologicals, will be reduced by up to 2% under the sequestration required by the Budget Control Act of 2011,
Pub. L. No. 112-25 (“BCA”), as amended by the American Taxpayer Relief Act of 2012, Pub. L. 112-240 (“ATRA”),
unless Congress acts to prevent the cuts. The Medicare Modernization Act of 2003 made changes in reimbursement methodology that
reduced the Medicare reimbursement rates for many drugs, including oncology therapeutics. In the past year, Congress has considered
additional reductions in Medicare reimbursement for drugs as part of legislation to reduce the budget deficit. Similar legislation
could be enacted in the future. The Medicare regulations and interpretive determinations that determine how drugs and services
are covered and reimbursed also are subject to change.
Pharmaceutical
Pricing and Reimbursement Under Medicaid and Other Programs
In
many of the markets in which we may do business in the future, the prices of pharmaceutical products are subject to direct price
controls (by law) and to drug reimbursement programs with varying price control mechanisms.
We
expect that ProscaVax will be made available to patients that are eligible for Medicaid benefits. A condition of federal funds
being made available to cover our products under Medicaid and Medicare Part B is our participation in the Medicaid drug rebate
program, established by the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508, and as amended by subsequent legislation,
including PPACA. Under the Medicaid drug rebate program, we will pay a rebate to each state Medicaid program for each unit of
ProscaVax paid for by those programs. The rebate amount varies by quarter, and is based on pricing data reported by us on a monthly
and quarterly basis to CMS. These data include the monthly and quarterly average manufacturer price (“AMP”) for our
drugs, and in the case of innovator products like ProscaVax, the quarterly best price (the “QBP”), which is our lowest
price in a quarter to any commercial or non-governmental customer. If we become aware that our reported prices for prior quarters
are incorrect or should be changed to reflect late-arriving pricing data, we would be obligated to submit the corrected data for
a period not to exceed 12 quarters from the quarter in which the data originally were due. Any corrections to our pricing data
could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction.
The
availability of federal funds under Medicaid and Medicare Part B to pay for any products that are approved for marketing also
is conditioned on our participation in the Public Health Service 340B drug pricing program. The 340B drug pricing program requires
participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price”
for the manufacturer’s covered outpatient drugs. These covered entities include hospitals that serve a disproportionate
share of low-income patients, as well as a variety of community health clinics and other recipients of health services grant funding.
PPACA expanded the 340B program to include certain free standing cancer hospitals, critical access hospitals, rural referral centers
and sole community hospitals, each as defined by the Act. The 340B ceiling price for a drug is calculated using a statutory formula
that is based on the AMP and Medicaid rebate amount for the drug. Any revisions to previously reported Medicaid pricing data also
may require revisions to the 340B ceiling prices that were based on those data and could require the issuance of refunds.
If
we make ProscaVax available for purchase by authorized users of the Federal Supply Schedule (“FSS”) of the General
Services Administration pursuant to an FSS contract with the Department of Veterans Affairs (“VA”), the Veterans Health
Care Act of 1992 (“VHCA”), would require us to offer deeply discounted FSS contract pricing to four federal agencies
commonly referred to as the “Big Four” — the VA, the Department of Defense (“DoD”), the Coast Guard
and the Public Health Service (including the Indian Health Service) — for federal funding to be made available for reimbursement
of any of our products under the Medicaid program, Medicare Part B and for our products to be eligible to be purchased by those
four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the
federal ceiling price (“FCP”). The FCP is based on a weighted average wholesaler price known as the non-federal average
manufacturer price (“Non-FAMP”). We are required to report Non-FAMP to the VA on a quarterly and annual basis. If
we misstate Non-FAMP or FCP, we must restate these figures. In addition, if we are found to have knowingly submitted false information
to the government, the VHCA provides for civil monetary penalties of $100,000 per item of false information in addition to other
penalties the government may impose.
The
FSS contract is a federal procurement contract that includes standard government terms and conditions and extensive disclosure
and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract
price reductions under certain circumstances where pricing is reduced to an agreed “tracking customer.” Further, in
addition to the “Big Four” agencies, all other federal agencies and some non-federal entities are authorized to access
FSS contracts. If we overcharge the government in connection with our FSS contract, whether due to a misstated FCP or otherwise,
we would be required to refund the difference to the government.
Data
Privacy
Numerous
federal and state laws, including state security breach notification laws, state health information privacy laws and federal and
state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have,
or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers
who prescribe our product and from whom we obtain patient health information are subject to privacy and security requirements
under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). We are not a HIPAA covered entity,
and we do not operate as a business associate to any covered entities. Therefore, these privacy and security requirements do not
apply to us. However, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information
from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA.
We are unable to predict whether our actions could be subject to prosecution in the event of an impermissible disclosure of health
information to us. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has
been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including
recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us
or increase our cost of doing business.
Mexico
In
Mexico where we conduct clinical trials and sell our products, we are subject to the laws and regulatory authorities of the Federal
Commission for the Protection from Sanitary Risks (“COFEPRIS”).
European
Regulatory Authorities for Reimbursement
In
the European Union, national governments influence the price of pharmaceutical products through their pricing and reimbursement
rules and control of national healthcare systems that fund a large part of the cost of such products to consumers. The approach
taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products
may be marketed only once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for
medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription
drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical Excellence in the United Kingdom, which evaluates the data supporting
new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports
from low-priced markets (parallel imports) exert commercial pressure on pricing within a country.
Environmental
and Safety Laws
We
are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous
materials, including chemicals and radioactive and biological materials. Our operations produce such hazardous waste products.
Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed
by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.
We generally contract with third parties for the disposal of such substances, and store our low level radioactive waste at our
facilities until the materials are no longer considered radioactive. We are also subject to various laws and regulations governing
laboratory practices and the experimental use of animals.
We
are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental
Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations.
OSHA and/or the EPA may promulgate regulations that may affect our research and development programs.
Employees
As
of March 30, 2017, we had 5 full time employees. None of our employees are represented by a union.
Our
Corporate History and Recent Developments
Historical
Businesses
From
2010 until 2013, we engaged in the pharmaceutical business. During 2013, we decided to divest the balance of our 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.
Amended
and Restated Articles of Incorporation
On
August 12, 2015, we amended and restated our articles of incorporation to, among other things:
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change
our corporate name from Quint Media, Inc. to OncBioMune Pharmaceuticals, Inc.,
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increase
our authorized shares to 520,000,000, of which 500,000,000 shares are common stock, with a par value of $0.0001 per share,
and 20,000,000 shares are preferred stock, with a par value of $0.0001 per share, and
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effect
a reverse stock split, which became effective on August 27, 2015 (“Reverse Stock Split”), of our outstanding common
stock pursuant to which every 139.23 issued and outstanding shares of our common stock was reclassified and converted into
one share of common stock. No cash was paid or distributed as a result of the Reverse Stock Split, and no fractional shares
were issued. All fractional shares which would otherwise have been required to be issued as a result of the Reverse Stock
Split were rounded up to a whole share.
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On
August 20, 2015, we filed a Certificate of Designation with the Nevada Secretary of State, designating 1,000,000 shares of 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 shall not be required (except to the extent they are entitled to vote with holders of common stock as set forth
herein) for taking any corporate action. On August 27, 2015, the Financial Industry Regulatory Authority approved the Reverse
Stock Split and our corporate name change.
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 7,892,000 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law.
The
holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the
Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred
stock have the following voting rights:
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Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
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Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
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Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
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Acquisition
of OncBioMune, Inc.
Effective
as of September 2, 2015, we closed the exchange (the “Exchange”) pursuant to that certain share exchange agreement
dated as of June 22, 2015, as amended, among OncBioMune, the OncBioMune stockholders and us (the “Exchange Agreement”).
On September 2, 2015, pursuant to the terms of the Exchange Agreement, we issued an aggregate of 47,000,000 shares of our common
stock (representing approximately 91.3% of our then-outstanding common stock) and 1,000,000 shares of our Series A preferred stock
(representing 100% of our outstanding Series A preferred shares) in exchange for 47,000,000 shares of OncBioMune’s common
stock. As a result, the OncBioMune stockholders became our stockholders and OncBioMune became our wholly-owned subsidiary.
In
connection with our corporate name change to OncBioMune Pharmaceuticals, Inc., the trading symbol for our common stock was changed
from “QUNI” to “OBMP.” Also, effective as of September 2, 2015, we changed our fiscal year end from February
28 to December 31.
Shareholders
Agreement with Vitel Laboratorios, S.A. de C.V.
On
August 19, 2016, we entered into a Shareholders Agreement (the “Shareholders Agreement”) with Vitel Laboratorios related
to their ownership of Oncbiomune México. Oncbiomune Mexico was launched for the purposes of developing and commercializing
our PROSCAVAX vaccine technology and cancer technologies in México, Central and Latin America (“MALA”) for
the treatment of prostate, ovarian and various other types of cancer. Vitel Laboratorios is an unrelated third party. Oncbiomune
Mexico is authorized to issue 10,000 shares of Common Stock, of which 5,000 shares have been subscribed for and issued to us and
5,000 shares have been subscribed for and issued to Vitel Laboratorios.
Under
the terms of the Shareholders Agreement, we have agreed to assign to Oncbiomune Mexico and its affiliates limited patent and intellectual
property rights and trademarks related to our OVCAVAX, PROSCAVAX vaccine technology and cancer technologies and future developments
related to these technologies. These rights will permit Oncbiomune Mexico to use and develop these technologies in MALA.
Oncbiomune
Mexico will be managed by a four person board of directors that includes Jonathan F. Head, Ph. D. who will be Chairman of the
Board of Directors, Manuel Cosme Odabachian, Andrew (Al) Kucharchuk, and Carlos F. Alaman Volnie. Under the terms of the Shareholder
Agreement, Dr. Head and Mr. Kucharchuk were appointed by us and Messrs. Odabachian and Alaman-Volnie were appointed by Vitel Laboratorios.
This
Agreement became effective as of August 19, 2016 and, except as otherwise set forth herein, will continue in effect thereafter
until terminated upon the mutual consent of all of the Parties hereto.
Acquisition
of Vitel Laboratorios
On
March 10, 2017, we completed the acquisition of 100% of the issued and outstanding capital stock of Vitel Laboratorios from its
shareholders Manuel Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”) on
March 10, 2017 (the “Closing Date”) pursuant to the terms and conditions of a Contribution Agreement to the Property
of Trust F/2868 entered into among we and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”).
Pursuant to the terms of the Contribution Agreement we issued 61,158,013 shares of our unregistered common stock, par value $0.0001
per share (the “Common Stock”) and 5,000,000 shares of Series B preferred stock (the “Series B Preferred”)
to Banco Actinver, S.A., in its capacity as Trustee (the “Trustee”) of the Irrevocable Management Trust Agreement
Trust No. 2868 (the “Trust Agreement”) for the benefit of the Vitel Stockholders in exchange for 100% of the issued
and outstanding capital stock of Vitel Laboratorios (the “Vitel Shares”). The Common Stock and Series B Preferred
will be held by Trustee for the benefit of the Vitel Stockholders as provided for in the Trust Agreement and 98% of the Vitel
Shares will be held by the Trustee for the benefit of our company as provided for in the Trust Agreement and 2% of the Vitel Shares
will be transferred to OBMP. Vitel Laboratorios became a wholly owned subsidiary of our company as of the Closing Date. In addition,
we agreed to issue 2,892,000 shares of Series B Preferred to Jonathan F. Head, Ph. D, our Chief Executive Officer and a member
of the Board of Directors of our company as provided for in the Contribution Agreement.
To
induce the Vitel Stockholders to enter into the Contribution Agreement and as a condition to close the transactions set forth
in that agreement, we, the Vitel Stockholders, Dr. Head and Andrew A. Kucharchuk, our President, Chief Financial Officer and a
Director also entered into the following agreements as of the Closing Date or perform the following actions (i) a Stockholder’s
Agreement among we, Dr. Head, Mr. Kucharchuk, Mr. Cosme and Mr. Alaman dated as of the Closing Date (the “Stockholders’
Agreement”); (ii) the Trust Agreement; (iii) we, Vitel Laboratorios and the Vitel Stockholders entered into employment agreements
with Messrs. Cosme and Alaman; (iv) we and Dr. Head and Mr. Kucharchuk entered into amendments to their respective employment
agreements with, and stock option awards to, Dr. Head and Mr. Kucharchuk; (v) we, Dr. Head, Mr. Kucharchuk and the Vitel Stockholders
agreed to consent to an amendment to our Articles of Incorporation and bylaws substantially in the form of the documents attached
to the Stockholders’ Agreement as Exhibit E; (vi) to elect Mr. Cosme, Mr. Alaman, Dr. Head and Mr. Kucharchuk as directors
of Vitel Laboratorios and such directors to elect Mr. Cosme, Mr. Alaman, Dr. Head and Mr. Kucharchuk as officers of Vitel Laboratorios;
and Vitel Asesores, S.C. agreed to change its name to a name not containing the word “Vitel”.
In
addition, Mr. Cosme and Mr. Alaman agreed to forgive all stockholder loans and related party debt to Vitel Laboratorios and its
shareholders and their Affiliates; Vitel Laboratorios will have an amount of working capital of $10,000.00 (ten thousand Dollars
00/100) as of the Closing Date; each of Vitel Laboratorios and OBMP shall have a total indebtedness in their balance sheet as
of the date hereof in an amount of no greater than $450,000.00 (four hundred and fifty thousand Dollars 00/100) as set forth in
the schedules of assets and liabilities of Vitel Laboratorios and the financial statements of OBMP, attached as Schedule 3.1(k)
and Schedule 3.2(l), respectively to the Contribution Agreement; and Vitel Asesores, S.C. transferred all intellectual property
in its name to Vitel.
The
Stockholders Agreement
The
following is a summary of Stockholders Agreement.
Establishment
of Trust; Trust Contribution
. Mr. Cosme, Mr. Alaman and our company agreed to establish a trust pursuant to the Trust Agreement
described below. Mr. Cosme and Mr. Alaman each contributed, assigned and transferred to us ownership of, and title over, one share
of the capital stock of Vitel Laboratorios (the “Vitel Shares”) and Mr. Cosme and Mr. Alaman contributed, assigned
and transferred to the Trustee (as defined in the Trust Agreement”) ownership of, and title over, the remaining 98 Vitel
Shares for the benefit of our company pursuant to the terms and conditions of the Trust Agreement. The Company shall contribute,
assign and transfer to the Trustee ownership of, and title over, 61,258,013 newly-issued shares of Common Stock and 2,107,681
newly-issued shares of Series B Preferred Stock with 100 votes per share (collectively, the “OBM Shares”), for the
benefit of Mr. Cosme and Mr. Alaman pursuant to the terms and conditions of the Trust Agreement. Each of Mr. Cosme and Mr. Alaman
understands and agrees that the OBM Shares held by the Trust have not been and will not be registered under the Securities Act
of 1933, as amended, (“Securities Act”) and are restricted securities under the Securities Act and the rules and regulations
promulgated thereunder and are subject to the restrictions on transfer contained in Article 4 of the Shareholders’ Agreement.
Corporate
Rights
. The corporate rights resulting from the Vitel Shares contributed to the Trust will be exercised by the Trustee pursuant
to the written instructions it receives from we. For such purposes, and pursuant to the bylaws of Vitel Laboratorios, we shall
have the authority to instruct the Trustee regarding exercising any corporate rights it may be entitled to in its capacity as
the majority Vitel Laboratorios shareholder.
Composition
of the Board of Directors
. The Stockholders’ Agreement permits the Vitel Stockholders to appoint one member to the Board
of Directors, one designated by Dr. Head and Mr. Kucharchuk (the “Management Designee”), and two (2) independent directors
shall be designated jointly by Dr. Head and Mr. Kucharchuk (the “Management Stockholders”) on the one hand, and the
Vitel Stockholders, on the other, and the Management Stockholders or the Management Designee and the Vitel Stockholders or the
Vitel Designee shall jointly appoint, as soon as practicable, an independent fifth member of the Board of Directors. Mr. Cosme
shall be the initial designee of the Vitel Stockholders to the Board of Directors (the “Vitel Designee”), Dr. Head
shall be the initial designee of the Management Stockholders (the “Management Designee”), and Charles L. Rice, Jr.
and Daniel S. Hoverman shall be the initial independent designees jointly appointed by the Management Stockholders and the Vitel
Stockholders (hereinafter all members of the Board of Directors which are not the Vitel Designee or the Management Designee, the
“Independent Designees”).
Board
of Directors Resolutions
. The Stockholders’ Agreement requires the Board of Directors to adopt any and all resolutions
with a vote from a majority of its members, provided that for any “Major Decision” as defined in the Stockholders’
Agreement, either the Vitel Designee or the Management Designee shall vote in favor of adopting the corresponding resolution.
In the event of a deadlock amongst the members of the Vitel Board of Directors, the Board of Directors shall cast the deciding
vote to resolve the deadlock amongst the board members of Vitel Laboratorios with a vote from a majority of its members.
Charter
or Bylaw Provisions
. Each stockholder of our company who is a party to the Stockholders’ Agreement (each, a “Stockholder”)
agrees to vote all of its Company Securities (as defined in the Shareholders Agreement) that are entitled to vote or execute proxies
or written consents, as the case may be, and to take all other actions necessary, to ensure that our Articles of Incorporation
and Bylaws (a) facilitate, and do not at any time conflict with, any provision of the Stockholders’ Agreement and (b) permit
each Stockholder to receive the benefits to which each such Stockholder is entitled under the Stockholders’ Agreement. In
addition, on the date of the Stockholders’ Agreement, the Vitel Stockholders and Management Stockholders agreed to sign,
or direct the Trustee to sign, the written consents necessary to amend our Articles of Incorporation and Bylaws, substantially
in the form of the documents attached to the Stockholders’ Agreement as Exhibit E.
Restrictions
on Transfer
. Generally, the Stockholders may note at any time, except as discussed below, transfer their respective Company
Securities (x) to any of their Affiliates, their spouse, children, grandchildren, parents, sisters, brothers, nieces, nephews
or any other relative within the second degree of kindred or a trust or other entity under a Stockholder’s control (the
“Permitted Transferees”), or (y) with the prior consent of the other Stockholders which are also a party hereto, or
(z) as otherwise permitted under the Stockholders’ Agreement (each, a “Permitted Transfer”), in the understanding
that (1) each Management Stockholder will be considered a Permitted Transferee with respect to each other and each Vitel Stockholder
will be considered a Permitted Transferee with respect to each other, (2) transfers by the Stockholders that are a party hereto
resulting from their death shall be considered a Permitted Transfer, and (3) any Stockholder that is a party hereto may act individually
in regards to the rights provided for in the Stockholders’ Agreement.
Right
of First Refusal
. In the event a Stockholder that is a party to the Stockholders’ Agreement wishes to transfer its Company
Securities (other than a transfer which is part of an acquisition or strategic transaction approved by the directors of our company
as a Major Decision), the other non-transferring Stockholders that are also a party to the Stockholders’ Agreement shall
have the irrevocable right of first refusal to purchase that shares of the selling shareholder.
