The accompanying notes are an
integral part of these financial statements.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
NOTE
1 – FINANCIAL STATEMENTS
AVRA
Medical Robotics, Inc. (the “Company” or “Avra”) was incorporated as AVRA Surgical Microsystems, Inc.
in the State of Florida on February 4, 2015. Effective November 5, 2015, the Company’s corporate name was changed to AVRA
Medical Robotics, Inc. The Company was established to develop advanced medical surgical devices. The Company is structured to
invest in four principal areas – surgical robotic systems, surgical tools, implantable devices and surgical robotic training.
The
significant accounting policies of Avra were described in Note 1 to the audited financial statements included in the Company’s
2018 Annual Report on Form 10-K (the “2018 Form 10-K”). There have been no significant changes in the Company’s
significant accounting policies for the three months ended June 30, 2019.
Basis
of Presentation
The
accompanying unaudited condensed financial statements of the Company have been prepared in conformity with accounting principles
generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules
and regulations of the Securities and Exchange Commission. Therefore, they do not include all information and footnotes
normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial
statements and notes thereto included in the 2018 Form 10-K for the year ended December 31, 2018. In the opinion of the Company’s
management, the accompanying unaudited condensed financial statements contain all the adjustments necessary (consisting only of
normal recurring accruals) to present the financial position of the Company as of June 30, 2019 and the results of operations
and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2019 are not necessarily
indicative of the operating results for the full fiscal year or any future period.
The
accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company
has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity
financing to fund its operations. Management of the Company is making efforts to raise additional funding until a registration
statement relating to an equity funding facility is in effect. While management of the Company believes that it will be successful
in its capital formation and planned operating activities, there can be no assurance that the Company will be able to raise additional
equity capital, or be successful in the development and commercialization of the products it develops or initiates collaboration
agreements thereon. The accompanying financial statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
The
Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt
instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Stock
Compensation Expense
The
Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance
with Accounting Standards Codification (“ASC”) Topic 505, “Equity.” Costs are measured at the estimated fair
market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier
of a performance commitment or completion of performance by the provider of goods or services as defined by ASC Topic 505.
Income
Taxes
The
Company accounts for income taxes pursuant to ASC Topic 740 “
Income Taxes.
” Under ASC Topic 740, deferred tax
assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income
tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement
classification of the assets and liabilities generating the differences. A valuation allowance is recorded when it is more likely
than not that some or all of the deferred tax assets will not be realized.
The
Company applies the provisions of ASC Topic 740-10-05 “
Accounting for Uncertainty in Income Taxes
.” The ASC clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and expenses. The Company regularly evaluates estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates made by management.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains
its principal cash balance in a financial institution. These balances are insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $250,000. At June 30, 2019 and December 31, 2018, $0 were in excess of the FDIC insured limit, respectively.
Basic
and Diluted Loss per Share
In
accordance with ASC Topic 260 “
Earnings Per Share,
”
basic loss per common share is computed by dividing
net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted
loss per common share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding
during the period, only in periods in which such effect is dilutive. The Company only has stock options and convertible promissory
notes that may be converted to outstanding potential common shares.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted guidance issued by the FASB regarding recognizing revenue from contracts with customers.
The revenue recognition policies as enumerated below reflect the Company’s accounting policies effective January 1, 2018, which
did not have a materially different financial statement result than what the results would have been under the previous accounting
policies for revenue recognition.
Research
and Development Costs
In
accordance with ASC Topic 730 “Research and Development”,
with the exception of
intellectual property that is purchased from another enterprise and have alternative future use, research and development expenses
are charged to operations as incurred. The Company purchased existing Intellectual Property from the University of Central Florida.
Management regularly assesses the carrying value of the intellectual property to determine if there has been any diminution of
value.
Equipment
Equipment
is recorded at cost and depreciated using the straight-line method at rates determined to estimate the useful lives of the assets.
The annual rates used in calculating depreciation is as follows:
Equipment
-5 years straight-line
Website
Website
is recorded at cost and amortized using the straight-line method over its estimated life of 3 years.
