Florida
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20-1968162
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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Large Accelerated Filer o
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Accelerated Filer o
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Non-Accelerated Filer o
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Smaller Reporting Company þ
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PART I FINANCIAL STATEMENTS
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Item 1
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Financial Statements
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4
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Item 2
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Management's Discussion and Analysis of Financial Conditions and Results of Operations
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18
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Item 3
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Quantitative and Qualitative Disclosures About Market Risk
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23
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Item 4
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Controls and Procedures
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23
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PART II OTHER INFORMATION
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Item 1
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Legal Proceedings
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24
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Item 1A
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Risk Factors
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24
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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24
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Item 3
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Default upon Senior Securities
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24
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Item 4
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Mine Safety Disclosures
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24
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Item 5
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Other Information
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25
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Item 6
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Exhibits
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26
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September 30,
2013
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December 31,
2012
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|||||||
ASSETS
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||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$ | 207,709 | $ | 313,095 | ||||
Prepaids and other current assets
|
45,000 | - | ||||||
Total current assets
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252,709 | 313,095 | ||||||
Fixed Assets:
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||||||||
Computer equipment, net of accumulated depreciation
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||||||||
of $800 and $118 respectively
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4,612 | 944 | ||||||
Intangible Assets:
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||||||||
Patents and licenses, net of amortization
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||||||||
of $3,703,633 and $1,570,114, respectively (Note 7)
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19,265,260 | 18,688,270 | ||||||
Deposits
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17,435 | 24,928 | ||||||
Total assets
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$ | 19,540,016 | $ | 19,027,237 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
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||||||||
Current Liabilities:
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||||||||
Accounts payable
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$ | 629,797 | $ | 286,698 | ||||
Payable to officer
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76,000 | 76,000 | ||||||
Accrued liabilities
|
654,892 | 427,211 | ||||||
Current portion patent liability
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185,000 | 200,000 | ||||||
Notes payable
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857,197 | 432,363 | ||||||
Total current liabilities
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2,402,886 | 1,422,272 | ||||||
Non-current Liabilities:
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||||||||
Notes payable related party
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121,128 | 121,128 | ||||||
Long-term portion patent liability
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- | 140,000 | ||||||
Total non-current liabilities
|
121,128 | 261,128 | ||||||
Commitments and contingencies (note 8) | ||||||||
Total Liabilities
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2,524,014 | 1,683,400 | ||||||
Stockholders' Equity:
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||||||||
Common stock - par value $0.001; 500,000,000 shares authorized;
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||||||||
62,589,869 and 45,489,368 shares issued and outstanding respectively
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62,589 | 45,489 | ||||||
Additional paid in capital
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272,668,542 | 196,632,775 | ||||||
Stock issuances due
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1,508,835 | 3,690,960 | ||||||
Prepaid services
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(20,967,754 | ) | (6,082,771 | ) | ||||
Accumulated deficit
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(236,256,210 | ) | (176,942,616 | ) | ||||
Total stockholders' equity
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17,016,002 | 17,343,837 | ||||||
Total liabilities and stockholders' equity
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$ | 19,540,016 | $ | 19,027,237 |
THREE MONTHS ENDED
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NINE MONTHS ENDED
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|||||||||||||||
September, 30
2013
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September 30,
2012
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September, 30
2013
|
September 30,
2012
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|||||||||||||
Revenues, net
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$ | - | $ | - | $ | - | $ | - | ||||||||
Operating expenses:
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||||||||||||||||