Right
of Co-Sale (Tag Along).
In the event that any stockholder who is a party to the Stockholders’ Agreement or group of
such stockholders intends to accept an offer (either solicited or unsolicited) from any third party to acquire or otherwise transfer
Company Securities (as defined in the Stockholders’ Agreement), representing at least 20% (twenty per cent) of the outstanding
Company Securities, on a fully diluted basis, the selling stockholder shall give an offer notice in writing to the other stockholders
of our company who are a party to the Stockholders’ Agreement, with a copy to us, containing the terms and conditions of
such offer received from the interested third party. Each such stockholder shall have the right to participate in such offer by
selling the pro rata proportion of its Company Securities pursuant to such offer to acquire or otherwise Transfer Company Securities
(as defined in the Stockholders’ Agreement).
Drag
Along
. In the event a stockholder who is a party to the Stockholders’ Agreement or group of such stockholders representing
at least 32% (thirty two per cent) of the outstanding Company Securities, on a fully diluted basis, intends to accept an offer
from any third party to acquire or otherwise Transfer Company Securities, representing at least 50% (fifty per cent) of the outstanding
Company Securities, on a fully diluted basis, and the transaction is approved by the Board of Directors as a Major Decision, then
each such stockholder shall be obligated to sell its Company Securities pursuant to the offer to purchase. In case the drag along
provision included herein is enforced, all the stockholders participating in such sale shall receive the same terms and conditions
of sale based on their respective holdings of Company Securities and shall otherwise be treated equally based on such ownership
interest.
Termination
.
The Stockholders’ Agreement terminates upon the earlier of the following: (i) three (3) years as of the Closing Date; (ii)
in connection with any Shareholder, whenever such Shareholder directly or indirectly owns less than 5% (five per cent) of the
fully diluted shares of our company; or (iii) upon the consummation of a Liquidation Event (as defined in the Stockholders’
Agreement).
The
Trust Agreement
Establishment
of Trust; Trust Contribution
. Effective as of March 10, 2017, Mr. Cosme, Mr. Alaman and our company entered into the Irrevocable
Management Trust Agreement Number F/2868 between Mr. Cosme, Mr. Alaman (collectively, “Beneficiary A”), we (“Beneficiary
B”) and the Trustee (the “Trust Agreement”) for the purpose of establishing a trust to hold the OBM Shares and
98 shares of Vitel Laboratorios’s capital stock which were transferred to Trustee pursuant to the Trust Agreement, in addition
to other property the beneficiaries may elect to contribute to the trust. Beneficiary A and Beneficiary B are collectively referred
to as the “Beneficiaries”.
Authorities
of the Trustee.
The Trustee shall have all authorities and powers of attorney required to comply with the Trust Purposes,
pursuant to the terms of Article 391 of the Mexican General Law of Negotiable Instruments and Credit Transactions (Ley General
de Títulos y Operaciones de Crédito), as amended, or supplemented from time to time (the “LGTOC”); provided
that the Trustee shall act at all times pursuant to the instructions of the Beneficiaries.
Property
Rights - Vitel Shares
. The property rights resulting from the Vitel Shares contributed to the Trust Property (as defined in
the Trust Agreement) shall be exercised by the Trustee exclusively for the benefit, and in terms of, the written instructions
it receives from Beneficiary B. Beneficiary B shall receive the amounts corresponding to dividends, equity reimbursements, or
for any other concept that Vitel Laboratorios distributes to its shareholders (the “Vitel Distributions”).
Property
Rights - OBM Shares
. The property rights resulting from the OBM Shares contributed to the Trust Property shall be exercised
by the Trustee exclusively for the benefit, and in terms of, the written instructions it receives from Beneficiary A. Beneficiary
A shall receive the amounts corresponding to dividends, equity reimbursements, or for any other concept that OBM distributes to
its shareholders (the “OBM Distributions”).
Corporate
Rights - Vitel Shares
. The corporate rights resulting from the Vitel Shares shall be exercised by the Trustee pursuant to
the written instructions it receives from Beneficiary B. For such purposes, and pursuant to the bylaws of Vitel Laboratorios,
Beneficiary B shall have the authority to instruct the Trustee regarding exercising any corporate rights it may be entitled to
in its capacity as the majority Vitel Laboratorios shareholder, including, but not limited to, calling shareholder meetings, voting
the Vitel Shares pursuant to the instructions given by Beneficiary B, executing unanimous written consents in lieu of a meeting,
adopting resolutions agreeing to pay the Vitel Distributions and, in general, resolve any and all matters associated with Vitel
Laboratorios, and exercising any other right it may be entitled to in its capacity as the majority Vitel Laboratorios shareholder,
pursuant to the provisions of this Agreement, the Vitel Laboratorios bylaws, and Applicable Law.
Corporate
Rights - OBM Shares
. The corporate rights resulting from the OBM Shares shall be exercised by the Trustee pursuant to the
written instructions it receives from Beneficiary A. For such purposes, and pursuant to the bylaws of OBM, Beneficiary A shall
have the authority to instruct the Trustee regarding exercising any corporate rights it may be entitled to in its capacity as
an OBM shareholder, including, but not limited to, calling special shareholder meetings, voting the OBM Shares pursuant to the
instructions given by the Beneficiary A, executing unanimous written consents in lieu of a meeting, adopting resolutions agreeing
to pay the OBM Distributions and, in general, resolve any and all matters associated with OBM, and exercising any other right
it may be entitled to in its capacity as an OBM shareholder, pursuant to the provisions of this Agreement, the OBM bylaws, the
Shareholders Agreement, United States of America Securities Law and applicable law.
Transfer
of Beneficiary Rights
. Transfer of the rights of the Beneficiaries are restricted in certain circumstances as provided for
in Clause IV of the Trust Agreement (other than certain Permitted Transfers), including a right for first refusal if all of our
securities are deregistered with the Securities and Exchange Commission.
Tax
Obligations
. The Beneficiaries shall pay, as applicable, and without limitation, all taxes of any kind, contributions, and
other tax liabilities that may be payable, imposed, or assessed in connection with executing the Trust Agreement, and the distributions
received pursuant hereto (jointly, “Taxes”), and the Trustee shall not be liable in connection with the foregoing.
Termination
.
The Trust Agreement shall remain in full force and effect until the terms and conditions applicable to the Trust Property have
been complied and performed in their entirety, and until this has been confirmed in writing, jointly by the Beneficiaries, except
that this Trust may be terminated when: (a) ownership of and title over the Trust Property are transferred pursuant to the Trust
Purposes; or (b) any of the circumstances set forth in article 392 (three hundred ninety-two) of the LGTOC (except for the provisions
of section VI (six) of such article 392 (three hundred ninety-two)) occurs.
In
the event that the Beneficiaries jointly instruct it in writing and it is permitted by the Shareholders Agreement, the Trustee
shall return ownership of and title over the Trust Property to the respective Beneficiaries, and these shall be required to receive
it. The parties agree to execute any documents required to comply with the terms of this Clause, including those that the Trustee
requires.
Maximum
Term
. The initial term of the Trust Agreement will be 5 (five) years counted from its execution, and upon its expiration such
term will subsequently be automatically extended for 1 (one) additional 2 (two) year term, unless the Beneficiaries jointly give
notice in writing to the Trustee of their desire to terminate the present Agreement within 90 (ninety) calendar days in advance
of the corresponding expiration date, in the understanding that this Agreement may not exceed in any event the term set forth
in subsection III of article 394 of the LGTOC.
Legal
Proceedings
We
are not a party to any pending or threatened litigation.
MARKET
PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is quoted on the OTCQB, operated by the OTC Markets Group. Our symbol is “OBMP.”
The
following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the
last two fiscal years as quoted on the OTCQB. We obtained the following high and low bid information from the OTCQB. These over-the-counter
market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
As of August 27, 2015, we affected a 1-for-139.23 reverse stock split. All prices in the following table reflect post-reverse
split prices.
Fiscal
Year Ended December 31, 2016
Fiscal
Quarter Ended
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High
|
|
|
Low
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
September
30, 2016
|
|
$
|
0.33
|
|
|
$
|
0.15
|
|
June
30, 2016
|
|
$
|
0.90
|
|
|
$
|
0.10
|
|
March
31, 2016
|
|
$
|
5.25
|
|
|
$
|
0.86
|
|
Fiscal
Year Ended December 31, 2015
Fiscal
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
$
|
6.00
|
|
|
$
|
5.75
|
|
September
30, 2015
|
|
$
|
1.68
|
|
|
$
|
1.68
|
|
June
30, 2015
|
|
$
|
1.39
|
|
|
$
|
0.85
|
|
March
31, 2015
|
|
$
|
2.08
|
|
|
$
|
2.08
|
|
On
April 25, 2017, the closing price of our common stock on the OTCQB was $0.2052 per share.
Holders
of Common Stock
As
of April 27, 2017, there were approximately 175 record holders of our common stock. The number of record holders does not include
beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Recent
Sales of Unregistered Securities
During
the three months ended December 31, 2016, we issued 207,334 shares of the Company’s unregistered common stock for $0.15
per share to investors for cash proceeds of $31,100 pursuant to securities purchase agreements we entered into with the purchasers.
The common stock was issued in reliance upon the exemption provided by Section 4(a)(2) under the Securities Act of 1933, as amended.
Securities
Authorized for Issuance under Equity Compensation Plans
Effective
February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option
plan is to enhance the long-term stockholder value of our company by offering opportunities to directors, key employees, officers,
independent contractors and consultants of our company to acquire and maintain stock ownership in our company in order to give
these persons the opportunity to participate in our company’s growth and success, and to encourage them to remain in the
service of our company. A total of 43,094 shares of our common stock are available for issuance and during the 12 month period
after the first anniversary of the adoption of the 2011 stock option plan by our board of directors, and during each 12 month
period thereafter, our board of directors is authorized to increase the number of shares issuable by up to 10,744 shares.
The
following table summarizes certain information regarding our equity compensation plan as of December 31, 2016.
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
-
|
|
|
N/A
|
|
|
-
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
N/A
|
|
|
43,094
|
|
Total
|
|
|
-
|
|
|
N/A
|
|
|
43,094
|
|
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and the notes to those financial statements that are included elsewhere in this prospectus. Our discussion
includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this prospectus. We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions to identify forward-looking
statements.
Overview
We
are a clinical-stage biopharmaceutical company engaged in the development of novel cancer immunotherapy products, with a proprietary
vaccine technology that is designed to stimulate the immune system to attack its own cancer while not hurting the patient. We
are also developing and commercializing specialty drugs in Mexico and other Latin American countries following our March 10, 2017
acquisition of Vitel Laboratorios discussed below.
We
seek to create a portfolio of product candidates that may be developed as therapeutics for our own proprietary programs or for
development by potential collaborative partners. We recognize that the product development process is subject to both high costs
and a high risk of failure. We believe that identifying a variety of product candidates and working in conjunction with other
pharmaceutical partners may minimize the risk of failure, fill the product pipeline gap at major pharmaceutical companies, and
ultimately increase the likelihood of advancing clinical development and potential commercialization of the product candidates.
Our
lead product, ProscaVax™ is scheduled to commence a Phase 2 clinical study in 2017 following our Phase 1 clinical trials
in 2016 and into 2017.
On
March 10, 2017, we completed the acquisition of Vitel Laboratorios (the “Vitel Acquisition”). The Vitel Acquisition
is expected to transform OncBioMune into a revenue-generating international pharmaceutical company with a more diverse product
line with a particularly deep reach throughout Mexico, Central and Latin America, and relationships across Europe and Asia. The
Vitel Acquisition includes the acquisition of two drugs it licenses and sells in Mexico, Bekunis® for constipation and Cirkused®
for stress. Approved for sale in the fourth quarter of 2016, the two over-the-counter products have generated significant sales
that have exceeded Vitel’s early projections. Vitel has a total of seven other products that are either already in the registration
stage or planned for launch later in 2017.
By
acquiring Vitel, we indirectly acquired Vitel’s 50% ownership interest in Oncbiomune México, an entity in which we
acquired a 50% interest when we jointly launched this company. Oncbiomune Mexico was launched for the purposes of developing and
commercializing our PROSCAVAX vaccine technology and cancer technologies in México, Central and Latin America (“MALA”)
for the treatment of prostate, ovarian and various other types of cancer and includes a portfolio of owned products and licenses
with OncBioMune.
Vitel
has license agreements covering the Mexican market with Roha Arnzemittel, GmbH (“Roha”) for Bekunis® (for constipation)
and Cirkused® (for stress), as well as licensing rights to the remainder of Roha’s pipeline at Vitel’s discretion.
Vitel
also has Mexican territorial rights through licensing agreements with; Kamada for KamRab® (for rabies), KamRho® (an Rh
immunization) and Glassia® (for Anti-D deficiency); Aqvida for Imatinib (for cancer), and other oncology products; QPharma
for Androferti (a male fertility drug) and is currently developing two innovative orphan drugs through their own research and
development
For
Mexico, Central and Latin America, Vitel has relationships that are expected to forge development and commercialization of several
products, including, Gem Pharmaceuticals for GPX-150 (for sarcoma); EOC Pharma for Telatinib (for first line oral gastric cancer
treatment); and Rational Vaccines for the first and only herpes Vaccine technology for the treatment of HSV-2 and HSV-1.
In
addition to its product pipeline and relationships, Vitel’s network channel partners cover a wide range of drug development
and marketing. A sampling of relationships includes, CID Information Systems (marketing intelligence), Grupo Nichos (pharmaceutical
salesforce, demand generation), CeroGrados (pharmaceutical warehousing, and old chain), CRO’s authorized by the Federal
Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico and Regulatory Affairs parties that are authorized
by the COFEPRIS for dossier build up and pre-inspection.
In
addition to the assets we acquired through the Vitel Acquisition, 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. We anticipate that the trial will expand the results that we found in
our Phase 1 clinical trial in a different patient population. 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
Twelve
Months Ended December 31, 2016 Compared to Twelve Months Ended December 31, 2015
The
following comparative analysis on results of operations was based primarily on the comparative audited financial statements, footnotes
and related information for the periods identified below and should be read in conjunction with the financial statements and the
notes to those statements that are included elsewhere in this prospectus.
Revenues
During
the years ended December 31, 2016 and 2015, we did not generate revenues.
Operating
Expenses
For
the year ended December 31, 2016, operating expenses amounted to $1,804,045 as compared to $807,645 for the year ended December
31, 2015, an increase of $996,400 or 123.3%. For the years ended December 31, 2016 and 2015, operating expenses consisted of the
following:
|
|
Year
Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Professional
Fees
|
|
$
|
817,014
|
|
|
$
|
213,838
|
|
Compensation
|
|
|
678,436
|
|
|
|
326,274
|
|
Research
and development expense
|
|
|
94,383
|
|
|
|
85,323
|
|
General
and administrative expenses
|
|
|
214,212
|
|
|
|
182,210
|
|
Total
|
|
$
|
1,804,045
|
|
|
$
|
807,645
|
|
|
●
|
For
the year ended December 31, 2016, professional fees increased by $603,176 or 282.1%, as compared to the year ended December
31, 2015. The increase was primarily attributable to an increase in investor relations fees of $436,176 related to building
investor awareness and interest in our stock, an increase in legal fees of $161,494, and an increase in accounting fees of
$5,854.
|
|
|
|
|
●
|
For
the year ended December 31, 2016, compensation expense increased by $352,162 or 107.9%, as compared to the year ended December
31, 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 employment agreement with Dr. Head provides that Dr. Head’s
salary for calendar year 2016 shall be $275,000. 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
employment agreement with Mr. Kucharchuk provides that Mr. Kucharchuk’s salary for calendar year 2016 shall be $200,000.
This represents a significant change over the 2015 period.
|
|
|
|
|
●
|
For
the year ended December 31, 2016, research and development expense increased by $9,060 or 10.6%, as compared to the year ended
December 31, 2015 related to a slight increase in research activities.
|
|
|
|
|
●
|
For
the year ended December 31, 2016, general and administrative expenses increased by $32,002 or 17.6%, as compared to the year
ended December 31, 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 year ended December 31, 2016, loss from operations amounted to $1,804,045 as compared to $807,645 for the year ended December
31, 2015, an increase of $996,400 or 123.4%.
Other
Income (Expense)
For
the year ended December 31, 2016, we had net total other expense of $209,587 as compared to net total other expense of $182,751
for the year ended December 31, 2015, an increase of $26,836. This increase was primarily due to the recording of loss from the
change in fair value of derivative liabilities of $146,141 and an increase in interest expense of $105,592 due to an increase
in interest-bearing debt and amortization of debt discount of $94,688 offset by a decrease in debt issuance costs of $205,000.
Net
Loss
For
the year ended December 31, 2016, we had a net loss of $2,013,632 or $(0.03) per common share (basic and diluted) as compared
to a net loss of $990,396 or $(0.02) per common share (basic and diluted) for the year ended December 31, 2015, an increase of
$1,023,236 or 103.3%.
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 a working
capital deficit of $842,637 and no cash as of December 31, 2016 and working capital of $538,279 and $672,769 of cash as of December
31, 2015.
The
following table sets forth a summary of changes in our working capital from December 31, 2015 to December 31, 2016:
|
|
|
|
|
|
|
|
December
31, 2015
to December 31, 2016
|
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
Change
|
|
|
Percentage
Change
|
|
Working
capital (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
$
|
41,309
|
|
|
$
|
709,537
|
|
|
$
|
(668,228
|
)
|
|
|
(94.2
|
)%
|
Total
current liabilities
|
|
|
(883,946
|
)
|
|
|
(171,258
|
)
|
|
|
(712,688
|
)
|
|
|
(416.1
|
)%
|
Working
capital (deficit):
|
|
$
|
(842,637
|
)
|
|
$
|
538,279
|
|
|
$
|
(1,380,916
|
)
|
|
|
(256.5
|
)%
|
The
decrease in working capital was primarily attributable to a decrease in cash of approximately $673,000 and an increase in current
liabilities of approximately $310,633 and an increase in derivative liabilities of $402,000.