Long-lived
Assets
In
accordance with ASC 360, “
Property Plant and Equipment
”, the Company tests long-lived assets or asset groups
for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to : significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current cash flow or operating losses combined with a history of losses
or a forecast of continuing losses associated with the use of the asset and current expectation that the asset will more than
likely not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on
the carrying amount of the asset and its fair value which is generally determined based on the sum of the discounted cash flows
expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain circumstances.
An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Fair
Value of Financial Instruments
Our
financial instruments consist principally of accounts receivable, amounts due to related parties and promissory notes payable.
ASC
820
Fair Value Measurements and Disclosures
and ASC 825,
Financial Instruments
establish
a framework for measuring fair value, establishes a fair value hierarchy based on the quality of the inputs used to measure fair
value, and enhances disclosure requirements for fair value measurements.
Fair
Value Hierarchy
The
Company has categorized its financial statements, based on the priority of inputs to the valuation technique, into a three-tier
fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest level priority to unobservable inputs (Level 3).
Financial
assets and liabilities recorded on the balance sheet are categorized based on inputs to the valuation techniques as follows:
Level
1
|
Financial
assets and liabilities for which values are based on unadjusted quoted prices for identical assets or liabilities in an
active market that management has the ability to access.
|
|
|
Level
2
|
Financial
assets and liabilities for which values are based on quoted prices in markets that are not active or model inputs that
are observable either directly or indirectly for substantially the full term of the asset or liability (commodity derivatives
and interest rate swaps).
|
|
|
Level
3
|
Financial
assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions
about the assumptions a market participant would use in pricing the asset or liability.
|
When
the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement
is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.
The
carrying amounts of cash and cash equivalents and promissory notes approximate fair value because of the short-term nature of
these items.
NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
Simplifying
the Goodwill Impairment Test
In
January 2017, the FASB issued an accounting standard update that simplifies the subsequent measurement of goodwill by eliminating
the second step of the goodwill impairment test. Under the new standard, goodwill impairment should be recognized based on the
amount by which the carrying amount of a reporting unit exceeds its fair value, but should not exceed the total amount of goodwill
allocated to the reporting unit. The amendments in this accounting standard update are to be applied prospectively and are effective
for interim or annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted
for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The provisions of this accounting
standard update did not have an impact on our financial statements.
Revenue
Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 amends the accounting guidance
on revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for
addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. Under
the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an
amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The principles
in the standard should be applied using a five-step model that includes 1) identifying the contract(s) with a customer, 2) identifying
the performance obligations in the contract, 3) determining the transaction price, 4) allocating the transaction price to the
performance obligations in the contract, and 5) recognizing revenue when (or as) the performance obligations are satisfied. The
standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers. In addition, the standard amends the existing requirements for the recognition of a gain or loss on the transfer
of nonfinancial assets that are and are not in a contract with a customer (for example, sales of real estate) to be consistent
with the standard’s guidance on recognition and measurement (including the constraint on revenue). The FASB also subsequently
issued several amendments to the standard, including clarification on principal versus agent guidance, identifying performance
obligations, and immaterial goods and services in a contract.
The
Company adopted ASU 2014-09 and its related amendments (collectively known as ASC 606) effective on January 1, 2018 using the
modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative
periods. Therefore, the comparative information has not been adjusted and continues to be reported under ASC Topic 605. Please
see refer earlier in Note 2 for a discussion of the Company’s updated policies related to revenue recognition, accounting
for costs to obtain and fulfill a customer contract and for the disclosures related to adopting this standard.
Classification
of Certain Cash Receipts and Cash Payments
In
August 2016, the FASB issued an accounting standard update that provides classification guidance on eight specific cash flow issues,
for which guidance previously did not exist or was unclear. The amendments in this accounting standard update are effective for
periods beginning after December 15, 2017. Early adoption is permitted for any entity in any interim or annual period. The provisions
of this accounting standard update did not have a material impact on our statements of cash flows.
Compensation—Stock
Compensation
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting. The new guidance became effective for the Company on January 1, 2018 and was applied on a prospective
basis, as required. The adoption of this standard did not have an impact on the financial statements or the related disclosures.