Selling, general and administrative
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12,608,401 | 280,456 | 33,461,690 | 569,121 | ||||||||||||
Research and development expense
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6,412,711 | 26,514 | 15,510,310 | 26,514 | ||||||||||||
Depreciation and amortization expense
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719,040 | 10,863 | 2,134,231 | 11,012 | ||||||||||||
Total operating expenses
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19,740,152 | 317,833 | 51,106,231 | 606,647 | ||||||||||||
Loss from operations
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(19,740,152 | ) | (317,833 | ) | (51,106,231 | ) | (606,647 | ) | ||||||||
Other income (expense):
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||||||||||||||||
Interest expense
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(205,416 | ) | - | (1,098,868 | ) | - | ||||||||||
Loss on settlement of debt
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- | (7,108,495 | ) | - | ||||||||||||
Total other income (expense)
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(205,416 | ) | - | (8,207,363 | ) | - | ||||||||||
Loss from continuing operations
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(19,945,568 | ) | (317,833 | ) | (59,313,594 | ) | (606,647 | ) | ||||||||
Gain from discontinued operations
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- | 260,746 | ||||||||||||||
Net Loss
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$ | (19,945,568 | ) | $ | (317,833 | ) | $ | (59,313,594 | ) | $ | (345,901 | ) | ||||
Basic and diluted loss per share:
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||||||||||||||||
Loss from continuing operations
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$ | (0.34 | ) | $ | (0.01 | ) | $ | (1.08 | ) | $ | (0.03 | ) | ||||
Gain from discontinued operations
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- | - | - | 0.01 | ||||||||||||
$ | (0.34 | ) | $ | (0.01 | ) | $ | (1.08 | ) | $ | (0.02 | ) | |||||
Weighted average number of shares outstanding
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59,334,545 | 30,853,117 | 55,127,859 | 19,706,741 |
Common Stock
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Additional Paid
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Stock to
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Prepaid
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Accumulated
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||||||||||||||||||||||||
Shares
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Amount
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in Capital
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Be Issued
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Services
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Deficit
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Total
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||||||||||||||||||||||
Balance, December 31, 2012
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45,489,368 | 45,489 | 196,632,775 | 3,690,960 | (6,082,771 | ) | (176,942,616 | ) | 17,343,837 | |||||||||||||||||||
Issuance of common stock for prepaid services
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10,228,000 | 10,228 | 51,193,872 | (51,204,100 | ) | - | ||||||||||||||||||||||
Return of Stock for prepaid services
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(350,000 | ) | (350 | ) | (350 | ) | ||||||||||||||||||||||
Amortization of prepaid services
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36,319,117 | 36,319,117 | ||||||||||||||||||||||||||
Issuance of common stock for Jill Smith/LDN License
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300,000 | 300 | 2,714,700 | (2,715,000 | ) | - | ||||||||||||||||||||||
Issuance of common stock for Penn State License
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300,000 | 300 | 2,549,700 | 2,550,000 | ||||||||||||||||||||||||
Issuance of common stock issued for Charitable Donation
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100,000 | 100 | 749,900 | 750,000 | ||||||||||||||||||||||||
Issuance of common stock in exchange for debt
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1,545,833 | 1,546 | 7,128,615 | 7,130,161 | ||||||||||||||||||||||||
Issuance of common stock for loan expenses and interest
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297,500 | 297 | 1,078,114 | 54,750 | 1,133,162 | |||||||||||||||||||||||
Issuance of common stock for cash and exercise of warrants
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4,679,168 | 4,679 | 3,688,809 | 3,693,488 | ||||||||||||||||||||||||
Issuance and modification of common stock warrants
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6,932,057 | 6,932,057 | ||||||||||||||||||||||||||
Stock to be issued
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478,125 | 478,125 | ||||||||||||||||||||||||||
Net loss
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(59,313,594 | ) | (59,313,594 | ) | ||||||||||||||||||||||||
Balance, September 30, 2013
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62,589,869 | $ | 62,589 | $ | 272,668,542 | $ | 1,508,835 | $ | (20,967,754 | ) | $ | (236,256,210 | ) | $ | 17,016,002 |
NINE MONTHS ENDED
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||||||||
Sepember 30,
2013
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September 30,
2012
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|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
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||||||||
Net loss
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$ | (59,313,594 | ) | $ | (342,671 | ) | ||
(Gain) loss from discontinued operations
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- | 260,746 | ||||||
Loss from continuing operations
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(59,310,364 | ) | (606,647 | ) | ||||
Adjustments to reconcile loss from continuing operations to
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||||||||
net cash flows used in operating activities:
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||||||||
Depreciation
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682 | 327 | ||||||
Amortization
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2,133,549 | 10,685 | ||||||
Amortization of stock issued for prepaid services
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36,318,767 | 53,745 | ||||||
Loss on settlement of debt
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7,055,994 | |||||||
Stock warrant expense
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6,932,057 | |||||||
Stock issued for donation
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750,000 | |||||||
Stock issued for interest