Cash
Flows
A
summary of cash flow activities is summarized as follows:
|
|
Year
Ended
December
31, 2016
|
|
|
Year
Ended
December
31, 2015
|
|
Cash
used in operating activities
|
|
$
|
(1,544,003
|
)
|
|
|
(851,841
|
)
|
Cash
used in investing activities
|
|
|
-
|
|
|
|
(6,300
|
)
|
Cash
provided by financing activities
|
|
|
871,234
|
|
|
|
1,430,150
|
|
Net
increase (decrease) in cash
|
|
$
|
(672,769
|
)
|
|
|
572,009
|
|
Net
cash flow used in operating activities was $1,544,003 for the year ended December 31, 2016 as compared to $851,841 for the year
ended December 31, 2015, an increase of $692,162.
|
●
|
Net
cash flow used in operating activities for the year ended December 31, 2016 primarily reflected a net loss of the use of cash
for the payment of professional fees including the payment of investor relations fees of approximately $450,000, the payment
of compensation expense of approximately $589,000 and the payment other general and administrative expenses.
|
|
|
|
|
●
|
Net
cash flow used in operating activities for the year ended December 31, 2015 primarily reflected a net loss of $990,396 and
the add-back of non-cash items consisting of depreciation and amortization of $274, stock-based compensation of $18,000, and
stock-based offering costs of $205,000, and changes in operating assets and liabilities primarily consisting of an increase
in due from related parties of $17,800, an increase in prepaid and other current assets of $18,968, an increase in security
deposit of $6,400, a decrease in accounts payable and accrued liabilities of $23,077 and a decrease in payroll liabilities
of $18,474.
|
Net
cash flow used in investing activities was $0 for the year ended December 31, 2016 as compared to $6,300 for the year ended December
31, 2015. During the year ended December 31, 2015, we purchased property and equipment of $10,976 and received cash in connection
with our recapitalization of $4,676.
Net
cash provided by financing activities was $871,234 for the year ended December 31, 2016 as compared to $1,430,150 for the year
ended December 31, 2015. During the year ended December 31, 2016, we received net proceeds from the sale of common stock of $534,428,
received net cash from convertible debt of $390,000, net proceeds from related party advances of $5,000 and received net cash
from bank line of credit of $50,033, offset by the payment of debt issue costs of $69,039. During the year ended December 31,
2015, we received net proceeds from the sale of common stock of $1,361,523, received cash from convertible debt of $100,000, and
received net cash from bank line of credit of $14,727, offset by net payments to a related party foundation of $(46,100).
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 our accompanying consolidated
financial statements, we had a net loss of $2,013,632 and $990,396 for the years ended December 31, 2016 and 2015, respectively.
The net cash used in operations were $1,544,003 and $851,841 for the years ended December 31, 2016 and 2015, respectively. Additionally,
we had an accumulated deficit of $3,142,851 and $1,129,219, at December 31, 2016 and 2015, respectively, had a stockholders’
deficit of $826,633 at December 31, 2016, had a working capital deficit of $842,637 at December 31, 2016, and had no revenues
for the years ended December 31, 2016 and 2015. Management believes that these matters raise substantial doubt about our ability
to continue as a going concern for twelve months from the issuance date of this report. On March 10, 2017, we completed the acquisition
of 100% of the issued and outstanding capital stock of Vitel. 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, 2017. 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 it 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. The consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should we be unable to continue as a going concern.
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% and 5.20% at December 31, 2016 and 2015, respectively). 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 December 31, 2016
and 2015, we had $99,741 and $49,708, respectively, in borrowings outstanding under the Revolving Note with $259 and $50,292,
respectively, available for borrowing under such note. The weighted average interest rate during the years ended December 31,
2016 and 2015 was approximately 5.20% and 4.95%, respectively.
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 Securities and Exchange Commission (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 100,000 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
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 expect 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 2016, we received net proceeds of $191,850
and a subscription receivable of $11,190 which was collected in January 2017 under the Purchase Agreement.
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
November 23, 2016 (the “Original Issue Date”) the Company entered into and closed on the transaction set forth in
the Amended and Restated Securities Purchase Agreement (the “Securities Purchase Agreement”) it entered into with
three institutional investors (the “Purchasers”) for the sale of the Company’s convertible notes and warrants.
Pursuant to the terms provided for in the Securities Purchase Agreement, the Company issued upon closing to the Purchasers for
an aggregate subscription amount of $350,000: (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “Notes”);
and (ii) warrants (the “Warrants”) to purchase 2,333,334 shares of the Company’s common stock, par value $0.0001
per share (the “Common Stock”) at an exercise price of $0.175 (subject to adjustments under certain conditions as
defined in the Warrants). The closing under the Securities Purchase Agreement occurred on November 23, 2016.
The
Notes
. The aggregate principal amount of the Notes is $350,000 and the Company will receive $300,000 after giving effect
to the original issue discount of $50,000. The Notes bear interest at a rate equal to 10% per annum (which interest rate is increased
to 24% per annum upon the occurrence of an Event of Default (as defined in the Notes)), have a maturity date of July 23, 2017
and are convertible (principal, and interest) at any time after the issuance date of the Notes into shares of the Company’s
Common Stock at a conversion price equal to $0.15 per share (subject to adjustment as provided in the Note),
provided
,
however
, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains
ongoing, the Note shall be convertible at 60% of the lowest closing price during the prior twenty trading days of the Common Stock
as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The Notes provide for
two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment
being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the
payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the eight-month amortization
payments are made in cash then the payment is an amount equal to 125% of the applicable amortization payment. The Notes may be
prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal
balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following
the Original Issue Date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest during months
four through six following the Original Issue Date. In order to prepay the Notes, the Company shall provide 20 Trading Days prior
written notice to the Holder, during which time the Holder may convert the Notes in whole or in part at the Conversion Price.
The
Notes contain certain covenants, such as restrictions on the incurrence of indebtedness, creation of liens, payment of restricted
payments, redemptions, payment of cash dividends and the transfer of assets. The Notes also contains certain adjustment provisions
that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. The
conversion price is subject to adjustment if we issue or sell shares of our common stock for a consideration per share less than
the conversion price then in effect, or issue options, warrants or other securities convertible or exchange for shares of our
common stock at a conversion or exercise price less than the conversion price of the Notes then in effect. If either of these
events should occur, the conversion price is reduced to the lowest price at which these securities were issued or are exercisable.
We granted the Purchasers certain rights of first refusal on future offerings by us for as long as the Purchasers hold the Notes.
In addition, subject to limited exceptions, the Purchasers will not have the right to convert any portion of the Note if the Purchaser,
together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common
Stock outstanding immediately after giving effect to its conversion. The Purchaser may increase or decrease this ownership limitation
to any percentage not exceeding 9.99% upon 61 days prior written notice to us. In addition, we granted the Purchasers certain
rights of first refusal on future offerings by us for as long as the Purchasers hold the Notes.
The
Warrants
. As described above, holders of the Notes received Warrants to purchase up to 2,333,334 shares of Common Stock.
The initial exercise price for the Warrants is $0.175 per share, subject to adjustment as described below, and the Warrants are
exercisable for five years after the issuance date. The Warrants are exercisable for shares of Common Stock upon the payment in
cash of the exercise price and they are also exercisable on a cashless basis at any time there is no effective registration statement
registering the shares of Common Stock underlying the Warrants. The exercise price of the Warrants is subject to adjustment in
the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events
affecting the Common Stock and also upon any distributions of assets, including cash, stock or other property to the Company’s
stockholders. The exercise price of the Warrants is also subject to full ratchet price adjustment if the Company sells or grants
any option to purchase, sell or re-price any Common Stock or Common Stock Equivalents (as defined therein) at an exercise price
lower than the then-current exercise price of the Warrant with the exception for certain exempted issuances and subject to certain
limitations on the reduction of the exercise price as provided in the Warrants. In the event of a fundamental transaction, as
described in the Warrants and generally including any reorganization, recapitalization or reclassification of the Common Stock,
the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets, the Company’s
consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding Common Stock, or any
person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding Common Stock, the holders
of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property
that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction; provided
that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrant for cash
at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrant or difference between the
cash per share paid in the fundamental transaction and the exercise price per share. The holder of Warrants will not have the
right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of
9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Warrants. The foregoing description is qualified in its entirety by
reference to the full text of the form of Warrant.
Ancillary
Agreements
. In connection with the Company’s obligations under the Notes, the Company and its subsidiary, OncBioMune,
Inc. (the “Subsidiaries”) entered into a Security Agreement, Pledge Agreement and Subsidiary Guaranty with Calvary
Fund I LP, as agent, pursuant to which the Company and the Subsidiary granted a lien on all assets of the Company and the Subsidiary
(the “Collateral”) excluding permitted indebtedness which includes a first lien held by Regions Bank in connection
with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the Purchasers,
to secure the Company’s obligations under the Notes. Upon an Event of Default (as defined in the Notes), the Purchasers
may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in
the Collateral or sell, lease or dispose of the Collateral.
Additional
Purchaser Rights and Company Obligations
The
Securities Purchase Agreement includes additional purchaser rights and Company obligations including obligations on the Company
to reimburse the Purchasers $20,000 for legal fees and expenses, satisfy the current public information requirements under SEC
Rule 144(c), obligations on the Company with respect to the use of proceeds from the sale of securities and Purchaser rights to
participate in future Company financings. Reference should be made to the full text of the Securities Purchase Agreement.
Retirement
of Outstanding Note
On
November 25, 2016, we paid $62,000 as payment in full for the Convertible Promissory Note in the original principal amount of
$40,000 issued to Crown Bridge Partners, LLC on May 23, 2016.
Sales
of Common Stock and Warrants Pursuant to Subscription Agreements
In
December 2015, pursuant to stock subscription agreements, we issued 4,221,085 shares of our common stock to investors for cash
proceeds of $1,266,523.
During
the year ended December 31, 2016, pursuant to stock subscription agreements, we issued 102,341 shares of our common stock to investors
for cash proceeds of $51,926.
During
the year ended December 31, 2016, pursuant to unit subscription agreements, we issued 1,937,696 shares of our common stock and
968,844 five-year warrants to purchase common shares for $0.30 per common share to investors for cash proceeds of $279,462 and
a subscription receivable of $11,190 which was collected prior to issuance of this prospectus.
Future
Financings
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 our 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. Specific risks associated with these critical accounting policies
are described in the following paragraphs.
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.
Derivative
liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates
all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires
that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance
sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair
value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative
liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified
to income or expense as part of gain or loss on extinguishment.
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.
DIRECTORS
AND EXECUTIVE OFFICERS
Board
of Directors and Executive Officers
The
following table sets forth the names, positions and ages of our directors and executive officers as of the date of this prospectus.
Name
|
|
Age
|
|
Position
|
Jonathan
F. Head, Ph. D.
|
|
66
|
|
Chief
Executive Officer and Director
|
Andrew
Kucharchuk
|
|
36
|
|
Chief
Financial Officer and President
|
Manuel
Cosme
|
|
36
|
|
Global
Operations General Manager – Vitel Laboratories and Director
|
Carlos
Fernando Alaman Volnie
|
|
37
|
|
Chief
Operating Officer – Vitel Laboratorios
|
Daniel
S. Hoverman
|
|
41
|
|
Director
|
Charles
L. Rice, Jr.
|
|
52
|
|
Director
|
Biographical
information concerning the directors and executive officers listed above is set forth below. The information presented includes
information each individual has given us about all positions they hold and their principal occupation and business experience
for the past five years. In addition to the information presented below regarding each director’s specific experience, qualifications,
attributes and skills that led our board to conclude that he should serve as a director, we also believe that all of our directors
have a reputation for integrity, honesty and adherence to high ethical standards. Each has demonstrated business acumen and an
ability to exercise sound judgment, as well as a commitment of service to our company and our board of directors.
Jonathan
F. Head, Ph. D.
Dr. Head served as OncBioMune’s President and Chief Scientific Officer from 2005 until September 2015,
and has served as our Chief Executive Officer and a member of our board of directors since September 2015. He has also been President
and Director of Research at the Mastology Research Institute of the Elliott-Elliott-Head Breast Cancer Research and Treatment
Center since 1988. Dr. Head is an Adjunct Associate Professor of Biochemistry at Tulane University School of Medicine, an Adjunct
Professor of Physical and Biological Sciences at Delta State University and an Adjunct Associate Professor at Louisiana State
University School of Veterinary Medicine. Previously, he has held positions in the Division of Cell Biology of Naylor Dana Institute
for Disease Prevention of the American Health Foundation in New York, the Department of Immunology at Cornell University Medical
School in New York, and the Department of Pediatrics at Mt. Sinai Medical School in New York. He was also Director/Department
Head of Tumor Cell Biology at the Center for Clinical Sciences, International Clinical Laboratories in Nashville, Tennessee. Dr.
Head’s scientific background and his leadership role at the Elliott-Elliott-Head Breast Cancer Research and Treatment Center
provide him with expertise and qualifications to serve as a member of our board.
Andrew
Kucharchuk.
Mr. Kucharchuk served as OncBioMune’s Chief Financial Officer from 2009 to September 2015, and has served
as our Chief Financial Officer, President and was a member of our board of directors from September 2015 until March 2017. Mr.
Kucharchuk is a graduate of Louisiana State University and Tulane University’s Freeman School of Business, where he earned
an MBA with a Finance Concentration. Mr. Kucharchuk’s dual role as an executive officer and director of our company gives
him unique insights into our day-to-day operations, a practical understanding of the issues and opportunities that face us and
our strategic planning, commercial growth, and strategic transactions, giving him the appropriate and valuable qualifications
to serve as a member of our board.
Manuel
Cosme Odabachian
. Mr. Cosme has been a managing principal of Vitel since he co-founded the company with Mr. Alaman in February
2016. From January 2013 until its sale in January 2016, Mr. Cosme was the managing principal and founder of AVIVIA Pharma S.A.
de C.V., a representative of international licenses in Mexico for Kamada, Cheplapharm, Leo Pharma, Orphan Europe, Recordatti,
Moleac, Biotest and other licenses. In addition, in 2015 AVIVIA developed a sildenafil gel for the treatment of erectile dysfunction
called OsideaGL®. From November 2010 until July 2013, Mr. Cosme was the Country Manager in Mexico for CHIESI Farmaceutici,
S.p.A. where he oversaw operations with increasing sales volumes, multiple product registrations and sanitary registrations in
Mexico and business plan development for new lines of business that included the respiratory line (Innovair®, Rinoclenil®,
Clenil UDV® and other products) and achieved the first Orphan Drug Recognition for the group of products Peyona® Caffeine
Citrate. In March 2007, Mr. Cosme was appointed as the Operations Manager in Mexico for Graceway Mexico (Graceway Pharmaceuticals,
LLC) and ultimately promoted to Country Manager until the company was sold in July 2010. While at Graceway Mexico, Mr. Cosme was
responsible for launching and management of all the hosting, supply, distribution and technical agreements within Mexico including
coordination of regulatory affairs, accounting, finance, legal, human resources, business development, quality and supply and
other areas such as warehousing and fulfill orders to our customers. From 2003 until 2007, Mr. Cosme held a number of positions
within the pharmaceutical sales and distribution business within Mexico. Mr. Cosme was awarded a degree in Industrial Engineering
from the Ibero-American University in Mexico City, Mexico. Mr. Cosme speaks Spanish and English fluently.
The
background information presented above regarding Mr. Cosme’s specific experience, qualifications, attributes and skills
in addition to his reputation for integrity, honesty and adherence to high ethical standards are expected to benefit the Company
as a member of its Board of Directors.
Carlos
Alaman Volnie
. Mr. Alaman has been a managing principal of Vitel since he co-founded the company with Mr. Cosme in February
2016. Before launching Vitel, Mr. Alaman had been engaged in logistics, printing, consumption and pharmaceutical industries. In
January 2011, Mr. Alaman was a founder and CEO at Bodegas Cero Grados, a Toluca, Mexico based provider of pharmaceutical warehousing
and logistics services including refrigerated storage space having the highest Mexican governmental authorization for storing,
distributing and selling type I, II and III drugs. In 2011, Mr. Alaman launched the pharmaceutical division of Bodega Cero Grados
to meet the needs of its customers who sell controlled and over-the-counter pharmaceutical products to both government and private
sector customers. Among the products distributed were Alprazolam, Clonazepam, Diazepam, Risperidona and Topiramato. In 2011, Mr.
Alaman founded a contract research organization that specializes in conducting clinical trial studies and biodisponibility testing
that provides Mexican pharmaceutical regulatory affairs services to transnational laboratories. Clients include Siegfried, Pisa,
Kenner, Medex and Alpex. Mr. Alaman was awarded a degree in Industrial Engineering from the Anahuac University in Mexico City,
Mexico and a Master’s Degree from the University of Texas at Austin. Mr. Alaman speaks Spanish and English fluently.
Daniel
S. Hoverman
. On December 31, 2015, Mr. Hoverman was elected as a member of our board. Mr. Hoverman, age 41, has served as
a Managing Director at Regions Securities, LLC, an affiliate of Regions Bank, since November 2016. At Regions, Mr. Hoverman is
responsible for advising companies on sale, financing and other strategic corporate transactions. Previously, Mr. Hoverman was
a Director and senior member of Houlihan Lokey, Inc.’s Mergers & Acquisitions Group. Before joining Houlihan in 2010,
Mr. Hoverman was a Director with Credit Suisse in Hong Kong in the Office of the General Counsel, and a Director with UBS in New
York in the Equity Capital Markets Group. Mr. Hoverman started his career with Kirkland & Ellis in New York, where he was
a corporate attorney. Mr. Hoverman is a CFA charterholder, and holds a Juris Doctor and Masters in Business Administration from
Columbia University and a Bachelor of Arts from Yale University.
Charles
L. Rice, Jr.
Mr. Rice has served as a member of our board of directors since November 2015. He has been president and chief
executive officer of Entergy New Orleans, Inc., an $800 million a year electric and gas utility, since 2010. After his first legal
private practice position in Louisiana with Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., Mr. Rice joined
Entergy in the legal department in 2000, serving as senior counsel in the Entergy Services, Inc. litigation group and then as
manager of labor relations litigation support in human resources. Mr. Rice was recruited into New Orleans city government in 2002
as the city attorney and later took the critical role of chief administrative officer for the City of New Orleans, where he managed
6,000 employees and the city’s $600 million budget. In 2005, the law firm of Barrasso, Usdin, Kupperman, Freeman & Sarver,
L.L.C. recruited him back to private practice, where he was named partner. Returning to Entergy in 2009, Rice served as director
of utility strategy where he was responsible for coordinating regulatory, legislative, and communications efforts to develop and
execute strategies that advanced commercial objectives for the company’s regulated service areas. He then served as director
of regulatory affairs for Entergy New Orleans.
Mr.
Rice holds a bachelor’s degree in business administration from Howard University, a juris doctorate from Loyola University’s
School of Law and master’s degree in business administration from Tulane University. After graduating from Howard University,
he was commissioned as a second lieutenant in the United States Army and served as a military intelligence officer with the 101st
Airborne Division (Air Assault) at Fort Campbell, Ky. While in the Army, he earned the Airborne Badge, Air Assault badge and was
awarded the Army Commendation and the Army Achievement medals. He is a member of the Alabama and Louisiana State Bar Associations,
the American Bar Association, the New Orleans Bar Association, and the National Bar Association. Mr. Rice’s business, regulatory
and legal experience give him the skills and appropriate qualifications to serve as a member of our board.
There
are no family relationships between any of the executive officers and directors. Each director is elected at our annual meeting
of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified.