Income
Statement – Reporting Comprehensive Income
In
February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income” to address stakeholder concerns about the guidance in
current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates
with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments
in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act of 2017 (the “2017 Act”). The ASU must be applied either in the period of
adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in
the 2017 Act is recognized. The Company made the election to early adopt ASU 2018-02 as of January 1, 2018, the standard did not
have an impact our financial statements.
Intangibles
– Goodwill and Other – Internal-Use Software
In
September 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”
which requires cloud computing arrangements in a service contact to follow the internal-use software guidance provided by ASC
350-40 in determining the accounting treatment of implementation costs. ASC 350-40 states that only qualifying costs incurred
during the application development stage may be capitalized. The Company made the election to early adopt ASU 2018-15 on a retrospective
basis, and the standard did not have an impact our financial statements.
Derivatives
and Hedging
In
August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities.” The ASU is targeted at simplifying the application of hedge accounting and aims at aligning the recognition
and presentation of the effects of hedge instruments and hedge items. ASU 2016-02 is effective for interim and annual periods
beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance effective January 1, 2019
and it did not have an impact on the financial statements and related disclosures.
Leases
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU
2016-02 to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessors will account for leases using an approach
that is substantially equivalent to existing GAAP for sales-type leases, direct financing leases and operating leases. Unlike
current guidance, however, a lease with collectability uncertainties may be classified as a sales-type lease. If collectability
of lease payments, plus any amount necessary to satisfy a lessee residual value guarantee, is not probable, lease payments received
will be recognized as a deposit liability and the underlying assets will not be derecognized until collectability of the remaining
amounts becomes probable. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early
adoption permitted, and must be adopted using a modified retrospective transition. The Company adopted the standard effective
January 1, 2019, utilizing the lessor practical expedient. Since the Company has only one lease and it is short term, the
standard did not have an impact on our balance sheets or statements of operations.
NOTE
4 –
Research collaboration agreement
Effective
May 1, 2016, the Company entered into a Research Agreement (the “Research Agreement”) with the University of Central
Florida (“UCF” or the “University”) for the development of a prototype surgical robotic device supporting
minimal invasive surgical facial corrections.
The
Agreement provides that the University will provide personnel to accomplish the objectives as stated in the Statement of Work
over a period extending to September 30, 2017.
Effective
May 1, 2017, the research agreement with the University of Central Florida has been extended to April 30, 2021. No additional
payments to the University were required.
The
Company agreed to extend funding of $163,307 from Avra’s existing funds.
In
addition, Avra has paid $43,548 for outright ownership of the University’s Intellectual Property resulting from the collaboration,
which amount is shown as Intellectual Property. Management has assessed the carrying value of the asset and believes there has
been no diminution of its value and accordingly, no adjustment is necessary.
The
total cost to the Company is:
Research
Expense -funded from existing funds
|
|
$
|
163,307
|
|
Acquisition
of Intellectual Property Rights
|
|
|
43,548
|
|
Total
|
|
$
|
206,855
|
|
For
the six and three months ended June 30, 2019, $51,874 and $27,812 had been paid under the Agreement, respectively. For the six
and three months ended June 30, 2018, $4,229 and $16,281 had been paid under the Agreement, respectively. The balance of the amount
owing to the University was fully paid on February 24, 2017 and April 7, 2017. Additionally, a $68,952 matching funds grant from
the Florida High Tech Corridor Council (FHTCC) was approved on July 16, 2016 which will provide the University research funds
in addition to the Company’s funding obligation to the University. The FHTCC research grant is subject to certain research
obligations and action requirements which if not met may result in the loss of the FHTCC research funding. The agreement further
provides for the payment of a 1% royalty to the University in any year when the sales of products using the intellectual property
exceeds $20,000,000.
NOTE
5 – ACCRUED EXPENSES
Accrued
Expenses include $240,000 and $150,000 of accrued officer compensation at June 30, 2019 and December 31, 2018 respectively.