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1,133,162 | |||||||
Changes in operating assets and liabilities:
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||||||||
Accrued liabilities
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227,681 | 125,876 | ||||||
Prepaid and other current assets
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(37,507 | ) | 27,700 | |||||
Accounts payable
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343,098 | 82,850 | ||||||
Net cash used in operating activities
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||||||||
from continuing operations
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(4,456,111 | ) | (305,464 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES
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||||||||
Purchase of computer equipment
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(4,350 | ) | (1,062 | ) | ||||
Purchase of Penn State License
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(160,539 | ) | ||||||
Net cash used in investing activities
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||||||||
from continuing operations
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(164,889 | ) | (1,062 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||
Proceeds from exercise of stock warrants
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3,640,363 | |||||||
Proceeds from sale of stock
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531,250 | 212,680 | ||||||
Proceeds from notes payable
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499,001 | 250,400 | ||||||
Payments made on patent liability
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(155,000 | ) | (15,000 | ) | ||||
Net cash provided by financing activities
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||||||||
from continuing operations
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4,515,614 | 448,080 | ||||||
Net increase (decrease) in cash
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(105,386 | ) | 141,554 | |||||
Cash at beginning of year
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313,095 | 12 | ||||||
Cash at end of year
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$ | 207,709 | $ | 141,566 |
NINE MONTHS ENDED
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||||||||
September 30,
2013
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September 30,
2012
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|||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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||||||||
Cash paid for interest
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$ | - | $ | - | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
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||||||||
Accrued liabilities for purchase of Smith LDN patent
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$ | 2,715,000 | $ | - | ||||
Conversion of debt and accrued interest to common stock
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$ | 74,167 | $ | - | ||||
Common shares issued for Penn State License
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$ | 2,550,000 | $ | - | ||||
Common shares issued for prepaid services
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$ | 51,204,100 | $ | - |
Number of
Shares
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Exercise
Price
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Weighted
Average Price
|
||||||||||
Warrants as of December 31, 2012
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7,260,000
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$
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1.00 – 1.50
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$
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1.02
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|||||||
Issued in nine months ended September 30, 2013
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2,567,918
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$ |
1.00 – 1.50
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$ | 2.56 | |||||||
Expired
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–
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–
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||||||||||
Exercised
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3,324,168
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$ |
0.50 – 0.75
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$ | 0.63 | |||||||
Warrants as of September 30, 2013
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6,503,750
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$ |
1.00 – 1.50
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$ | 1.83 |
Expiration Date
|
Number of
Shares
|
Exercise
Price
|
Remaining Life (years)
|
|||||||||
Second Quarter 2015
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1,025,000
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$
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2.00-3.00
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1.8
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||||||||
Third Quarter 2015
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221,250
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$
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2.00-3.00
|
2.0
|
||||||||
Second Quarter 2016
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337,500
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$
|
1.50
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2.8
|
||||||||
Third Quarter 2017
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985,416
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$
|
1.00
|
4.0
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||||||||
Fourth Quarter 2017
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3,491,666
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$
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1.00-1.50
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4.3
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||||||||
First Quarter 2018
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229,584
|
$
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15.00
|
4.5
|
||||||||
Second Quarter 2018
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33,334
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$
|
15.00
|
4.8
|
||||||||
Three Months Ended
September 30,
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Net Sales
|
-
|
-
|
-
|
-
|
||||||||||||
Earnings before Income Taxes
|
-
|
-
|
-
|
260,746
|
||||||||||||
Income Taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Net Earnings from Discontinued Operations
|
-
|
-
|
-
|
260,746
|
A.
|
Upon initiation of each phase III trial, the Company will pay $350,000.
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B.