Shareholders’
Agreement
Pursuant
to the terms of the Stockholders’ Agreement entered into among us, Dr. Head and Messrs. Kucharchuk, Cosme and Alaman dated
March 10, 2017 as discussed above in Item 1 Business - Our Corporate History and Recent Developments - The Stockholders Agreement,
Messrs. Cosme and Alaman (the “Vitel Shareholders”) are permitted to appoint one member to the Board of Directors,
Dr. Head and Mr. Kucharchuk are permitted to appoint one member to the Board of Directors, two (2) independent directors shall
be designated jointly by Dr. Head and Mr. Kucharchuk (the “Management Stockholders”) on the one hand, and the Vitel
Shareholders, on the other, and the Management Stockholders or the Management Designee and the Vitel Stockholders or the Vitel
Designee shall jointly appoint, as soon as practicable, an independent fifth member of the Board of Directors. Mr. Cosme was appointed
to the Board of Directors as the initial designee of the Vitel Stockholders (the “Vitel Designee”), Dr. Head was appointed
to the Board of Directors as the initial designee of the Management Stockholders (the “Management Designee”), and
Charles L. Rice, Jr. and Daniel S. Hoverman shall be the initial independent designees jointly appointed by the Management Stockholders
and the Vitel Stockholders.
The
Stockholders’ Agreement requires the Board of Directors to adopt any and all resolutions with a vote from a majority of
its members, provided that for any “Major Decision” as defined in the Stockholders’ Agreement, either the Vitel
Designee or the Management Designee shall vote in favor of adopting the corresponding resolution. In the event of a deadlock amongst
the members of the Vitel Board of Directors, the Board of Directors shall cast the deciding vote to resolve the deadlock amongst
the board members of Vitel Laboratorios with a vote from a majority of its members.
Each
stockholder of our company who is a party to the Stockholders’ Agreement (each, a “Stockholder”) agreed to vote
all of their Company Securities (as defined in the Shareholders Agreement) that are entitled to vote or execute proxies or written
consents, as the case may be, and to take all other actions necessary, to ensure that our Articles of Incorporation and Bylaws
(a) facilitate, and do not at any time conflict with, any provision of the Stockholders’ Agreement and (b) permit each Stockholder
to receive the benefits to which each such Stockholder is entitled under the Stockholders’ Agreement. In addition, on the
date of the Stockholders’ Agreement, the Vitel Stockholders and Management Stockholders agreed to sign, or direct the Trustee
to sign, the written consents necessary to amend our Articles of Incorporation and Bylaws, substantially in the form of the documents
attached to the Stockholders’ Agreement as Exhibit E.
Involvement
in Certain Legal Proceedings
Our
directors and executive officers have not been involved in any of the following events during the past 10 years:
|
1.
|
any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
|
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities;
|
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
|
|
|
|
|
5.
|
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law
or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
|
|
6.
|
being
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more
than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities
and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons we believe that during year ended December 31, 2016,
all filing requirements applicable to our executive officers and directors, and persons who own more than 10% of our common stock
were complied with.
Code
of Ethics
We
have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing,
adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.
Corporate
Governance
Term
of Office
Each
director of our company is to serve for a term of one year ending on the date of subsequent annual meeting of stockholders following
the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor
is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each
officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
Committees
of the Board
Our
board of directors held two formal meeting during the year ended December 31, 2016. All other proceedings of our board of directors
were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the
directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors
are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed
at a meeting of our directors duly called and held.
We
currently do not have nominating or compensation committees or committees performing similar functions nor do we have a written
nominating or compensation committee charter. Our board of directors does not believe that it is necessary to have such committees
because it believes that the functions of such committees can be adequately performed by our board of directors.
We
do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors.
We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not
have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted
by management or shareholders, and makes recommendations for election or appointment.
A
shareholder who wishes to communicate with our board of directors may do so by directing a written request to OncBioMune Pharmaceuticals,
Inc. at 11441 Industriplex Blvd., Suite 190, Baton Rouge, LA 70809.
Audit
Committee and Audit Committee Financial Expert
We
do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board
member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K
.
We
believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to
have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of
directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial
expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
Summary
Compensation
The
following table summarizes all compensation earned by Dr. Head, our Chief Executive Officer after the Exchange, Mr. Kucharchuk,
our Chief Financial Officer and President after the Exchange, for their services as OncBioMune executives in the past two fiscal
years.
2016
SUMMARY COMPENSATION TABLE
FOR
OUR NAMED EXECUTIVE OFFICERS
Name
and Principal Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-
Equity Incentive Plan Compensation ($)
|
|
|
Nonqualified
Deferred Compensation Earnings ($)
|
|
|
All
Other Compensation ($) (1)
|
|
|
Total
($)
|
|
Jonathan
F. Head, Ph. D.
|
|
|
2016
|
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
281,000
|
|
Chief
Executive Officer
|
|
|
2015
|
|
|
|
123,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
123,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Kucharchuk,
|
|
|
2016
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
206,000
|
|
Chief
Financial Officer and President
|
|
|
2015
|
|
|
|
127,116
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127,116
|
|
Compensation
of Management
Dr.
Head and Mr. Kucharchuk were appointed as executive officers effective September 2, 2015. A description of their employment agreement
follows:
Dr.
Head and Mr. Kucharchuk are eligible to participate in the registrant’s standard benefit programs for all named executive
officers, which includes, but is not limited to, receipt of medical benefits.
(1)
Consists of auto allowance paid.
Employment
Agreement with Jonathan F. Head, Ph.D.
As
of February 2, 2016, Dr. Head entered into an Employment Agreement with us (“Head Employment Agreement”), to serve
as 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 Head Employment Agreement 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 Head Employment Agreement 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.
Dr.
Head’s employment agreement was amended on March 10, 2017 to extend the term to March 9, 2020 and to provide for 100% vesting
of any unvested portion of any outstanding equity, or equity-based award granted to them by us upon termination of his employment
agreement without cause, as a result of a breach of the agreement by us or upon his death or disability. In addition, the Board
of Directors awarded Dr. Head an option to purchase 2,000,000 shares of our Common Stock at an exercise price of $0.25 per share,
the date of the grant. One-third of the stock options vest on each anniversary date of the award and are exercisable at any time
after vesting until 10 years after the grant date. The stock options vest so long as the optionee remains an employee of our company
or a subsidiary of ours on the vesting dates (except as otherwise provided for in the employment agreement between us and the
optionee as described above).
Employment
Agreement with Andrew Kucharchuk
As
of February 2, 2016, Mr. Kucharchuk entered into an Employment Agreement with us (the “Kucharchuk Employment Agreement”),
to serve as 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 Kucharchuk Employment Agreement 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 Kucharchuk
Employment Agreement 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.
Mr.
Kucharchuk’s employment agreement was amended on March 10, 2017 to extend the term to March 9, 2020 and to provide for 100%
vesting of any unvested portion of any outstanding equity, or equity-based award granted to them by us upon termination of his
employment agreement without cause, as a result of a breach of the agreement by us or upon his death or disability. In addition,
the Board of Directors awarded Mr. Kucharchuk an option to purchase 2,000,000 shares of our Common Stock at an exercise price
of $0.25 per share, the date of the grant. One-third of the stock options vest on each anniversary date of the award and are exercisable
at any time after vesting until 10 years after the grant date. The stock options vest so long as the optionee remains an employee
of our company or a subsidiary of ours on the vesting dates (except as otherwise provided for in the employment agreement between
us and the optionee as described above).
Provisions
Present in Both Employment Agreements
Each
of the Head Employment Agreement and the Kucharchuk Employment Agreement (each is referred to herein as an “Employment Agreement”)
provide as to Dr. Head and Mr. Kucharchuk (each referred to herein as an “Executive”), respectively, that:
(i)
Executive shall be eligible for an annual target bonus payment in an amount equal to ten percent (10%) 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;
(ii)
Executive shall be entitled to receive all benefits and perquisites provided by the Company to senior executives, including paid
vacation time, medical/health insurance, cell phone, business expense reimbursement, use of a company car or car allowance, and
automobile insurance;
(iii)
Executive shall be eligible to participate in any executive stock award/equity incentive plans the Company’s Board of Directors
may adopt;
(iv)
Executive’s employment: (1) shall be terminated automatically upon the death or Disability (as defined in the Employment
Agreement) of Executive; (2) may be terminated for Cause (as defined in the Employment Agreement) at any time by the Company;
(3) may be terminated at any time by the Company without Cause with 30 days’ advance notice to Executive; (4) may be terminated
at any time by Executive with 30 days’ advance notice to the Company, and shall be terminated automatically if Executive
does not accept assumption of the Employment Agreement by, or an offer of employment from, a purchaser of all or substantially
all of the assets of the Company; or (5) may be terminated at any time by Executive if the Company materially breaches the Employment
Agreement with Executive and fails to cure such breach within 30 days of written notice of such breach from Executive, provided
that Executive has given notice of such breach within 90 days after he has knowledge thereof and the Company did not have Cause
to terminate Executive at the time such breach occurred.
(v)
In the event of the death or Disability of Executive during the term of the Employment Agreement, Executive shall not be entitled
to any further compensation or other payments or benefits under the Employment Agreement except for the following: (1) Executive
shall be entitled to any unpaid salary, bonus, or benefits accrued and earned by him up to and including the date of such death
or Disability; and (2) the Company shall continue to pay to Executive (or his estate) Executive’s then effective per annum
rate of salary and provide to Executive (or to his family members covered under his family medical coverage) the same family medical
coverage as provided to Executive on the date of such death or Disability for a period equal to the lesser of (i) twelve (12)
months following the date of such death or Disability or (ii) the balance of the term that would have remained under the Employment
Agreement at such date had Executive’s death or disability not occurred;
(vi)
If Executive’s employment is terminated by the Company without Cause or by Executive if the Company materially breaches
the Employment Agreement and fails to cure such breach, the Company shall continue to pay to Executive the per annum rate of salary
then in effect and provide him and his family with the benefits then in effect for the balance of the term that would have remained
under the Employment Agreement had such termination not occurred; and
(vii)
If Executive’s employment is terminated by the Company with Cause or is terminated by Executive with 30 days’ advance
notice or Executive does not accept assumption of the Employment Agreement, Executive shall be entitled to no further compensation
or other payments or benefits under the Employment Agreement, except as to that portion of any unpaid salary and benefits accrued
and earned by him up to and including the date of termination.
Each
Employment Agreement also contains various restrictive covenants, including covenants relating to non-competition, non-solicitation,
and non-disclosure (confidentiality).
Vitel
Laboratorios, S.A. de C.V. Employment Agreements
On
March 10, 2017, Vitel Laboratorios entered into employment agreements with each of Messrs. Cosme and Alaman. Mr. Cosme was appointed
as Vitel Laboratorios’s General Manager of Global Operations and Mr. Alaman was appointed as its Chief Operations Officer.
Both of Messrs. Cosme and Alaman will be responsible for, supervising, managing, planning, directing and organizing the activities
of the Vitel Laboratorios and will be its two most senior executive officers reporting to Vitel Laboratorios’s Board of
Directors with all other employees of Vitel Laboratorios reporting directly or indirectly to them.
Each
of the agreements provides for a base salary of $187,500, annual bonuses and other compensation as required under Mexican Federal
Labor Law and an annual bonus target of 50% of salary based on performance objectives to be established by the Company’s
Board of Directors annually. In addition, Messrs. Cosme and Alaman are entitled to a $500.00 monthly car allowance, health insurance
reimbursement of up to $5,000 per year and other benefits required under Mexican law. The employment agreement also contains a
non-compete provision prohibiting them from engaging in business activities that compete with Vitel Laboratorios’ current
business and allows them to continue to operate their ongoing pharmaceuticals business so long as such business does not interfere
with their duties to Vitel Laboratorios under their respective employment agreements. In addition, if Messrs. Cosme and Alaman
seek to pursue any future business opportunities that do not interfere with their obligations to Vitel Laboratorios, they are
required to notify the Company and provide it with a notice and an opportunity to participate in such opportunity.
The
employment agreements may be terminated upon the employee’s death or disability, and with or without cause. In the event
Vitel Laboratorios terminates either of Messrs. Cosme and Alaman’s employment upon their death or disability, for cause
(as defined in the employment agreement) or if either of them should resign without cause, the person resigning is entitled to
payment of their base salary through the date of termination and certain severance payments they are legally entitled to receive
under Mexican Federal Labor Law. At Vitel Laboratorios’ option, it may terminate their employment without cause or the employee
may terminate the agreement for good cause (as defined in the agreement) in which event the person terminated is entitled to (i)
the equivalent amount of the corresponding severance payment set forth in the Mexican Federal Labor Law for an unjustified dismissal,
or if greater (ii) the equivalent amount of up to three years’ gross salary and certain amounts mandated under Mexican labor
laws, depending on the date of termination less the number of months elapsed after March 10, 2017. The severance payment shall
be paid in equal monthly installments over the remaining term so long as the employee is in compliance with the non-compete provisions
provided for in the employment agreement.
Outstanding
Equity Awards at 2016 Fiscal Year-End
For
Named Executive Officers
The
following table sets forth certain information concerning the outstanding equity awards as of December 31, 2016, for each named
executive officer.
|
|
|
Option
Awards
|
|
|
|
|
|
Stock
Awards
|
|
Name
|
|
|
Number
of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
|
|
|
|
Option
Exercise Price
|
|
|
Option
Expiration Date
|
|
|
Number
of Shares or Units of Stock that Have Not Vested
|
|
|
|
Market
Value of Shares or Units of Stock that Have Not Vested
|
|
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not
Vested
|
|
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights
that Have Not Vested
|
|
Jonathan
F. Head, Ph. D.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Andrew
Kucharchuk
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Compensation
of Directors
Our
non-employee directors receive 60,000 shares of our common stock annually in exchange for the director’s services as a member
of our board of directors. We also reimburse our directors for their out-of-pocket expenses incurred in connection with travel
to and from board and/or committee meetings. In 2016, one of our directors received 60,000 shares of our common stock valued at
$18,000 for his services as a director during the fiscal year ended December 31, 2016.
On
April 17, 2017, the Company’s Board of Directors (the “Board”) approved the grant of non-qualified stock options
to purchase 350,000 shares of its common stock, $0.0001 par value (the “Common Stock”), to each non-employee member
of the Board which included Daniel S. Hoverman and Charles L. Rice, Jr. (the “Stock Options”). The Stock Options are
exercisable at an exercise price of $0.27 per share, the closing price of the Common Stock on the day prior to the date of the
grant pursuant to the terms of a Non-Qualified Stock Option Agreement. The Stock Options vest on the anniversary date of the award
so long as the optionee remains a director of the Company on the vesting date (except as otherwise provided for in the Stock Option).
The Stock Option is for a 10-year term and will terminate immediately if the director is removed for cause. The Stock Option will
remain exercisable for one year after the director’s appointment as a director with the Company is terminated without cause
or if the termination is due to death or disability of the director. However, under no circumstances will the exercise period
of any Stock Option be extended beyond the 10-year term of the Stock Option.
Long-Term
Incentive Plans, Retirement or Similar Benefit Plans
There
are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive
officers, except that we may reimburse our executive employees for up to 70% of their health insurance premiums under their individual
policies. We may provide employee benefit plans to our employees in the future.
Our
directors, executive officers and employees may receive stock options at the discretion of our board of directors.
Resignation,
Retirement, Other Termination, or Change in Control Arrangements
We
do not have arrangements in respect of remuneration received or that may be received by our executive officers to compensate such
officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of
responsibilities following a change of control.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Except
as disclosed below, since January 1, 2016, there have been no transactions, or currently proposed transactions, in which we were
or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at
year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect
material interest:
|
(i)
|
Any
director or executive officer of our company;
|
|
|
|
|
(ii)
|
Any
person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding
shares of common stock;
|
|
|
|
|
(iii)
|
Any
member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons,
and any person (other than a tenant or employee) sharing the household of any of the foregoing persons.
|
From
time to time, we receive working capital advances from and makes working capital advances to The Sallie Astor Burdine Breast Foundation
(the “Foundation”), a not-for-profit foundation where our chief executive officer was a Board member until March 17,
2017. The advances are non-interest bearing and are payable on demand. A final balance due to the Company of $2,244 was written
off at December 31, 2016.
From
time to time, the Company receives advances from and repays such 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 year ended December 31, 2016 and 2015, 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
|
|
|
5,094
|
|
|
|
-
|
|
|
|
3,795
|
|
|
|
8,889
|
|
Working
capital advances received
|
|
|
-
|
|
|
|
(55,500
|
)
|
|
|
-
|
|
|
|
(55,500
|
)
|
Repayments
made
|
|
|
-
|
|
|
|
50,500
|
|
|
|
-
|
|
|
|
50,500
|
|
Amounts
deemed uncollectible and expensed
|
|
|
(2,244
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,244
|
)
|
Repayments
received
|
|
|
(6,050
|
)
|
|
|
(5,900
|
)
|
|
|
(12,495
|
)
|
|
|
(24,445
|
)
|
Balance
due from (to) related parties at December 31, 2016
|
|
$
|
-
|
|
|
$
|
(5,000
|
)
|
|
$
|
-
|
|
|
$
|
(5,000
|
)
|
THE
LINCOLN PARK TRANSACTION
General
On
October 20, 2015, we entered into the Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to
the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $10,100,000 of our common stock (subject
to certain limitations) from time to time over a 36-month period. Pursuant to the terms of the Registration Rights Agreement,
we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities
Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
Concurrently
with the execution of the Purchase Agreement on October 20, 2015, we issued to Lincoln Park 333,334 shares of our common stock
for a total purchase price of $100,000 in the Initial Purchase under the Purchase Agreement and 1,000,000 shares of our common
stock as a fee for its commitment to purchase additional shares of our common stock under the Purchase Agreement. Since October
20, 2015 through the date of this prospectus, Lincoln Park has purchased an aggregate of an additional 3,100,000 shares of our
common stock for an aggregate purchase price of $562,726. Other than the shares of our common stock that we have already issued
to Lincoln Park as described above, we do not have the right to commence any further sales to Lincoln Park under the Purchase
Agreement until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter and
upon satisfaction of the other conditions set forth in the Purchase Agreement, we may, from time to time and at our sole discretion
but no more frequently than every other business day, direct Lincoln Park to purchase up to 100,000 shares of our common stock
on any such business day provided, however that Lincoln Park’s committed obligation shall not exceed $50,000, except that
under certain circumstances the limit may be increased to up to $500,000 worth of our common stock on any single business day,
plus an additional “accelerated amount” under certain circumstances. The purchase price per share is based on the
market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement without any fixed
discount.
Purchase
of Shares Under the Purchase Agreement
Under
the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our
common stock on any such business day provided, however that Lincoln Park’s committed obligation shall not exceed $50,000,
except that the dollar amount of such purchase may be increased to up to $500,000 worth of our common stock on any single business
day in the event that the daily median dollar volume for the twenty (20) trading days prior to a sale is greater than $50,000.