NOTE
6 – PROMISSORY NOTES
During
the year ended December 31, 2016, the Company borrowed $480,000 under 7.5% Convertible Promissory Note Agreements. The Notes were
due September 30, 2017 and bore interest at 7.5%. The noteholders had agreed to extend the maturity to October 31, 2017. The notes
were convertible into common stock of the Company at $0.50 per share in the event of a voluntary conversion on or before an optional
prepayment or the maturity date, or (1) the lower of $0.50 or (2) a 20% discount to the effective price per share offering price
in the event of a mandatory conversion upon consummation of a “Qualified Financing”, as defined. The Company had pledged
all assets as security for the notes. In the event of default, the notes would bear interest at 12% per annum.
Based
upon the Company’s funding of $542,260, a Qualified Financing, a mandatory conversion of the $480,000 in principal of Convertible
Notes was triggered. The $480,000 in principal plus accrued interest were converted into 960,000 common shares and three-year
Warrants to purchase 144,000 common shares at $1.25 per share.
Further,
the Company borrowed $100,000 from an individual on May 16, 2016 under a note bearing interest at 5%. The note, along with accrued
interest, was repaid on September 30, 2016.
On
December 31, 2018, the Company borrowed $15,000 under a non-interest bearing promissory note from a related party. The note matures
on December 31, 2019. Also on December 31, 2018, the Company borrowed an additional $15,000, with interest payable annually at
4%, maturing on December 31, 2019.
During
January 2019, the Company borrowed $20,000 under a non interest bearing promissory note which matures on December 31, 2019.
On
February 6, 2019, the Company borrowed from its CEO, $17,500 under a non interest bearing promissory note which matures on February
6, 2020.
On
March 11, 2019, the Company borrowed $25,000 under a promissory note bearing an annual interest rate of 5% and which matures on
September 11, 2019. The loan includes a warrant to purchase 12,500 common shares at a strike price of $1.25 per share. The warrant
expires in 3 years.
On
March 14, 2019, the Company borrowed $25,000 under a promissory note bearing an annual interest rate of 5% and which matures on
September 14, 2019. The loan includes a warrant to purchase 12,500 common shares at a strike price of $1.25 per share. The warrant
expires in 3 years.
On
March 29, 2019, the Company borrowed $25,000 under a promissory note bearing an annual interest rate of 5% and which matures on
September 29, 2019. The loan includes a warrant to purchase 12,500 common shares at a strike price of $1.25 per share. The warrant
expires in 3 years.
On
May 8, 2019, the Company borrowed from its CEO, $25,000 under a non interest bearing promissory note which matures on May 8, 2020.
On
May 29, 2019, the Company borrowed from its CEO, $25,000 under a non interest bearing promissory note which matures on May 29,
2020.
On June 26, 2019, the Company borrowed from its CEO, $40,000 under a non interest bearing promissory note which matures on June
26, 2020.
The
warrants are valued at $16,221 using Black Scholes and such amount has been recorded as Unamortized Discount on Notes Payable
and is being amortized over six months, the maturity term of the notes payable. During the six and three months ended June 30,
2019, $6,307 and $5,406 respectively of the discount was amortized and charged to interest expense.
NOTE
7– INCOME TAXES
The
Company’s deferred tax assets at June 30, 2019 consist of net operating loss carry forwards of $2,579,192. Using a new federal
statutory tax rate of 21%, the valuation allowance balance as of June 30, 2019 total of $541,630. The increase in the valuation
allowance balance
for the six months ended June 30, 2019
of $62,505 is entirely attributable
to the net operating loss.
The
Company’s deferred tax assets at December 31, 2018 consist of net operating loss carry forwards of $2,083,255. Using a federal
statutory tax rate of 21%, the valuation allowance balance as of December 31, 2018 total of $437,484.
Due
to the uncertainty of their realization, no income tax benefits have been recorded by the Company for these loss carry forwards
as valuation allowances have been established for any such benefits. The increase in the valuation allowance was the result of
increases in the net operating losses discussed above. Therefore, the Company’s provision for income taxes is $-0-
for
the three and six months ended June 30, 2019 and 2018.
At
June 30, 2019 and
December 31, 2018,
the
Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does
not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest
and penalties related to uncertain tax positions in general and administrative expense. At June 30, 2019 and
December 31,
2018,
the Company has not recorded any provisions for accrued interest and penalties related
to uncertain tax positions.
The
Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations.