Such purchases are hereinafter referred to as “Regular Purchases”. The purchase price per share for each such Regular
Purchase will be equal to the lower of:
|
●
|
the
lowest sale price for our common stock on the purchase date of such shares; or
|
|
|
|
|
●
|
the
arithmetic average of the three lowest closing sale prices for our common stock during the 12 consecutive business days ending
on the business day immediately preceding the purchase date of such shares.
|
In
addition to Regular Purchases described above, we may also direct Lincoln Park, on any business day on which we have properly
submitted a Regular Purchase notice, to purchase an additional amount of our common stock, which we refer to as an Accelerated
Purchase, not to exceed the lesser of:
|
●
|
30%
of the aggregate shares of our common stock traded during normal trading hours on the purchase date; and
|
|
|
|
|
●
|
3
times the number of purchase shares purchased pursuant to the corresponding Regular Purchase.
|
The
purchase price per share for each such Accelerated Purchase will be equal to the lower of:
|
●
|
93%
of the volume weighted average price during (i) the entire trading day on the purchase date, if the volume of shares of our
common stock traded on the purchase date has not exceeded a volume maximum calculated in accordance with the Purchase Agreement,
or (ii) the portion of the trading day of the purchase date (calculated starting at the beginning of normal trading hours)
until such time at which the volume of shares of our common stock traded has exceeded such volume maximum; or
|
|
|
|
|
●
|
the
closing sale price of our common stock on the purchase date.
|
In
the case of both Regular Purchases and Accelerated Purchases, the purchase price per share will be equitably adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during
the business days used to compute the purchase price.
Other
than as set forth above we will control the timing and amount of any sales of our common stock to Lincoln Park.
Minimum
Purchase Price
Under
the Purchase Agreement, we have set a floor price of $0.10 per share. Lincoln Park shall not purchase any shares of our common
stock on any day that the closing sale price of our common stock is below the floor price. The floor price will be appropriately
adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction and, effective
upon the consummation of any such event, the floor price will be the lower of (i) the adjusted price and (ii) $1.00.
Events
of Default
Events
of default under the Purchase Agreement include the following:
|
●
|
the
effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without
limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable
for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period
of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;
|
|
|
|
|
●
|
suspension
by our principal market of our common stock from trading for a period of three consecutive business days;
|
|
|
|
|
●
|
the
de-listing of our common stock from our principal market, provided our common stock is not immediately thereafter trading
on the New York Stock Exchange, the NASDAQ Global Market, the NASDAQ Global Select Market, the NASDAQ Capital Market, the
NYSE MKT or the OTC Bulletin Board (or nationally recognized successor thereto);
|
|
|
|
|
●
|
the
transfer agent’s failure for three business days to issue to Lincoln Park shares of our common stock which Lincoln Park
is entitled to receive under the Purchase Agreement;
|
|
|
|
|
●
|
any
breach of the representations or warranties or covenants contained in the Purchase Agreement or any related agreement which
has or which could have a material adverse effect on us subject to a cure period of five business days;
|
|
|
|
|
●
|
any
voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against us;
or
|
|
|
|
|
●
|
if
at any time we are not eligible to transfer our common stock electronically or a material adverse change in our business,
financial condition, operations or prospects has occurred.
|
Lincoln
Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an
event of default, all of which are outside of Lincoln Park’s control, shares of our common stock cannot be sold by us or
purchased by Lincoln Park under the Purchase Agreement.
Our
Termination Rights
We
have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Lincoln
Park to terminate the Purchase Agreement. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will
automatically terminate without action of any party.
No
Short-Selling or Hedging by Lincoln Park
Lincoln
Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our
common stock during any time prior to the termination of the Purchase Agreement.
Effect
of Performance of the Purchase Agreement on Our Stockholders
All
1,375,679 shares registered in this offering which may be sold by us to Lincoln Park under the Purchase Agreement are expected
to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 36 months
commencing on the date that the registration statement including this prospectus becomes effective. The sale by Lincoln Park of
a significant amount of shares registered in this offering at any given time could cause the market price of our common stock
to decline and to be highly volatile. Lincoln Park may ultimately purchase all, some or none of the 1,375,679 shares of common
stock registered in this offering. If we sell these shares to Lincoln Park, Lincoln Park may sell all, some or none of such shares.
Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other
holders of our common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement,
or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park
may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might
otherwise wish to effect such sales. However, we have the right to control the timing and amount of any sales of our shares to
Lincoln Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
Pursuant
to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $10,100,000
of our common stock, inclusive of the 333,334 shares issued to Lincoln Park for $100,000 in the Initial Purchase and exclusive
of the 1,000,000 shares issued to Lincoln Park as a commitment fee (which 1,333,334 shares have been issued and 500,000 shares
are part of this offering). Depending on the price per share at which we sell our common stock to Lincoln Park, we may be authorized
to issue and sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus.
If we choose to do so, we must first register for resale under the Securities Act any such additional shares, which could cause
additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under
this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the Purchase Agreement.
The
following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln
Park under the Purchase Agreement at varying purchase prices:
Assumed
Average
Purchase Price Per
Share
|
|
|
Number
of Registered
Shares to be Issued if Full
Purchase (1)(2)
|
|
|
Percentage
of Outstanding
Shares After
Giving Effect to the
Issuance to Lincoln Park (3)
|
|
|
Proceeds
from the
Sale of Shares
to Lincoln Park Under the
Purchase Agreement
|
|
$
|
0.10
|
(4)
|
|
|
875,679
|
|
|
|
0.7
|
%
|
|
$
|
87,568
|
|
$
|
0.2052
|
(5)
|
|
|
875,679
|
|
|
|
0.7
|
%
|
|
$
|
179,689
|
|
$
|
1.00
|
|
|
|
875,679
|
|
|
|
0.7
|
%
|
|
$
|
875,679
|
|
$
|
2.00
|
|
|
|
875,679
|
|
|
|
0.7
|
%
|
|
$
|
1,751,358
|
|
$
|
3.00
|
|
|
|
875,679
|
|
|
|
0.7
|
%
|
|
$
|
2,627,037
|
|
(1)
|
Although
the Purchase Agreement provides that we may sell up to $10,100,000 of our common stock to Lincoln Park, we are only registering
1,375,679 shares under this prospectus (inclusive of 500,000 shares issued to Lincoln Park as part of a commitment fee), which
may or may not cover all the shares we ultimately sell to Lincoln Park under the Purchase Agreement, depending on the purchase
price per share. As a result, we have included in this column only those shares that we are registering in this offering.
|
|
|
(2)
|
The
number of registered shares to be issued excludes the commitment shares because no proceeds will be attributable to such commitment
shares.
|
|
|
(3)
|
The
denominator is based on 132,068,995 shares outstanding as of April 27, 2017, adjusted to include the number of shares registered
in this offering to be issued under the Purchase Agreement. The number of shares in such column does not include shares that
may be issued to Lincoln Park under the Purchase Agreement which are not registered in this offering.
|
|
|
(4)
|
Under
the Purchase Agreement, we may not sell and Lincoln Park may not purchase any shares on a day in which the closing sale price
of our common stock is below $0.10, as may be adjusted in accordance with the Purchase Agreement.
|
|
|
(5)
|
The
closing sale price of our shares on April 25, 2017.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial ownership of our common stock, Series A preferred stock and
Series B Preferred Stock as of March 30, 2017, by (i) each person known by us to be the beneficial owner of more than 5% of our
outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors
as a group.
The
number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has
the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless
otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect
to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute
an admission of beneficial ownership of those shares.
Name
and Address of Beneficial Owner
(1)
|
|
Common
Stock Beneficial Ownership
|
|
|
Percent
of Class
(2)
|
|
|
Series
A Preferred Beneficial Ownership
|
|
|
Percent
of Class
(3)
|
|
|
Outstanding
Series B Preferred Beneficial Ownership
|
|
|
Percent
of Class
(4)
|
|
Named
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
F. Head, Ph. D.
|
|
|
16,926,078
|
|
|
|
12.9
|
%
|
|
|
500,000
|
|
|
|
50.0
|
%
|
|
|
2,892,000
|
|
|
|
36.6
|
%
|
Andrew
A. Kucharchuk
|
|
|
5,000,000
|
|
|
|
3.8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Daniel
S. Hoverman
|
|
|
60,000
|
|
|
|
*
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Charles
L. Rice, Jr.
|
|
|
60,000
|
|
|
|
*
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Manuel
Cosme Odabachian
(5)
|
|
|
30,579,007
|
|
|
|
23.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
|
|
|
31.7
|
%
|
Carlos
F. Alaman Volnie
(6)
|
|
|
30,579,006
|
|
|
|
23.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
|
|
|
31.7
|
%
|
All
executive officers and directors as a group (six persons)
|
|
|
83,204,091
|
|
|
|
63.2
|
%
|
|
|
500,000
|
|
|
|
50.0
|
%
|
|
|
7,892,000
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
L. Elliott, Jr. M.D.
|
|
|
16,926,079
|
|
|
|
12.9
|
%
|
|
|
500,000
|
|
|
|
50.0
|
%
|
|
|
-
|
|
|
|
-
|
%
|
*
Less than 1%.
|
(1)
|
Unless
otherwise indicated, the business address of each person listed is in care of OncBioMune Pharmaceuticals, Inc., 11441 Industriplex
Blvd, Suite 190, Baton Rouge LA 70809.
|
|
|
|
|
(2)
|
Calculated
on the basis of 132,068,995 issued and outstanding shares of Common Stock as of April 27, 2017.
|
|
|
|
|
(3)
|
Calculated
on the basis of 1,000,000 issued and outstanding shares of Series A preferred stock as of April 27, 2017. Holders of our Series
A preferred stock are entitled to 500 votes per share.
|
|
|
|
|
(4)
|
Calculated
on the basis of 7,892,000 issued and outstanding shares of Series B preferred stock as of April 27, 2017. Holders of our Series
A preferred stock are entitled to 100 votes per share.
|
|
|
|
|
(5)
|
Shares
are owned by Banco Actinver, S.A., in its capacity as Trustee of the Irrevocable Management Trust Agreement Trust No. 2868
and reflects shares beneficially owned by Mr. Cosme whose address is Monte Pelvoux 130, Floor 3, Mexico City, Mexico 11000.
|
|
|
|
|
(6)
|
Shares
are owned by Banco Actinver, S.A., in its capacity as Trustee of the Irrevocable Management Trust Agreement Trust No. 2868
and reflects shares beneficially owned by Mr. Cosme whose address is Monte Pelvoux 130, Floor 3, Mexico City, Mexico 11000.
|
Changes
in Control
Shares
of the Company’s Common Stock, Series A preferred and Series B preferred are subject to the terms and conditions of the
Trust Agreement and the Shareholders Agreement. See Item 1 Business - Our Corporate History and Recent Developments – The
Trust Agreement and Item 1 Business - Our Corporate History and Recent Developments – The Stockholders Agreement. Consequently,
these agreements may at a subsequent date result in a change in control of the company.
SELLING
STOCKHOLDERS
This
prospectus relates to the possible resale by the selling stockholder, Lincoln Park, of shares of common stock that have been or
may be issued to Lincoln Park pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus
forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on October
20, 2015 concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights
with respect to sales by Lincoln Park of the shares of our common stock that have been or may be issued to Lincoln Park under
the Purchase Agreement.
Lincoln
Park, as the selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares
that we have sold or may sell to Lincoln Park under the Purchase Agreement. The selling stockholder may sell some, all or none
of its shares. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have
no agreements, arrangements or understandings with the selling stockholder regarding the sale of any of the shares.
The
following table sets forth certain information regarding beneficial ownership of our common stock offered by the selling stockholder
in this offering.
Neither
Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of
our predecessors or affiliates. As used in this prospectus, the term “selling stockholder” includes Lincoln Park and
any donees, pledgees, transferees or other successors in interest selling shares received after the date of this prospectus from
Lincoln Park as a gift, pledge or other non-sale related transfer. Beneficial ownership is determined in accordance with Rule
13d-3(d) promulgated by the SEC under the Exchange Act. We believe, based on the information furnished to us, that the persons
and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they
beneficially own, subject to applicable community property laws. Based on the information provided to us by or on behalf of the
selling stockholder, neither the selling stockholder, nor any entity or individual listed in the footnotes to the table below,
is a broker-dealer or an affiliate of a broker-dealer.
The
table below assumes that the selling stockholder sells all of the shares offered for sale.
Name
and Address of Beneficial Owner
|
|
Shares
Beneficially Owned Before This Offering
|
|
|
Percentage
of Outstanding Shares Beneficially Owned Before This Offering
|
|
|
Shares
to be Sold in This Offering Assuming the Company Issues the Maximum Number of Shares Under the Purchase Agreement
|
|
|
Percentage
of Outstanding Shares Beneficially Owned After This Offering
|
Lincoln
Park Capital Fund, LLC
(1)
|
|
|
2,711,015
|
(2)
|
|
|
2.05
|
%
(3)
|
|
|
1,375,679
|
(4)
|
|
*
|
*
Less than 1%.
(1)
|
Lincoln
Park Capital Find, LLC’s address is 440 North Wells, Suite 410, Chicago, IL 60654. Josh Scheinfeld and Jonathan Cope,
the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of common stock
owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares
being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the Purchase
Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer.
|
|
|
(2)
|
Represents
2,711,015 shares of our common stock owned and shares issuable upon exercise of warrants to purchase 777,778 shares of our
common stock at an exercise price of $0.15 per share and 777,778 shares issuable upon conversion of a note, 500,000 shares
of common stock of which are covered by the registration statement that includes this prospectus. See the description under
the heading “The Lincoln Park Transaction” for more information about the Purchase Agreement.
|
|
|
(3)
|
Based
on 132,068,995 outstanding shares of our common stock as of April 27, 2017, which includes 777,778 shares of our common stock
issuable upon exercise of warrants to purchase 777,778 shares at an exercise price of $0.15 per share and 777,778 shares issuable
upon conversion of a note. Although we may at our discretion elect to issue to Lincoln Park up to an aggregate amount of $10,100,000
of our common stock under the Purchase Agreement, other than the shares described in the immediately preceding sentence, such
shares are not included in determining the percentage of shares beneficially owned before this offering.
|
|
|
(4)
|
Although
we may at our discretion elect to issue to Lincoln Park up to an aggregate amount of $10,100,000 of our common stock under
the Purchase Agreement, other than the shares described in Footnote 2 above, such shares are not included in determining the
percentage of shares beneficially owned after this offering.
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders
as well as any equity compensation plans not approved by our shareholders as of December 31, 2016.
Plan
category
|
|
|
Number
of
securities
to be
issued upon
exercise
of
outstanding
options,
warrants
and rights (a)
|
|
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
|
|
Number
of securities
remaining
available
for
future issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column
(a))
|
|
Plans
approved by our shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Plans
not approved by shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
DESCRIPTION
OF SECURITIES
The
following description of our capital stock is based upon our amended and restated articles of incorporation, as amended, our bylaws
and applicable provisions of law, in each case as currently in effect. This discussion does not purport to be complete and is
qualified in its entirety by reference to our amended and restated articles of incorporation, as amended, and our bylaws, copies
of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part.
Authorized
Capital Stock
As
of the date of this prospectus, our authorized capital stock consists of (i) 500,000,000 shares of common stock, par value $0.0001
per share, and (ii) 20,000,000 shares of preferred stock, par value $0.0001 per share. At April 27, 2017, we had issued and outstanding
132,068,995 shares of common stock, 1,000,000 shares of Series A preferred stock and 7,892,000 shares of Series B preferred stock.
Common
Stock
The
holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election
of directors. There is no right to cumulate votes in the election of directors. The holders of common stock are entitled to any
dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the
prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common
stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock
have no preemptive rights and have no right to convert their common stock into any other securities.
Preferred
Stock
The
preferred stock is issuable in one or more series with such designations, voting powers, if any, preferences and relative, participating,
optional or other special rights, and such qualifications, limitations and restrictions, as are determined by resolution of our
board of directors. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control
of our company without further action by shareholders and could adversely affect the rights and powers, including voting rights,
of the holders of common stock.
Description
of Series A Preferred Stock
Our
amended and restated articles of incorporation, as amended, authorize 1,000,000 shares of Series A preferred stock, 1,000,000
of which are outstanding as of April 27, 2017. There are no sinking fund provisions applicable to our Series A preferred stock.
Liquidation
Preference.
In the event of a liquidation or winding up of the Company, a holder of Series A preferred stock will be entitled
to receive share for share with the holders of shares of common stock, all the assets of the Company, after the rights of the
holders of the preferred stock have been satisfied.
Dividends.
The Series A preferred stock is entitled to receive, share for share with the holders of shares of common stock, such dividends
if, as and when declared from time to time by the board of directors.
Voting.
Except as otherwise provided in the certificate of designation or by law, each holder of Series A preferred stock is entitled
to 500 votes for each share held. Holders of common stock and holders of Series A preferred stock vote on all matters, including
the election of directors, together as one class.
Redemption.
The Series A preferred stock is not redeemable.
Description
of Series B Preferred Stock
The
holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the
Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred
stock have the following voting rights:
|
●
|
Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
|
|
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
|
|
|
|
|
●
|
Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
|
Transfer
Agent
The
transfer agent and registrar for our common stock is West Coast Stock Transfer, Inc., 721 N. Vulcan Ave, Suite 205, Encinitas,
CA 92024.
LEGAL
MATTERS
The
validity of the securities offered by this prospectus will be passed upon for us by Legal & Compliance, LLC, 330 Clematis
Street, Suite 217, West Palm Beach, Florida 33401.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our
consolidated balances sheet as of December 31, 2016 and the related consolidated statement of operations, changes in shareholders’
equity and cash flows for the year ended December 31, 2016 included in this prospectus have been audited by Salberg & Company,
P.A., an independent registered public accounting firm, as indicated in its report with respect thereto, and have been so included
in reliance upon the report of such firm given on its authority as an expert in accounting and auditing.
Our
consolidated balances sheet as of December 31, 2015 and the related consolidated statement of operations, changes in shareholders’
equity and cash flows for the year ended December 31, 2015 included in this prospectus have been audited by Anton & Chia,
LLP, an independent registered public accounting firm, as indicated in its report with respect thereto, and have been so included
in reliance upon the report of such firm given on its authority as an expert in accounting and auditing.
CHANGE
IN AUDITOR
Prior
independent registered public accounting firm
On
March 9, 2017, the Company’s Board of Directors approved the dismissal of its independent registered public accounting firm
Anton & Chia, LLP (“Anton Chia”). Anton Chia audited our financial statements for the fiscal years ended December
31, 2015 and December 31, 2014.
The
reports of Anton Chia on our financial statements for the fiscal years ended December 31, 2015 and December 31, 2014 did not contain
an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope,
or accounting principles, except that such reports raised substantial doubts on our ability to continue as a going concern as
a result of our lack of revenues and income since inception, net losses and accumulated shareholder deficit.