NOTE
8 – STOCKHOLDERS’ EQUITY (DEFICIT)
The
Company is authorized to issue up to 100,000,000 shares of common stock, $0.0001 par value per share plus 5,000,000 shares of
preferred stock, par value $0.0001. On February 1, 2016 subscriptions were issued for 5,899,600 shares of common stock at $0.0001
per share (total $590). In February 2017, the Company raised an additional $135,000 from a private offering of 135,000 shares
of common stock at a price of $1.00 per share made to three investors.
On
September 30, 2017, the Company raised an additional $542,260, from a private offering of 433,808 shares of common stock at a
price of $1.25 per share.
Effective
April 1, 2017, the Company entered into Conversion Agreements with its Chairman/CEO and its former Chief Financial Officer whereby
each agreed to convert the amounts owing to them as of March 31, 2017 as compensation into common stock of the Company at a price
of $2.00 per share. Furthermore, the former Chief Financial Officer had agreed to convert any future amounts due as compensation
per his Employment Agreement effective through August 1, 2017, into shares of common stock at $2.00 per share as such amounts
are earned, and the Chairman/CEO had agreed to convert any future amounts in excess of $2,500 per month due as compensation through
July 1, 2017, per his Employment Agreement, into shares of common stock at $2.00 per share as such amounts are earned. On April
1, 2017, 57,438 shares were issued under the agreement to convert compensation due to the Chairman/CEO and its former Chief Financial
Officer. Both agreements were renewed upon their respective expirations. As of July 1, 2017, the Chairman/CEO agreed to convert
any future amounts in excess of $2,500 per month due as compensation through December 31, 2017, per his Employment Agreement,
into shares of common stock at $2.00 per share, as such amounts are earned. As of August 1, 2017, its former Chief Financial Officer
agreed to convert all cash payments due to the employee per his Employment Agreement, into shares of common stock using a price
of $2.00 per share, as such amounts are earned.
On
September 30, 2017, the Chairman/CEO and its former Chief Financial Officer converted $117,000 of compensation owed into 58,500
common shares.
In
addition, on September 30, 2017, the promissory notes of $480,000 were converted into 960,000 shares of common stock (see Note
5). The interest due on the promissory note was exchanged for Warrants to purchase 144,000 common shares at $1.25. The Warrants
expire on the third-year anniversary.
On
February 23, 2018, the board of directors of Avra authorized the issuance of an aggregate of 218,000 shares of Avra’s common
stock (the “Shares”) as follows:
|
●
|
150,000
Shares at a value of $1.25 per Share, to six consultants and service providers for services
rendered through December 31, 2017;
|
|
|
|
|
●
|
35,000
Shares, at a value of $1.25 per Share, to Farhan Taghizadeh, M.D., Avra’s Chief
Medical Officer, for services rendered during the period September 1, 2017 to December
31, 2017; and
|
|
|
|
|
●
|
19,500
and 13,500 Shares, at a value of $2.00 per Share, to Barry F. Cohen and A. Christian
Schauer, our Chief Executive Officer and its former Chief Financial Officer, respectively,
pursuant to Conversion Agreements with each of such officers, under which they converted
all December 31, 2017 accrued but unpaid compensation due them under their respective
employment agreements with the Company into the Shares..
|
On
August 13, 2018 the Company sold 16,000 shares of its common stock for $20,000.
On
October 4, 2018, the Board of Directors adopted the following resolutions and took the following actions by unanimous written
consent in lieu of a meeting in accordance with the applicable provisions of the Florida business Corporation Act:
|
●
|
128,300
shares of restricted common stock required to be issued, to six consultants and service
providers for services rendered through September 30, 2018;
|
|
|
|
|
●
|
400
shares of restricted common stock required to be issued, for services rendered through
February 28, 2018;
|
On
January 4, 2019, 115,050 Shares at a value of $1.25 per Share was issued for service rendered.
On
April 1, 2019, 95,050 Shares at a value of $1.25 per Share was issued for services rendered.
Holders
are entitled to one vote for each share of common stock. No preferred stock has been issued.