During
our most recent fiscal year and through the date of resignation, (a) we had no disagreements with Anton Chia on any matter of
accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved
to the satisfaction of Anton Chia would have caused it to make reference to the subject matter of the disagreement in connection
with its reports and (b) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
New
independent registered public accounting firm
On
March 9, 2017, our Board of Directors ratified the engagement of Salberg & Company, P.A. (“Salberg”) as our independent
registered public accounting firm and Salberg engagement became effective as of March 9, 2017. During our two most recent fiscal
years ended December 31, 2016 and 2015 and from January 1, 2017 through March 9, 2017, neither the Company nor anyone on its behalf
consulted Salberg regarding either (i) the application of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report
or oral advice was provided to us that Salberg concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable
event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
DISCLOSURE
OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our
directors and officers are indemnified as provided by Nevada law and our bylaws. We have agreed to indemnify each of our directors
and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the
provisions described above, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC the registration statement on Form S-1 under the Securities Act for the common stock offered by this prospectus.
This prospectus, which is a part of the registration statement, does not contain all of the information in the registration statement
and the exhibits filed with it, portions of which have been omitted as permitted by SEC rules and regulations. For further information
concerning us and the securities offered by this prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any contract or other document referred to are not necessarily
complete. In each instance, we refer you to the copy of the contracts and/or other documents filed as exhibits to the registration
statement.
We
make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished as required by Section 13(a) or 15(d) of the Exchange Act, through our internet
website at www.oncbiomune.com as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC. We will also provide such materials upon request.
We
will provide without charge upon written or oral request to each person, including any beneficial owner, to whom a prospectus
is delivered, a copy of any and all of the documents which are incorporated by reference in this prospectus but not delivered
with this prospectus (other than exhibits unless such exhibits are specifically incorporated by reference in such documents).
You may request a copy of these documents by writing or telephoning us at:
Jonathan
F. Head, PhD
Chief
Executive Officer
OncBioMune
Pharmaceuticals, Inc.
11441
Industriplex Blvd, Suite 190
Baton
Rouge, LA 70809
(225)
227-2384
The
registration statement on Form S-1, of which this prospectus forms a part, including exhibits, is also available at the SEC’s
website at http://www.sec.gov. You may also read and copy any document we file with, or furnish to, the SEC at its public reference
facilities:
|
Public
Reference Room Office
|
|
100
F Street, N.E.
|
|
Room
1580
|
|
Washington,
D.C. 20549
|
In
addition, you may obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at
100 F Street, N.E., Room 1580, Washington, D.C. 20549. Callers in the United States can also call (202) 551-8090 for further information
on the operations of the public reference facilities.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2016 and 2015
CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of:
OncBioMune
Pharmaceuticals, Inc.
We
have audited the accompanying consolidated balance sheet of OncBioMune Pharmaceuticals Inc. and Subsidiary as of December 31,
2016 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for
the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of OncBioMune Pharmaceuticals, Inc. and Subsidiary as of December 31, 2016 and the consolidated results of
its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and net cash used in operating activities
in 2016 of $2,013,632 and $1,533,003 respectively and has no revenues in 2016, and an accumulated deficit, stockholders’
deficit and working capital deficit of $3,142,851, $826,633 and $842,637, respectively, at December 31, 2016. These matters raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these
matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/
Salberg & Company, P.A.
|
|
|
|
SALBERG
& COMPANY, P.A.
|
|
Boca
Raton, Florida
|
|
April
17, 2017
|
|
2295
NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328
Phone:
(561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com
● info@salbergco.com
Member
National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member
CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
OncBioMune
Pharmaceuticals, Inc.
We
have audited the accompanying consolidated balance sheet of OncBioMune Pharmaceuticals, Inc. and Subsidiary (the “Company”)
as of December 31, 2015, and the related consolidated statement of operations, changes in stockholders’ equity, and cash
flows for the year then ended. OncBioMune Pharmaceuticals Inc.’s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the 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 consolidated 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 consolidated 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 audit provides 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 OncBioMune Pharmaceuticals, Inc. and Subsidiary as of December 31, 2015, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has had no revenues and income since inception. These
conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans concerning these matters are also described in Note 1, which includes the raising of additional equity financing. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
Anton & Chia, LLP
|
|
|
|
Newport
Beach, CA
|
|
April
13, 2016
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
672,769
|
|
Due from related parties
|
|
|
-
|
|
|
|
17,800
|
|
Subscription receivable
|
|
|
11,190
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
30,119
|
|
|
|
18,968
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
41,309
|
|
|
|
709,537
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,604
|
|
|
|
10,702
|
|
Security deposit
|
|
|
6,400
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
57,313
|
|
|
$
|
726,639
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible debt, net
|
|
$
|
54,688
|
|
|
$
|
-
|
|
Line of credit
|
|
|
99,741
|
|
|
|
49,708
|
|
Bank overdraft
|
|
|
812
|
|
|
|
-
|
|
Accounts payable
|
|
|
213,616
|
|
|
|
102,273
|
|
Accrued liabilities
|
|
|
108,034
|
|
|
|
19,277
|
|
Derivative liabilities
|
|
|
402,055
|
|
|
|
-
|
|
Due to related party
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
883,946
|
|
|
|
171,258
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
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 1,000,000 issued and outstanding at December 31, 2016 and 2015, respectively)
|
|
|
100
|
|
|
|
100
|
|
Common stock: $.0001 par value, 500,000,000 shares authorized; 60,807,846 and 57,107,809 issued and outstanding at December 31, 2016 and 2015, respectively
|
|
|
6,081
|
|
|
|
5,711
|
|
Additional paid-in capital
|
|
|
2,310,037
|
|
|
|
1,678,789
|
|
Accumulated deficit
|
|
|
(3,142,851
|
)
|
|
|
(1,129,219
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity (Deficit)
|
|
|
(826,633
|
)
|
|
|
555,381
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
57,313
|
|
|
$
|
726,639
|
|
See
accompanying notes to consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
817,014
|
|
|
|
213,838
|
|
Compensation expense
|
|
|
678,436
|
|
|
|
326,274
|
|
Research and development expense
|
|
|
94,383
|
|
|
|
85,323
|
|
General and administrative expenses
|
|
|
214,212
|
|
|
|
182,210
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
1,804,045
|
|
|
|
807,645
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,804,045
|
)
|
|
|
(807,645
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(108,071
|
)
|
|
|
(2,479
|
)
|
Debt issuance costs
|
|
|
-
|
|
|
|
(205,000
|
)
|
Derivative expense
|
|
|
(146,141
|
)
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
44,625
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
24,728
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(209,587
|
)
|
|
|
(182,751
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(2,013,632
|
)
|
|
$
|
(990,396
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - Basic and Diluted:
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
58,305,875
|
|
|
|
49,273,491
|
|
See
accompanying notes to consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE YEAR ENDED DECEMBER 31, 2016 and 2015
|
|
Series A
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’Equity
|
|
|
|
# of Shares
|
|
|
Amount
|
|
|
# of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
47,000,000
|
|
|
$
|
4,700
|
|
|
$
|
(4,700
|
)
|
|
$
|
(138,823
|
)
|
|
$
|
(138,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of Company
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
4,493,390
|
|
|
|
450
|
|
|
|
99,527
|
|
|
|
-
|
|
|
|
100,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
204,900
|
|
|
|
-
|
|
|
|
205,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
6
|
|
|
|
17,994
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
4,554,419
|
|
|
|
455
|
|
|
|
1,361,068
|
|
|
|
-
|
|
|
|
1,361,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(990,396
|
)
|
|
|
(990,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
57,107,809
|
|
|
|
5,711
|
|
|
|
1,678,789
|
|
|
|
(1,129,219
|
)
|
|
|
555,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
260,000
|
|
|
|
26
|
|
|
|
85,974
|
|
|
|
-
|
|
|
|
86,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash pursuant to stock purchase agreement
|
|
|
|
|
|
|
|
|
|
|
1,400,000
|
|
|
|
140
|
|
|
|
202,900
|
|
|
|
-
|
|
|
|
203,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash and subscription receivable pursuant to subscription agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
2,040,037
|
|
|
|
204
|
|
|
|
342,374
|
|
|
|
-
|
|
|
|
342,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,013,632
|
)
|
|
|
(2,013,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
1,000,000
|
|
|
$
|
100
|
|
|
|
60,807,846
|
|
|
$
|
6,081
|
|
|
$
|
2,310,037
|
|
|
$
|
(3,142,851
|
)
|
|
$
|
(826,633
|
)
|
See
accompanying notes to consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For The Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,013,632
|
)
|
|
$
|
(990,396
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,098
|
|
|
|
274
|
|
Stock-based debt issuance costs
|
|
|
-
|
|
|
|
205,000
|
|
Stock-based compensation
|
|
|
89,825
|
|
|
|
18,000
|
|
Amortization of debt discount
|
|
|
94,688
|
|
|
|
-
|
|
Derivative expense
|
|
|
146,141
|
|
|
|
-
|
|
Gain of extinguishment of debt
|
|
|
(65,047
|
)
|
|
|
-
|
|
Bad debt - related party
|
|
|
2,244
|
|
|
|
-
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
|
15,556
|
|
|
|
(36,274
|
)
|
Prepaid expenses and other current assets
|
|
|
324
|
|
|
|
(18,968
|
)
|
Security deposit
|
|
|
-
|
|
|
|
(6,400
|
)
|
Accounts payable
|
|
|
111,343
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
73,457
|
|
|
|
(23,077
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,544,003
|
)
|
|
|
(851,841
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
-
|
|
|
|
(10,976
|
)
|
Cash received in recapitalization
|
|
|
-
|
|
|
|
4,676
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
(6,300
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from related party advances
|
|
|
56,000
|
|
|
|
51,550
|
|
Payments of related party advances
|
|
|
(51,000
|
)
|
|
|
(97,650
|
)
|
Increase in bank overdraft
|
|
|
812
|
|
|
|
-
|
|
Proceeds from line of credit
|
|
|
56,165
|
|
|
|
68,355
|
|
Payments to line of credit
|
|
|
(6,132
|
)
|
|
|
(53,628
|
)
|
Proceeds from convertible debt
|
|
|
390,000
|
|
|
|
100,000
|
|
Repayment of convertible debt
|
|
|
(40,000
|
)
|
|
|
-
|
|
Debt issue costs paid
|
|
|
(69,039
|
)
|
|
|
-
|
|
Proceeds from sale of common stock, net of subscription receivable
|
|
|
534,428
|
|
|
|
1,361,523
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
871,234
|
|
|
|
1,430,150
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(672,769
|
)
|
|
|
572,009
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of year
|
|
|
672,769
|
|
|
|
100,760
|
|
|
|
|
|
|
|
|
|
|
CASH, end of year
|
|
$
|
-
|
|
|
$
|
672,769
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,243
|
|
|
$
|
2,479
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Increase in debt discount and derivative liabilities
|
|
$
|
320,961
|
|
|
$
|
-
|
|
Issuance of common stock recorded as prepaid expenses
|
|
$
|
68,000
|
|
|
$
|
-
|
|
Increase in prepaid expenses and accrued liabilities
|
|
$
|
15,300
|
|
|
$
|
-
|
|
Sale of common stock for subscription receivable
|
|
$
|
11,190
|
|
|
$
|
-
|
|
Conversion of debt as part of recapitalization
|
|
$
|
-
|
|
|
$
|
100,000
|
|
See
accompanying notes to consolidated financial statements.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS
Organization
OncBioMune
Pharmaceuticals, Inc. (the “Company,” “we,” “us” or “our”) is a biotechnology
company specializing in innovative cancer treatment therapies. The Company has proprietary rights to a breast and prostate patent
vaccine, as well as a process for the growth of cancer tumors. The Company’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. The Company’s technology is safe, and utilizes clinically research proven methods of treatment to provide
optimal success of patient recovery.
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. 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. 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.
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 shall be 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 shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth in the Certificate of Designation) for taking any corporate action. On August
27, 2015, the Financial Industry Regulatory Authority approved the Reverse Stock Split and our corporate name change.
Oncbiomune
México, S.A. De C.V.
On
August 19, 2016, the Company and Vitel Laboratorios S.A. de C.V. (“Vitel”), a Mexico-based pharmaceutical company
that develops and commercializes high specialty drugs in Mexico and other Latin American countries, entered into a Shareholders’
Agreement related to the launch of Oncbiomune México, S.A. De C.V. (“Oncbiomune Mexico”) for the purposes of
developing and commercializing the Company’s PROSCAVAX vaccine technology and cancer technologies in México, Central
and Latin America (“MALA”). The Company and Vitel each own 50% of Oncbiomune Mexico. Under the terms of the Shareholders
Agreement, the Company has agreed to assign to Oncbiomune Mexico limited patent and intellectual property rights and trademarks
related to its OVCAVAX, PROSCAVAX vaccine technology and cancer technologies and future developments related to these technologies.
These rights will permit Oncbiomune Mexico to use and develop these technologies in MALA. Oncbiomune Mexico is treated as an equity-method
investee for accounting purposes, however there was no activity in 2016.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS (continued)
Acquisition
of Vitel
On
November 2, 2016, the Company signed a non-binding term sheet to acquire Vitel as contemplated when the Company entered into the
Shareholders’ Agreement. Pursuant to the term sheet, the Company’s planned acquisition of Vitel will be structured
as an all-stock transaction with both OncBioMune and Vitel contributing equity interests into a newly created trust, resulting
in Vitel operating as a wholly owned subsidiary of OncBioMune. In furtherance of the term sheet, the Company completed the acquisition
of 100% of the issued and outstanding capital stock of Vitel from its two shareholders (collectively, the “Vitel Stockholders”)
on March 10, 2017 (the “Closing Date”) pursuant to the terms and conditions of a Contribution Agreement to the Property
of Trust F/2868 entered into among the Company and the Vitel Stockholders on the Closing Date (the “Contribution Agreement”).
Vitel is a revenue-stage Mexico-based pharmaceutical company that develops and commercializes specialty drugs in Mexico and other
Latin American countries (See Note 10).
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principals of consolidation
The
Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiary, ONC and Oncbiomune
Mexico. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 our accompanying consolidated
financial statements, the Company had a net loss of $2,013,632 and $990,396 for the years ended December 31, 2016 and 2015, respectively.
The net cash used in operations were $1,544,003 and $851,841 for the years ended December 31, 2016 and 2015, respectively. Additionally,
the Company had an accumulated deficit of $3,142,851 and $1,129,219, at December 31, 2016 and 2015, respectively, had a stockholders’
deficit of $826,633 at December 31, 2016, had a working capital deficit of $842,637 at December 31, 2016, and had no revenues
for the years ended December 31, 2016 and 2015. Management believes that these matters raise substantial doubt about the Company’s
ability to continue as a going concern for twelve months from the issuance date of this report. On March 10, 2017, the Company
completed the acquisition of 100% of the issued and outstanding capital stock of Vitel. 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, 2017. The Company will seek to raise capital through additional debt and/or equity financings
to fund our 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 consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 consolidated 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 years ended December 31, 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, the fair value of non-cash equity transactions, the valuation of derivative
liabilities, and the fair value of assets acquired and liabilities assumed in the subsequent event business acquisition.
Concentrations
Generally,
the Company relies on one vendor as a single source of raw materials to produce certain components of its cancer treatment products.
The Company believe that other vendors are available to supply these materials if the Company cannot obtain these materials from
its single source vendor.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC
820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company
on December 31, 2016. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the
amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques
based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect market assumptions.
The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy
are 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, due from and to related parties, prepaid expenses, line
of credit payable, accounts payable and accrued liabilities, approximate their fair market value based on the short-term maturity
of these instruments. The Company accounts for certain instruments at fair value using level 3 valuation.
|
|
At December 31, 2016
|
|
|
At December 31, 2015
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
$
|
402,055
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
Derivative
Liabilities
|
|
Balance at December 31, 2015
|
|
$
|
-
|
|
Initial measurement of derivative liabilities reflected as debt discount
|
|
|
320,961
|
|
Initial measurement of derivative liabilities reflected in derivative expense
|
|
|
260,479
|
|
Reclassification of derivative liability to gain on extinguishment of debt
|
|
|
(65,047
|
)
|
Change in fair value included in derivative expense
|
|
|
(114,338
|
)
|
Balance at December 31, 2016
|
|
$
|
402,055
|
|
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.
Cash
and cash equivalent
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents. At December 31, 2016 and 2015, the
Company did not have any cash equivalents.
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At December
31, 2015, cash in bank exceeded federally insured limits. There were no balances in excess of FDIC insured levels as of December
31, 2016. The Company has not experienced any losses in such accounts through December 31, 2016 and 2015.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property
and equipment
Property
are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three
to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal
terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect
the fact that their recorded value may not be recoverable.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Derivative
liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates
all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires
that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance
sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair
value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative
liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified
to income or expense as part of gain or loss on extinguishment.
Revenue
recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,
the purchase price is fixed or determinable and collectability is reasonably assured.
Income
taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets
and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The
Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates
is recognized as income or loss in the period that includes the enactment date.
Prior
to the June 3, 2015, the Company operated ONC as a limited liability company and passed all income and loss to each member based
on their proportionate interest in ONC. In accordance with the generally accepted method of presenting limited liability company
financial statements, the consolidated financial statements do not include the personal assets and liabilities of the members,
including their obligation for income taxes on their distributive shares of net income of the LLCs, or any provision for federal
income taxes prior to June 3, 2015.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740
“Income Taxes
”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of December 31, 2016 and 2015, the Company had no uncertain
tax positions that qualify for either recognition or disclosure in the financial statements. Tax years that remain subject to
examination are the years ending on and after December 31, 2011. The Company recognizes interest and penalties related to uncertain
income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2016.
Research
and development
Research
and development costs incurred in the development of the Company’s products are expensed as incurred. For the years ended
December 31, 2016 and 2015, research and development costs were $94,383 and $85,323, respectively, and are included in operating
expenses on the accompanying consolidated statements of operations.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 505-50 –
“Equity-Based Payments to Non-Employees”
, all share-based payments to non-employees,
including grants of stock options, are recognized in the consolidated financial statements as compensation expense over the service
period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model,
the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns
with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements
accordingly.
Basic
and diluted loss per share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. 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:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Total stock warrants
|
|
|
3,304,872
|
|
|
|
2,694
|
|
Convertible debt
|
|
|
2,333,333
|
|
|
|
-
|
|
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent
accounting pronouncements
In
June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-12, “
Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
,”
ASU 2014-12 requires that a performance target under stock-based compensation arrangements that could be achieved after the service
period is treated as a performance condition and not reflected in the grant-date fair value of the award. Rather, the related
compensation cost should be recognized when it becomes probable that the performance targets will be achieved. ASU 2014-12 is
effective beginning with our Fiscal 2017, with early adoption and retrospective application permitted. We do not expect that ASU
2014-12 will have a significant impact on our consolidated financial statements.