NOTE
9 – 2016 INCENTIVE STOCK PLAN
On
August 1, 2016, the Company adopted the 2016 Incentive Stock Plan (the “Plan”). The Plan provides for the granting
of options to employees, directors, consultants and advisors to purchase up to 3,000,000 shares of the Company’s common
stock. The Board is responsible for administration of the Plan. The Board determines the term of each option, the option exercise
price, the number of shares for which each option is granted and the rate at which each option is exercisable. Incentive stock
options may be granted to any officer or employee at an exercise price per share of not less than the fair market value per common
share on the date of the grant.
For
options granted October 1, 2017, the following factors were used: volatility 45.07%; expected term of 3 years, risk-free interest
rate of 2.00%, dividend yield of 0% and exercise price of $1.25 per share.
For
options granted May 1, 2018, the following factors were used: volatility 62.16%; expected term of 3 years, risk-free interest
rate of 2.00%, dividend yield of 0% and exercise price of $1.25 per share.
For
options granted July 1, 2018, the following factors were used: volatility 31.34%; expected term of 3 years, risk-free interest
rate of 2.00%, dividend yield of 0% and exercise price of $1.25 per share.
On
July 1, 2018 options for 75,000 shares were issued to our Counsel for services rendered totaling $21,000. These shares are vested
immediately and expire on July 1, 2023. The exercise price is $1.25.
For
the six months ended June 30, 2019 and 2018, 210,000 and zero options were exercised. Non-vested Options for 97,639 shares were
forfeited during March 2018.
At
June 30, 2019 and December 31, 2018 options representing 2,280,417 shares and 2,243,250 shares were vested or exercisable, respectively.
All
options issued to-date expire after five years from the issue date. Except for the option for one million shares issued to the
CEO and to the Company’s counsel for 115,000 shares that vested immediately, all the options issued to date vest over three
years.
Stock
options are accounted for in accordance with FASB ASC Topic 718,
Compensation –Stock Compensation
, with option expense
amortized over the vesting period based on the Black-Scholes option-pricing model fair value on the grant date, which includes
a number of estimates that affect the amount of expense. During
the three months ended June
30, 2019 and 2018,
$15,117 and $7,981 respectively, of expensed stock options has been recorded as stock-based compensation
and classified in general and administrative expense on the Statement of Operations. The total amount of unrecognized compensation
cost related to non-vested options was $98,787 as of June 30, 2019. This amount will be recognized over a period of 25 months
expiring April 2021.
The
grant date fair value of options granted during the year of 2016 were estimated on the grant date using the Black-Scholes model
with the following assumptions: expected volatility of 181%, expected term of 2.9 years, risk-free interest rate of 2.00% and
expected dividend yield of 0% for the options granted on August 15, 2016 with an exercise price of $0.10 per share and; expected
volatility of 73.64%, expected term of 2.9 years, risk-free interest rate of 2.00% and expected dividend yield of 0% for the options
granted on October 1, 2016 with an exercise price of $0.15 per share. For options granted January 1, 2017, the following factors
were used; volatility 63.05%; expected term of 2.9 years, risk-free interest rate of 2.00%, dividend yield of 0% and exercise
price of $0.15 per share. For options granted August 1, 2017, the following factors were used: volatility 36.18%; expected term
of 2.9 years, risk-free interest rate of 2.00%, dividend yield of 0% and exercise price of $1.00 per share. For options granted
May 1, 2018, the following factors were used; volatility 62.16%; expected term of 3 years, risk-free interest rate of 2.00%, dividend
yield of 0% and exercise price of $1.25 per share. For options granted July 1, 2018, the following factors were used; volatility
31.34%; expected term of 3 years, risk-free interest rate of 2.00%, dividend yield of 0% and exercise price of $1.25 per share.
For options issued on February 1, 2019, volatility 50.58%; expected term of 3 years, risk-free interest rate of 2.00%, dividend
yield of 0% and exercise price of $2.00 per share.
Expected
volatility is based on the average of the historical volatility of the stock prices of a blend of five publicly traded companies
operating in a similar industry as that of the Company. The risk-free rate is based on the rate of U.S Treasury zero-coupon issues
with a remaining term equal to the expected life of the options. The Company uses historical data to estimate pre-vesting for
feature rates.