In
August 2014, 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 our consolidated financial position, consolidated
results of operations and cash flows.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 adoption of ASU 2015-17 did not have any effect of the Company’s
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, forfeitures, 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 and early adoption
is permitted. The adoption of ASU 2016-09 did not have any effect of the Company’s consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 -
PROPERTY AND EQUIPMENT
At
December 31, 2016 and 2015, property and equipment consisted of the following:
|
|
Useful Life
|
|
2016
|
|
|
2015
|
|
Leasehold improvements
|
|
5 Years
|
|
$
|
23,976
|
|
|
$
|
23,976
|
|
Less:accumulated depreciation
|
|
|
|
|
(14,372
|
)
|
|
|
(13,274
|
)
|
Property and equipment, net
|
|
|
|
$
|
9,604
|
|
|
$
|
10,702
|
|
For
the years ended December 31, 2016 and 2015, depreciation and amortization expense amounted to $1,098 and $274, respectively.
NOTE
4 –
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% (5.45% and 5.20% at December 31, 2016 and
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
December 31, 2016 and 2015, the Company had $99,741 and $49,708, respectively, in borrowings outstanding under the Revolving Note
with $259 and $50,292, respectively, available for borrowing under such note. The weighted average interest rate during the years
ended December 31, 2016 and 2015 was approximately 5.20% and 5.20%, respectively.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
5 –
CONVERTIBLE DEBT
On
May 23, 2016, the Company entered into a $40,000 convertible promissory note (the “Convertible Note”) with Crown Bridge
Partners, LLC (“Crown”). The unpaid principal and interest was payable no later than May 22, 2017 and bears interest
computed at a rate of interest which is equal to 8.0% per annum. The Company may prepay any amount outstanding under the Convertible
Note by making a payment to Crown of an amount in cash equal to the principal amount multiplied by a prepayment penalty percentage.
Crown was 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
was 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. On November 23, 2016, the Company repaid this Convertible Note by paying the principal amount outstanding
of $40,000, all accrued interest due, and a prepayment penalty aggregating $62,000. In connection with the repayment of this Convertible
Note, the Company recorded a gain from extinguishment of debt of $44,625.
On
November 23, 2016 (the “Original Issue Date”), the Company entered into and closed on the transaction set forth in
an Amended and Restated Securities Purchase Agreement (the “Securities Purchase Agreement”) it entered into with three
institutional investors (the “Purchasers”) for the sale of the Company’s convertible notes and warrants. Pursuant
to the terms provided for in the Securities Purchase Agreement, the Company issued upon closing to the Purchasers for an aggregate
subscription amount of $350,000: (i) 14.29% Original Issue Discount 10% Senior Secured Convertible Notes (the “Notes”);
and (ii) warrants (the “Warrants”) to purchase 2,333,334 shares of the Company’s common stock at an exercise
price of $0.175 (subject to adjustments under certain conditions as defined in the Warrants) which are exercisable for a period
of five years from the Original Issue Date. The aggregate principal amount of the Notes is $350,000 and the Company received $300,000
after giving effect to the original issue discount of $50,000. The Notes bear interest at a rate equal to 10% per annum (which
interest rate is increased to 24% per annum upon the occurrence of an Event of Default (as defined in the Notes)), have a maturity
date of July 23, 2017 and are convertible (principal, and interest) at any time after the issuance date of the Notes into shares
of the Company’s Common Stock at a conversion price equal to $0.15 per share (subject to adjustment as provided in the Note),
provided, however, that if an event of default has occurred, regardless of whether such Event of Default has been cured or remains
ongoing, the Note shall be convertible at 60% of the lowest closing price during the prior twenty trading days of the Common Stock
as reported on the OTCQB or other principal trading market (the “Default Conversion Price”). The Notes provide for
two amortization payments on the six-month, seven-month and eight-month anniversary of the issue date with each amortization payment
being one third of the total outstanding principal and interest. If the six-month amortization payment is made in cash then the
payment is an amount equal to 120% of the applicable amortization payment and if the seven-month or the eight-month amortization
payments are made in cash then the payment is an amount equal to 125% of the applicable amortization payment. The Notes may be
prepaid at any time until the 180th day following the Original Issue Date at an amount equal to (i) 115% of outstanding principal
balance of the Note and accrued and unpaid interest during the period from the Original Issue Date through the three months following
the Original Issue Date, and (ii) 120% of outstanding principal balance of the Notes and accrued and unpaid interest during months
four through six following the Original Issue Date. In order to prepay the Notes, the Company shall provide 20 Trading Days prior
written notice to the Holder, during which time the Holder may convert the Notes in whole or in part at the Conversion Price.
The
Convertible Note and Notes contain certain covenants, such as restrictions on the incurrence of indebtedness, creation of liens,
payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Convertible Note and Notes
also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination,
recapitalization or similar transactions. The conversion price is also subject to adjustment if the Company issues or sells shares
of its common stock for a consideration per share less than the conversion price then in effect, or issue options, warrants or
other securities convertible or exchange for shares of its common stock at a conversion or exercise price less than the conversion
price of the Notes then in effect. If either of these events should occur, the conversion price is reduced to the lowest price
at which these securities were issued or are exercisable. The Company granted the Purchasers certain rights of first refusal on
future offerings by the Company for as long as the Purchasers hold the Notes. In addition, subject to limited exceptions, the
Purchasers will not have the right to convert any portion of the Note if the Purchaser, together with its affiliates, would beneficially
own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect
to its conversion. The Purchaser may increase or decrease this ownership limitation to any percentage not exceeding 9.99% upon
61 days prior written notice to the Company.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
5 –
CONVERTIBLE DEBT (continued)
The
Warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they
are also exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common
stock underlying the Warrants. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Common Stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of
the Warrants is also subject to full ratchet price adjustment if the Company sells or grants any option to purchase, sell or re-price
any common stock or common stock equivalents, as defined, at an exercise price lower than the then-current exercise price of the
Warrant with the exception for certain exempted issuances and subject to certain limitations on the reduction of the exercise
price as provided in the Warrants. In the event of a fundamental transaction, as described in the Warrants and generally including
any reorganization, recapitalization or reclassification of the Common Stock, the sale, transfer or other disposition of all or
substantially all of the Company’s properties or assets, the Company’s consolidation or merger with or into another
person, the acquisition of more than 50% of the outstanding Common Stock, or any person or group becoming the beneficial owner
of 50% of the voting power represented by the outstanding Common Stock, the holders of the Warrants will be entitled to receive
upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had
they exercised the Warrants immediately prior to such fundamental transaction; provided that upon the occurrence of certain fundamental
transactions, the holder can require the Company to purchase the Warrant for cash at a price equal to the higher of the Black
Scholes Value of the unexercised portion of the Warrant or difference between the cash per share paid in the fundamental transaction
and the exercise price per share. The holder of Warrants will not have the right to exercise any portion of the Warrant if the
holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of common stock outstanding
immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the
Warrants. In connection with the Company’s obligations under the Notes, the Company entered into a Security Agreement, Pledge
Agreement and Subsidiary Guaranty with Calvary Fund I LP, as agent, pursuant to which the Company granted a lien on all assets
of the Company (the “Collateral”) excluding permitted indebtedness which includes a first lien held by Regions Bank
in connection with the $100,000 revolving promissory note entered into with Regions Bank in October 2014, for the benefit of the
Purchasers, to secure the Company’s obligations under the Notes. Upon an Event of Default (as defined in the Notes), the
Purchasers may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security
interest in the Collateral or sell, lease or dispose of the Collateral.
In
connection with the issuance of the Convertible Note and Notes above, the Company determined that the terms of the Convertible
Note and Notes included 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.
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 and the Warrants 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 and Warrants were determined using the Binomial valuation model. On the initial measurement date,
the fair values of the embedded conversion option derivative and warrant derivative of $581,440 was recorded as derivative liabilities
and was allocated as a debt discount up to the net proceeds of the Convertible Note of $36,000 and the Notes of $284,961 with
the remainder of $260,479 charged to current period operations as initial derivative expense. At the end of each period, the Company
revalued the embedded conversion option and warrants derivative liabilities. For the year ended December 31, 2016, aggregate derivative
expense from changes in fair value of derivative liabilities and the initial derivative expense amounted to $146,141, which is
recorded as a component of other income/(expense) on the accompanying consolidated statements of operations.
During
the year ended December 31, 2016, the fair value of the derivative liabilities was estimated using the Binomial valuation model
with the following assumptions:
Dividend
rate
|
|
0
|
|
|
Term
(in years)
|
|
0.58
to 5.0 years
|
|
|
Volatility
|
|
190.73%
to 210.78
|
%
|
|
Risk-free
interest rate
|
|
0.63%
to 1.83
|
%
|
|
For
the year ended December 31, 2016 and 2016, amortization of debt discounts related to this Convertible Note and the Notes amounted
to $94,688 and $0, respectively, which has been included in interest expense on the accompanying consolidated statements of operations.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
5 –
CONVERTIBLE DEBT (continued)
At
December 31, 2016 and 2015, the convertible debt consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Principal amount
|
|
$
|
350,000
|
|
|
$
|
-
|
|
Less: unamortized debt discount
|
|
|
(295,312
|
)
|
|
|
-
|
|
Convertible note payable, net
|
|
$
|
54,688
|
|
|
$
|
-
|
|
At
December 31, 2016, and 2015, the Company had $350,000 and $0, respectively, in borrowings outstanding under the Notes. The weighted
average interest rate during the year ended December 31, 2016 was approximately 9.0%.
NOTE
6 –
RELATED PARTY TRANSACTIONS
Due
from/(to) related parties
From
time to time, the Company receives working capital advances from and makes working capital advances to The Sallie Astor Burdine
Breast Foundation (the “Foundation”), a not-for-profit foundation where the Company’s chief executive officer
was a Board member until March 17, 2017. The advances are non-interest bearing and are payable on demand. A final balance due
to the Company of $2,244 was written off at December 31, 2016.
From
time to time, the Company receives advances from and repays such 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 year ended December 31, 2016 and 2015, due from/(to) related parties activity consisted of the following:
|
|
Foundation
|
|
|
CEO
|
|
|
CFO
|
|
|
Total
|
|
Balance due from (to) related parties at December 31, 2014
|
|
$
|
(46,100
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(46,100
|
)
|
Working capital advances received
|
|
|
(48,350
|
)
|
|
|
(7,500
|
)
|
|
|
(4,600
|
)
|
|
|
(60,450
|
)
|
Repayments made
|
|
|
97,650
|
|
|
|
13,400
|
|
|
|
13,300
|
|
|
|
124,350
|
|
Balance due from (to) related parties at December 31, 2015
|
|
|
3,200
|
|
|
|
5,900
|
|
|
|
8,700
|
|
|
|
17,800
|
|
Working capital advances made
|
|
|
5,094
|
|
|
|
-
|
|
|
|
3,795
|
|
|
|
8,889
|
|
Working capital advances received
|
|
|
-
|
|
|
|
(55,500
|
)
|
|
|
-
|
|
|
|
(55,500
|
)
|
Repayments made
|
|
|
-
|
|
|
|
50,500
|
|
|
|
-
|
|
|
|
50,500
|
|
Amounts deemed uncollectible and expensed
|
|
|
(2,244
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,244
|
)
|
Repayments received
|
|
|
(6,050
|
)
|
|
|
(5,900
|
)
|
|
|
(12,495
|
)
|
|
|
(24,445
|
)
|
Balance due from (to) related parties at December 31, 2016
|
|
$
|
-
|
|
|
$
|
(5,000
|
)
|
|
$
|
-
|
|
|
$
|
(5,000
|
)
|
NOTE
7 –
STOCKHOLDERS’ EQUITY (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 shall be 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 shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking 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. Of these shares, 500,000 were issued to our Chief Executive Officer
and 500,000 shares were issued to one of the members of the Company’s Board of Directors.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
7 –
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Common
stock issued in share exchange
On
June 22, 2015 and amended and effective on September 2, 2015, the Company entered into 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. Included in the 47,000,000 common shares
the Company issued in the Exchange was 200,000 shares of its common stock issued in full satisfaction of convertible debt of $100,000
which has been reflected as part of the recapitalization of the Company. Immediately prior to the Exchange there were 4,493,390
common shares outstanding.
Common
stock issued for services
On
November 18, 2015, the Company issued 60,000 vested 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
January 1, 2016, the Company issued 60,000 vested 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 $68,000 which was amortized over the 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. Beginning November 2016, the Company negotiated the monthly cash fee to $5,000 per month and is currently negotiating
the number shares issuable. As of December 31, 2016, the shares have not been issued and the Company value such shares issuable
on the grant date of November 15, 2016 based on the quoted fair market value of shares issuable of $0.153 per common share and
recorded consulting fees and accrued liabilities of $15,300.
Common
stock purchase agreement
On
October 20, 2015, the Company entered into a common stock purchase agreement (the “Purchase Agreement”), together
with a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln
Park”). Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right to sell to, and
Lincoln Park is obligated to purchase, up to $10.1 million in amounts of shares, as described below, of the Company’s common
stock, subject to certain limitations, from time to time, over the 36-month period commencing on the date that a registration
statement, which the Company agreed to file with the Securities and Exchange Commission (the “SEC”) pursuant to the
Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed which
occurred on December 15, 2015. The Company may direct Lincoln Park, at its sole discretion and subject to certain conditions,
to purchase up to 100,000 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 a formula tied to the prevailing market prices of such shares at the time of sales. In addition,
the Company 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. The Company’s
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, the Company issued as a commitment fee to Lincoln Park 1,000,000 shares of Common Stock.
Lincoln Park represented to the Company, 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.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
7 –
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
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. The Company has 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 the Company from time to time, including, among others, market
conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for
the Company and its operations. Lincoln Park has no right to require any sales by the Company, but is obligated to make purchases
from the Company as it directs 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 the Company will depend on the frequency and prices at which the Company sells shares
of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park under
the Purchase Agreement will be used for general corporate purposes and working capital requirements.
In
November 2015, pursuant to the Purchase Agreement, the Company issued 333,334 shares for $100,000 with net proceeds of $95,000
after $5,000 in offering costs and issued 1,000,000 shares of common stock to Lincoln Park as a commitment fee. The 1,000,000
shares were value at $300,000 or $0.30 per common share based on the sale price per share under the Purchase Agreement. In connection
with the issuance of the commitment shares, the Company recorded offering costs of $300,000 by reducing net proceeds received
under the Purchase Agreement by $95,000 and for the year ended December 31, 2015, the Company recorded offering cost expense of
$205,000 which is reflected on the accompanying consolidated statement of operations.
From
July 2016 to December 31, 2016, pursuant to the Purchase Agreement with Lincoln Park dated October 20, 2015, the Company issued
an aggregate of 1,400,000 shares of its common stock to Lincoln Park for net proceeds of $191,850 and a subscription receivable
of $11,190 which was collected in January 2017.
Common
stock issued for cash
In
December 2015, pursuant to stock subscription agreements, the Company issued 4,221,085 shares of its common stock to investors
for cash proceeds of $1,266,523.
During
the year ended December 31, 2016, pursuant to stock subscription agreements, the Company issued 102,341 shares of its common stock
to investors for cash proceeds of $51,926.
During
the year ended December 31, 2016, pursuant to unit subscription agreements, the Company issued 1,937,696 shares of its common
stock and 968,844 five-year warrants to purchase common shares for $0.30 per common share to investors for cash proceeds of $279,462
and a subscription receivable of $11,190 which was collected prior to issuance of this report.
Warrants
Warrant
activities for the year ended December 31, 2016 and 2015 are summarized as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding December 31, 2014
|
|
|
2,694
|
|
|
$
|
69.60
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance Outstanding December 31, 2015
|
|
|
2,694
|
|
|
|
69.60
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,302,178
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
Balance Outstanding December 31, 2016
|
|
|
3,304,872
|
|
|
$
|
0.27
|
|
|
|
4.82
|
|
|
$
|
-
|
|
Exercisable, December 31, 2016
|
|
|
3,304,872
|
|
|
$
|
0.27
|
|
|
|
4.87
|
|
|
$
|
-
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
8 –
INCOME TAXES
The
Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred
tax assets at December 31, 2016 and 2015 consist of net operating loss carryforwards. The net deferred tax asset has been fully
offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.
Prior
to the June 3, 2015, the Company operated ONC as a limited liability company and passed all income and loss to each member based
on their proportionate interest in ONC. In accordance with the generally accepted method of presenting limited liability company
financial statements, the consolidated financial statements do not include the personal assets and liabilities of the members,
including their obligation for income taxes on their distributive shares of net income of the LLCs, or any provision for federal
income taxes prior to June 3, 2015. Accordingly, no provision for federal and state income taxes has been made in these consolidated
financial statements for these periods. Had the Company been subject to income taxes during the period from January 2014 to June
3, 2015, the pro forma effect of income taxes on the Company’s net income (loss) based of the Company’s statutory
income tax rate of 34% was not material.
The
items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for
the years ended December 31, 2016 and 2015 were as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax benefit at U.S. statutory rate of 34%
|
|
$
|
(685,000
|
)
|
|
$
|
(337,000
|
)
|
State income tax benefit
|
|
|
(161,000
|
)
|
|
|
(79,000
|
)
|
Non-deductible expenses
|
|
|
112,000
|
|
|
|
7,000
|
|
Income tax effect during LLC period
|
|
|
-
|
|
|
|
36,000
|
|
Change in valuation allowance
|
|
|
734,000
|
|
|
|
373,000
|
|
Total provision for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s approximate net deferred tax assets as of December 31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
1,107,000
|
|
|
$
|
373,000
|
|
Total deferred tax assets
|
|
|
1,107,000
|
|
|
|
373,000
|
|
Valuation allowance
|
|
|
(1,107,000
|
)
|
|
|
(373,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
estimated net operating loss carryforward was approximately $2,636,000 at December 31, 2016. The Company’s net operating
loss carryforward acquired in the Combination were limited on the usage of such net operating loss carryforwards due to a change
in ownership in accordance with Section 382 of the Internal Revenue Code. The Company provided a valuation allowance equal to
the net deferred income tax asset for the year ended December 31, 2016 because it was not known whether future taxable income
will be sufficient to utilize the loss carryforward. The increase in the valuation allowance was $734,000 from the year ended
December 31, 2016. The potential tax benefit arising from tax loss carryforwards will expire in 2036.
The
Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2014,
2015 and 2016 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
9 –
COMMITMENTS AND CONTINGENCIES
Lease
Effective
September 1, 2015, the Company leases its facilities under non-cancelable operating leases. The Company has the right to renew
certain facility leases for an additional five years. Rent expense was $44,857 and $14,734 for the years ended December 31, 2016
and 2015, respectively.
Future
minimum lease payments under non-cancelable operating leases at December 31, 2016 are as follows:
Years ending December 31,
|
|
Amount
|
|
2017
|
|
|
36,800
|
|
2018
|
|
|
37,333
|
|
2019
|
|
|
38,400
|
|
2020
|
|
|
25,600
|
|
Total minimum non-cancelable operating lease payments
|
|
$
|
138,133
|
|
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.
Future
minimum commitment payments under employment agreements at December 31, 2016 are as follows:
Years ending December 31,
|
|
Amount
|
|
2017
|
|
|
475,000
|
|
2018
|
|
|
475,000
|
|
2019
|
|
|
39,600
|
|
Total minimum commitment employment agreement lease payments
|
|
$
|
989,600
|
|
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS
Common
stock issued
On
February 27, 2017, the Company issued 150,000 shares of common stock to an employee as a bonus for services to the Company. The
shares were valued at the most recent cash price paid of $0.075 per share. In connection with these shares, the Company recorded
stock-based compensation of $11,250.
From
January 1, 2017 to March 31, 2017, pursuant to a stock purchase agreement with Lincoln Park dated October 20, 2015, whereby we
have the right to sell to, and Lincoln Park is obligated to purchase, up to $10.1 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 900,000 shares of
its common stock to Lincoln Park for net proceeds of $176,617.
From
April 1, 2017 to April 12, 2017, pursuant to a stock purchase agreement with Lincoln Park dated October 20, 2015, whereby we have
the right to sell to, and Lincoln Park is obligated to purchase, up to $10.1 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 400,000 shares of
its common stock to Lincoln Park for net proceeds of $99,667.
From
January 2017 to April 5, 2017, pursuant to unit subscription agreements, the Company issued 8,253,136 shares of its common stock
and 4,126,568 five-year warrants to purchase common shares for an exercise price of $0.30 per common share to investors for cash
proceeds of $618,983 or $0.075 per share.
Series
B preferred stock
On
March 7, 2017, the Company filed a certificate of designation, preferences and rights of Series B preferred stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 7,892,000 shares of its previously authorized
preferred stock as Series B preferred stock, par value $0.0001 per share and a stated value of $0.0001 per share. The Certificate
of Designation and its filing was approved by the Company’s board of directors without shareholder approval as provided
for in the Company’s articles of incorporation and under Nevada law.
The
holders of shares of Series B preferred stock are entitled to dividends or distributions share for share with the holders of the
Common Stock, if, as and when declared from time to time by the Board of Directors. The holders of shares of Series B preferred
stock have the following voting rights:
|
●
|
Each
share of Series B preferred stock entitles the holder to 100 votes on all matters submitted to a vote of the Company’s
stockholders.
|
|
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series B preferred stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders; and
|
|
|
|
|
●
|
Commencing
at any time after the date of issuance of any shares of the Series B Preferred Stock (the “Issuance Date”) and
upon the earliest of the occurrence of (i) a holder of the Series B Preferred Stock owning, directly or indirectly as a beneficiary
or otherwise, shares of Common Stock which are less than 5.0% of the total outstanding shares of Common Stock, (ii) the date
a holder of the Series B Preferred Stock is no longer an employee of the Company or any of its subsidiaries or (iii) five
years after the Issuance Date, the Company shall have the right to redeem all of the then outstanding Series B Preferred Stock
held by such holder at a price equal to the Stated Value (the “Redemption Price”). The Series B Preferred Stock
which is redeemed as provided for in the Certificate of Designations shall be returned to the Company (and, if not so returned,
shall automatically be deemed canceled). The Redemption Price shall be mailed to such holder at the holder’s address
of record, and the Series B Preferred Stock owned by such holder shall be canceled.
|
In
the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to receive, share for share with the holders of shares of Common Stock
and Series A Preferred Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after
the rights of the holders of the Series A Preferred Stock have been satisfied.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS (continued)
Acquisition
of Vitel
Om
March 10, 2017 (the “Closing Date”), the Company completed the acquisition of 100% of the issued and outstanding capital
stock of Vitel Laboratorios, S.A. de C.V., a Mexican variable stock corporation (“Vitel”) from its shareholders Manuel
Cosme Odabachian and Carlos Fernando Alaman Volnie (collectively, the “Vitel Stockholders”) pursuant to the terms
and conditions of a Contribution Agreement to the Property of Trust F/2868 entered into among the Company and the Vitel Stockholders
on the Closing Date (the “Contribution Agreement”). Vitel is a revenue-stage Mexico-based pharmaceutical company that
develops and commercializes specialty drugs in MALA.
The
Company acquired Vitel for the purpose of commercializing the Company’s PROSCAVAX vaccine technology and cancer technologies
in MALA and to utilize Vitel’s distribution network and customer and industry relationships.
Pursuant
to the terms of the Contribution Agreement, the Company issued 61,158,013 shares of its common stock and 5,000,000 shares of Series
B preferred stock to Banco Actinver, S.A., in its capacity as Trustee (the “Trustee”) of the Irrevocable Management
Trust Agreement Trust No. 2868 (the “Trust Agreement”) for the benefit of the Vitel Stockholders in exchange for 100%
of the issued and outstanding capital stock of Vitel (the “Vitel Shares”). The Common Stock and Series B Preferred
will be held by Trustee for the benefit of the Vitel Stockholders as provided for in the Trust Agreement and 98% of the Vitel
Shares are held by the Trustee for the benefit of the Company as provided for in the Trust Agreement and 2% of the Vitel Shares
were transferred to the Company. Vitel became a wholly owned subsidiary of the Company as of the Closing Date as the Company has
full control of the Vitel Shares through the Trust. In addition, the Company issued 2,892,000 shares of Series B Preferred to
Jonathan F. Head, Ph. D, the Company’s Chief Executive Officer and a member of the Board of Directors of the Company (the
“Board of Directors”) as provided for in the Contribution Agreement. The Series B preferred stock issued to Dr. Head
and were determined to have nominal value of $289 or $.0001 per shares and was recorded as compensation expense.
To
induce the Vitel Stockholders to enter into the Contribution Agreement and as a condition to close the transactions set forth
in that agreement, the Company, the Vitel Stockholders, Dr. Head and Andrew A. Kucharchuk, the Company’s President, Chief
Financial Officer and a Director also entered into the following agreements as of the Closing Date or perform the following actions
(i) a Stockholder’s Agreement among the Company, Dr. Head, Mr. Kucharchuk, Mr. Cosme and Mr. Alaman dated as of the Closing
Date (the “Stockholders’ Agreement”); (ii) the Trust Agreement; (iii) the Company, Vitel and the Vitel Stockholders
entered into employment agreements with Messrs. Cosme and Alaman; (iv) the Company and Dr. Head and Mr. Kucharchuk entered into
amendments to the employment agreements with, and stock option awards to, Dr. Head and Mr. Kucharchuk; (v) the Company, Dr. Head,
Mr. Kucharchuk and the Vitel Stockholders agreed to consent to an amendment to the Company’s Articles of Incorporation and
bylaws; (vi) and to elect Mr. Cosme, Mr. Alaman, Dr. Head and Mr. Kucharchuk as directors of Vitel and such directors to elect
Mr. Cosme, Mr. Alaman, Dr. Head and Mr. Kucharchuk as officers of Vitel.
The
Stockholders Agreement
The
following is a summary of Stockholders Agreement.
The
Vitel Stockholders and the Company established a trust pursuant to the Trust Agreement described below. Mr. Cosme and Mr. Alaman
each contributed, assigned and transferred to the Company ownership of, and title over, one share of the capital stock of Vitel
(the “Vitel Shares”) and Mr. Cosme and Mr. Alaman contributed, assigned and transferred to the Trustee (as defined
in the Trust Agreement”) ownership of, and title over, the remaining 98 Vitel Shares for the benefit of the Company pursuant
to the terms and conditions of the Trust Agreement. The Company contributed, assigned and transferred to the Trustee ownership
of, and title over, 61,158,013 newly-issued shares of Common Stock and 5,000,000 newly-issued shares of Series B Preferred Stock
with 100 votes per share (collectively, the “OBM Shares”), for the benefit of Mr. Cosme and Mr. Alaman pursuant to
the terms and conditions of the Trust Agreement. The OBM Shares held by the Trust have not been and will not be registered under
the Securities Act of 1933, as amended, (“Securities Act”) and are restricted securities under the Securities Act
and the rules and regulations promulgated thereunder and are subject to the restrictions on transfer contained in Article 4 of
the Shareholders’ Agreement.
Corporate
Rights. The corporate rights resulting from the Vitel Shares contributed to the Trust will be exercised by the Trustee pursuant
to the written instructions it receives from the Company. For such purposes, and pursuant to the bylaws of Vitel, the Company
shall have the authority to instruct the Trustee regarding exercising any corporate rights it may be entitled to in its capacity
as the majority Vitel shareholder.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS (continued)
Composition
of the Board of Directors.
The Stockholders’ Agreement permits the Vitel Stockholders to appoint one member to the Board
of Directors, one designated by Dr. Head and Mr. Kucharchuk (the “Management Designee”), and two independent directors
shall be designated jointly by Dr. Head and Mr. Kucharchuk (the “Management Stockholders”) on the one hand, and the
Vitel Stockholders, on the other, and the Management Stockholders or the Management Designee and the Vitel Stockholders or the
Vitel Designee shall jointly appoint, as soon as practicable, an independent fifth member of the Board of Directors.
Board
of Directors Resolutions.
The Stockholders’ Agreement requires the Board of Directors to adopt any and all resolutions
with a vote from a majority of its members, provided that for any “Major Decision” as defined in the Stockholders’
Agreement, either the Vitel Designee or the Management Designee shall vote in favor of adopting the corresponding resolution.
In the event of a deadlock amongst the members of the Vitel Board of Directors, the Board of Directors shall cast the deciding
vote to resolve the deadlock amongst the board members of Vitel with a vote from a majority of its members.
Restrictions
on Transfer.
Generally, the Stockholders may not at any time, except as discussed below, transfer their respective Company
Securities (x) to any of their Affiliates, their spouse, children, grandchildren, parents, sisters, brothers, nieces, nephews
or any other relative within the second degree of kindred or a trust or other entity under a Stockholder’s control (the
“
Permitted Transferees
”), or (y) with the prior consent of the other Stockholders which are also a party hereto,
or (z) as otherwise permitted under the Stockholders’ Agreement (each, a “
Permitted Transfer
”), in the
understanding that (1) each Management Stockholder will be considered a Permitted Transferee with respect to each other and each
Vitel Stockholder will be considered a Permitted Transferee with respect to each other, (2) transfers by the Stockholders that
are a party hereto resulting from their death shall be considered a Permitted Transfer, and (3) any Stockholder that is a party
hereto may act individually in regards to the rights provided for in the Stockholders’ Agreement.
Right
of First Refusal
. In the event a Stockholder that is a party to the Stockholders’ Agreement wishes to transfer its Company
Securities (other than a transfer which is part of an acquisition or strategic transaction approved by the directors of the Company
as a Major Decision), the other non-transferring Stockholders that are also a party to the Stockholders’ Agreement shall
have the irrevocable right of first refusal to purchase that shares of the selling shareholder.
Right
of Co-Sale (Tag Along)
. In the event that any stockholder who is a party to the Stockholders’ Agreement or group of
such stockholders intends to accept an offer (either solicited or unsolicited) from any third party to acquire or otherwise transfer
Company Securities (as defined in the Stockholders’ Agreement), representing at least 20% of the outstanding Company Securities,
on a fully diluted basis, the selling stockholder shall give an offer notice in writing to the other stockholders of the Company
who are a party to the Stockholders’ Agreement, with a copy to the Company, containing the terms and conditions of such
offer received from the interested third party. Each such stockholder shall have the right to participate in such offer by selling
the pro rata proportion of its Company Securities pursuant to such offer to acquire or otherwise Transfer Company Securities (as
defined in the Stockholders’ Agreement).
Drag
Along
. In the event a stockholder who is a party to the Stockholders’ Agreement or group of such stockholders representing
at least 32% (thirty two per cent) of the outstanding Company Securities, on a fully diluted basis, intends to accept an offer
from any third party to acquire or otherwise Transfer Company Securities, representing at least 50% of the outstanding Company
Securities, on a fully diluted basis, and the transaction is approved by the Board of Directors as a Major Decision, then each
such stockholder shall be obligated to sell its Company Securities pursuant to the offer to purchase. In case the drag along provision
included herein is enforced, all the stockholders participating in such sale shall receive the same terms and conditions of sale
based on their respective holdings of Company Securities and shall otherwise be treated equally based on such ownership interest.
Termination
.
The Stockholders’ Agreement terminates upon the earlier of the following: (i) three years as of the Closing Date; (ii) in
connection with any Shareholder, whenever such Shareholder directly or indirectly owns less than 5% of the fully diluted shares
of the Company; or (iii) upon the consummation of a Liquidation Event (as defined in the Stockholders’ Agreement).
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS (continued)
Effective
as of March 10, 2017, Mr. Cosme, Mr. Alaman and the Company entered into the Irrevocable Management Trust Agreement Number F/2868
between Mr. Cosme, Mr. Alaman, the Company and the Trustee (the “Trust Agreement”) for the purpose of establishing
a trust to hold the OBM Shares and 98 shares of Vitel’s capital stock which were transferred to Trustee pursuant to the
Trust Agreement, in addition to other property the beneficiaries may elect to contribute to the trust. The trust structure of
this acquisition transaction was established in order to provide certain income tax benefits to the seller pursuant to Mexican
tax law.
In
connection with the acquisition, the Company issued 61,158,013 restricted shares of its common stock valued at $4,586,851, based
on the acquisition-date fair value of our common stock of $.075 per share based on recent sales of the Company’s common
stock pursuant to unit subscription agreements and 5,000,000 shares of Series B preferred stock which primarily gives the holder
voting rights and were determined to have nominal value of $500.
The
fair value of the assets acquired and liabilities assumed were based on management estimates of the fair values on March 10, 2017.
Based upon the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition:
Cash
|
|
$
|
39,144
|
|
Accounts receivable
|
|
|
187,502
|
|
Recoverable taxes
|
|
|
50,263
|
|
Other current assets
|
|
|
2,675
|
|
Property and equipment
|
|
|
493
|
|
Goodwill and other intangible assets
|
|
|
4,737,389
|
|
Total assets acquired at fair value
|
|
|
5,017,466
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
423,891
|
|
Payroll taxes
|
|
|
6,224
|
|
Total liabilities assumed
|
|
|
430,115
|
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
4,587,351
|
|
The
assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date with subsequent changes
recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops estimates
based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as
of the business combination date. As a result, during the purchase price measurement period, which may be up to one year from
the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding
offset to goodwill. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities
assumed in operating expenses in the period in which the adjustments were determined.
The
purchase price exceeded the fair value of the net assets acquired by approximately $4,737,389, which shall be recorded as goodwill
or other intangible assets pending the Company analysis of the fair values. The fair value of intangible assets may be based upon
the discounted cash flow method that involves inputs that are not observable in the market (Level 3). Goodwill assigned represents
the amount of consideration transferred in excess of the fair value assigned to identifiable assets acquired and liabilities assumed.
Any goodwill recorded is not expected to be deductible for U.S. income tax purposes.
The
Company shall record acquisition and transaction related expenses in the period in which they are incurred. Acquisition and transaction
related expenses primarily consist of legal, accounting and other fees of third parties related to the acquisition.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS (continued)
Employment
agreements
On
March 10, 2017, Vitel entered into employment agreements with each of Messrs. Cosme and Alaman who were the sellers of Vitel.
Mr. Cosme was appointed as Vitel’s General Manager of Global Operations and Mr. Alaman was appointed as its Chief Operations
Officer. Both of Messrs. Cosme and Alaman will be responsible for, supervising, managing, planning, directing and organizing the
activities of the Vitel and will be its two most senior executive officers reporting to Vitel’s Board of Directors with
all other employees of Vitel reporting directly or indirectly to them.
Each
of the agreements provides for a base salary of $187,500, annual bonuses and other compensation as required under Mexican Federal
Labor Law and an annual bonus target of 50% of salary based on performance objectives to be established by the Company’s
Board of Directors annually. In addition, Messrs. Cosme and Alaman are entitled to a $500 monthly car allowance, health insurance
reimbursement of up to $5,000 per year and other benefits required under Mexican law. The employment agreement also contains a
non-compete provision prohibiting them from engaging in business activities that compete with Vitel’s current business and
allows them to continue to operate their ongoing pharmaceuticals business so long as such business does not interfere with their
duties to Vitel under their respective employment agreements. In addition, if Messrs. Cosme and Alaman seek to pursue any future
business opportunities that do not interfere with their obligations to Vitel, they are required to notify the Company and provide
it with a notice and an opportunity to participate in such opportunity.
The
employment agreements may be terminated upon the employee’s death or disability, and with or without cause. In the event
Vitel terminates either of Messrs. Cosme and Alaman’s employment upon their death or disability, for cause (as defined in
the employment agreement) or if either of them should resign without cause, the person resigning is entitled to payment of their
base salary through the date of termination and certain severance payments they are legally entitled to receive under Mexican
Federal Labor Law. At Vitel’s option, it may terminate their employment without cause or the employee may terminate the
agreement for good cause (as defined in the agreement) in which event the person terminated is entitled to (i) the equivalent
amount of the corresponding severance payment set forth in the Mexican Federal Labor Law for an unjustified dismissal, or if greater
(ii) the equivalent amount of up to three years’ gross salary and certain amounts mandated under Mexican labor laws, depending
on the date of termination less the number of months elapsed after March 10, 2017. The severance payment shall be paid in equal
monthly installments over the remaining term so long as the employee is in compliance with the non-compete provisions provided
for in the employment agreement.
The
Company is a guarantor of Vitel’s obligations under the employment agreements. The employment agreements do not represent
additional purchase consideration.
Amendment
to employment agreements and stock options
On
March 10, 2017, the non-management members of the Board of Directors determined that it was in the best interests of the Company
to reward the Company’s chief executive officer and chief financial officer of the Company by amending their employment
agreements and awarding them stock options in order to provide incentives to retain and motivate them in their roles with the
Company. The Company amended each of the February 2, 2016 employment agreements of the Company’s chief executive officer
and chief financial officer to extend the term to March 9, 2020 and to provide for 100% vesting of any unvested portion of any
outstanding equity, or equity-based award granted to them by the Company upon termination of their respective employment agreements
without cause, as a result of a breach of the agreement by the Company or upon their respective death or disability.
ONCBIOMUNE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 and 2015
NOTE
10 -
SUBSEQUENT EVENTS (continued)
The
stock option award included options for each of them to purchase 2,000,000 shares (the “Stock Options”) of Common
Stock at an exercise price of $0.25 per share. One-third of the Stock Options vest on March 10, 2017, March 10, 2018, and March
10, 2019, respectively, and are exercisable at any time after vesting until 10 years after the grant date. The Stock Options vest
so long as the optionee remains an employee of the Company or a subsidiary of the Company on the vesting dates (except as otherwise
provided for in the employment agreement between the Company and the optionee).
The
fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 203.4%; risk-free interest rate of 2.58%; and, an estimated
holding period of 10 years. In connection with these options, the Company valued these options at a fair value of $299,381 and
will record stock-based compensation expense over the vesting period.
ONCBIOMUNE
PHARMACEUTICALS, INC.
1,375,679
Shares of
Common
Stock
PROSPECTUS
May
16, 2017
Until
August 14, 2017, all dealers that effect transactions in these securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.