NOTE
10 – EMPLOYMENT AGREEMENTS
On
July 1, 2016, the Company entered into an Employment Agreement with its Chairman and Chief Executive Officer. The agreement provides
for an annual salary of $120,000 per year, increasing to $180,000 per year beginning July 2017. Through December 2016, the employee
agreed to not receive the compensation in cash until the Board of Directors deemed it prudent to pay some or all of his salary.
Further the Agreement provides that the employee will receive a three-year option to purchase 1,000,000 shares of the Company’s
common stock at an exercise price of $0.10 per share, and becoming fully vested on August 15, 2016.
On
August 1, 2016, the Company entered into a one-year Employment Agreement with its Chief Financial Officer. The agreement provides
for an annual salary of $108,000 per year. Through December 2016, the employee agreed to not receive the compensation in cash
until the Board of Directors deemed it prudent to pay some or all of his salary. Further the Agreement provides that the employee
will receive a three-year option to purchase 210,000 shares of the Company’s common stock at an exercise price of $0.10
per share, with 70,000 shares becoming fully vested upon each yearly anniversary. The options are to be surrendered and cancelled
if the Agreement is terminated. The Agreement has expired but its compensation terms continue in effect as long as the employee
remains employed by the Company.
On
August 1, 2016, the Company entered into a three-year Employment Agreement with its Vice President of Global Business Development.
The agreement provides for an annual salary of $96,000 per year, increasing to $144,000 per year beginning July 2017. Through
December 2016, the employee agreed to not receive the compensation in cash until the Board of Directors deemed it prudent to pay
some or all of his salary. Further the Agreement provides that the employee will receive a three-year option to purchase 300,000
shares of the Company’s common stock at an exercise price of $0.10 per share, with 100,000 shares vested on each yearly
anniversary.
Further,
on July 1, 2016, the Company entered into Indemnification Agreements with the Chairman and Chief Executive Officer, and on August
1, 2016 the Chief Financial Officer and the Vice-President of Global Business Development providing for the Company to indemnify
the individuals for all expenses, judgments, etc. incurred while serving in various capacities with the Company.
Commencing
March 1, 2018, the Company entered into an employment agreement with its new Chief Strategy Officer whereby compensation will
be determined upon sufficient funding of the Company. The Company granted a 300,000 share stock award under its 2016 Incentive
Stock Plan, which vests in five equal annual installments of 60,000 shares each.
In
addition, on May 1, 2018
options for 250,000
shares that vest monthly over 3 years were also issued to our Chief Strategy Officer. These options expire on May 1, 2023 and
are exercisable at $1.25.
Commencing
January 1, 2019, the Company entered into a consulting agreement with an IR/PR Company whereby compensation will be $1,500 per
month for six months. Also, the Company will issue 36,000 restricted common shares as part of the compensation (see Note 13).
NOTE
11 – EARNINGS PER SHARE
Basic
earnings per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of
common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all
dilutive potential shares outstanding. For the six months ended June 30, 2019 and 2018, the potential exercise of stock options
has been excluded from the computation of loss per share as the effect was anti-dilutive.
NOTE
12 – LEASE COMMITMENT
The
Company occupies office and laboratory space in Orlando, Florida under a lease agreement that expired on July 31, 2017. Effective
August 1, 2018 and modified on September 1, 2018, the agreement extended the lease term to July 31, 2019. The amended agreement
provides that the Company pay insurance, maintenance and taxes with a monthly lease expense of $2,363.05. Either party may cancel
the agreement at any time with 30 days’ notice.
NOTE
13 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date that the financial statements were issued and determined that there were
subsequent events requiring adjustments to or disclosure in the financial statements.
On
July 1, 2019, the Board of Directors adopted the following resolutions and took the following actions by unanimous written consent
in lieu of a meeting in accordance with the applicable provisions of the Florida Business Corporation Act:
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●
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43,672
shares of restricted common stock required to be issued, to seven consultants and service
providers for services rendered through June 30, 2019;
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On
July 1, 2019, 36,000 shares of restricted common stock was issued, to its IR/PR Company per the consulting agreement (see Note
10).
On
July 19, 2019, the Company borrowed from its CEO, $50,000 under a non interest bearing promissory note which matures on July 19,
2020.