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Upon positive completion of each phase III clinical trial of the therapeutic use of an LDN compound in the field of Use, the Company will pay $150,000.
|
C.
|
When an NDA is accepted for review by the FDA, the Company will pay $250,000.
|
D.
|
When FDA approval to market the NDA is approved, the Company will pay $750,000.
|
E.
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Upon the first dosing of the first patient in a phase III clinical trial for each Licensed Product, the Company will pay 250,000 shares of the Company’s common stock.
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F.
|
Upon the first sale of each Licensed Product, the Company will issue 400,000 shares of the Company’s common stock.
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G.
|
Upon the achievement of $20 Million USD in cumulative sales for each licensed product covered by NDAs, the Company will issue 500,000 shares of the Company’s common stock.
|
Shares
|
||||
Shares issued for default on promissory notes
|
90,000
|
|||
Shares issued to investors
|
48,000
|
|||
Shares issued for warrant exercise
|
837,500
|
|||
Shares issued for debt conversion
|
150,000
|
●
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The establishment of treatment facilities throughout Africa, the Caribbean and South America for cancer, HIV/AIDS and other autoimmune diseases that can benefit from IRT-101, IRT-102 and IRT-103 patented technology and therapies;
|
●
|
The large scale treatment in emerging nations for HIV/AIDS as an immune-enhancing therapy using IRT-103 LDN;
|
●
|
The large scale (outsourced) manufacturing and distribution of IRT-103 LDN, either in pill form, or cream for those unable to handle the medication in pill form, throughout Africa and expanding to other developing nations; and
|
●
|
The Joint Venture with the Hubei Qianjiang Pharmaceutical Company that will provide the funding required for the Phase III trials in China in exchange for TNIB providing exclusive licensing rights in China. TNIB will also receive a percentage of the gross revenue from sales in China.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||
(in US Dollar Millions)
|
September 30,
2013
|
September 30,
2012
|
%
Change
|
June 30,
2013
|
June 30,
2012
|
%
Change
|
||||||||||||||||||
Research and development expenses
|
$ | 6,413 | $ | 27 | 23,519 | % | $ | 15,510 | $ | 27 | 57,344 | % |
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT
|
|
CANDIDATE
|
INDICATION
|
IRT-101
|
Pancreatic Cancer
|
IRT-103
|
Crohn’s Disease
|
Name of Exhibit
|
||
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
|
TNI BioTech, Inc.
|
|||
Date: November 14, 2013
|
By:
|
/s/ Noreen Griffin | |
Noreen Griffin
|
|||
Chief Executive Officer
|
|||
|
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d) Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 14, 2013
|
By:
|
/s/ Noreen Griffin | |
Noreen Griffin
|
|||
Chief Executive Officer
|
|||
|
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d) Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 14, 2013
|
By:
|
/s/ Peter Aronstam | |
Peter Aronstam
|
|||
Chief Financial Officer
|
|||
Date: November 14, 2013
|
By:
|
/s/ Noreen Griffin | |
Noreen Griffin
|
|||
Chief Executive Officer
|
|||
Date: November 14, 2013
|
By:
|
/s/ Peter Aronstam | |
Peter Aronstam
|
|||
Chief Financial Officer
|
|||
2. Summary of Significant Accounting Policies (Policies)
|
9 Months Ended |
---|---|
Sep. 30, 2013
|
|
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation | Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the U.S. Securities and Exchange Commission (SEC), as amended for interim financial information. The financial information as of December 31, 2012 is derived from the audited financial statements presented in the Companys Form 10 Registration Statement filed with the Commission on April 22, 2013 and the Amended Registration Statements on Form 10-/A filed on June 7, 2013, July 18, 2013, August 23, 2013, September 25, 2013, and October 11, 2013 for the year ended December 31, 2012. The unaudited interim financial statements should be read in conjunction with the Companys Form 10 Registration Statement, which contains the audited financial statements and notes thereto, together with Managements Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2012 and 2011.
Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is managements opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the nine months ended September 30, 2013 are not necessarily indicative of results for the full fiscal year. |
Use of Estimates | Use of Estimates
The preparation of the Companys financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates. |
Cash, Cash Equivalents, and Short-Term Investments | Cash, Cash Equivalents, and Short-Term Investments
The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value. |
Concentration of Credit Risk | Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments
In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. Cash, accounts payable, payable to officer, and patent liability are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payable to a related party also approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes. |
Computer Equipment | Computer Equipment
Computer equipment is stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively. |
Intangible Assets | Intangible Assets
Costs incurred to acquire and/or develop the Companys product licenses and patents are capitalized and amortized by straight-line methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated fair market value. During the nine months ended September 30, 2013, the Company capitalized $2,710,539 of such costs incurred for the acquisition of the Companys patents. (See Note 10 of the Companys Form 10 Registration Statement). Amortization expense for the nine months ended September 30, 2013 and 2012 was $2,133,549 and $10,685, respectively. The Company estimates its amortization expense related to these assets will approximate $2,800,000 each year for the next five years. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by ASC Topic 360, Property, Plant and Equipment. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. No impairment losses were recognized for the nine months ended September 30, 2013 or for the corresponding period in 2012. |
Research and Development Costs | Research and Development Costs
Research and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies, clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain research and development activities on the Companys behalf and third-party service fees, including clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as operating expenses. |
Income Taxes | Income Taxes
The Company follows FASB ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Companys policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions. |
Share-Based Compensation and Issuance of Stock for Non-Cash Consideration | The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable.
The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, Equity-Based Payments to Non-Employees. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete. |
Net Loss per Share | Net Loss per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Companys net loss position. |
Recent Accounting Standards | Recent Accounting Standards
The Company qualifies as an emerging growth company as defined in Section 101 of the Jumpstart our Business Startups Act (JOBS Act) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
Any new accounting pronouncements issued by the Financial Accounting Standards Board, as applicable, have been or will be adopted by the Company upon or before the expiration of the extended transition period provided under Section 102(b)(1) of the JOBS Act. |
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Statements of Operations (Unaudited) (USD $)
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3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2013
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Sep. 30, 2012
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Sep. 30, 2013
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Sep. 30, 2012
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Income Statement [Abstract] | ||||
Revenues, net | ||||
Operating expenses: | ||||
Selling, general and administrative | 12,608,401 | 280,456 | 33,461,690 | 569,121 |
Research and development expense | 6,412,711 | 26,514 | 15,510,310 | 26,514 |
Depreciation and amortization expense | 719,040 | 10,863 | 2,134,231 | 11,012 |
Total operating expenses | 19,740,152 | 317,833 | 51,106,231 | 606,647 |
Loss from operations | (19,740,152) | (317,833) | (51,106,231) | (606,647) |
Interest expense | (205,416) | (1,098,868) | ||
Loss on settlement of debt | (7,108,495) | |||
Total other income (expense) | (205,416) | (8,207,363) | ||
Loss from continuing operations | (19,945,568) | (317,833) | (59,313,594) | (606,647) |
Gain from discontinued operations | 260,746 | |||
Net loss | $ (19,945,568) | $ (317,833) | $ (59,313,594) | $ (345,901) |
Loss from continuing operations | $ (0.34) | $ (0.01) | $ (1.08) | $ (0.03) |
Gain from discontinued operations | $ 0.01 | |||
Basic and diluted loss per share | $ (0.34) | $ (0.01) | $ (1.08) | $ (0.02) |
Weighted average number of shares outstanding | 59,334,545 | 30,853,117 | 55,127,859 | 19,706,741 |
4. Capital Structure-Common Stock and Common Stock Purchase Warrants
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Sep. 30, 2013
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Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4. Capital Structure-Common Stock and Common Stock Purchase Warrants |
Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
As of September 30, 2013 and September 30, 2012, the Company was authorized to issue 500,000,000 common shares at a par value of $0.001 per share.
Stock Warrants
Using the Black-Scholes Model, the Company calculated the fair value of $6,932,057 for stock warrants issued during the nine months ended September 30, 2013. Variables used in the Black-Scholes option-pricing model, include (1) a discount rate of 0.71%, (2) an expected remaining life between 2 and 5 years and (3) expected volatility of 130%.
During the third quarter of 2013, the Company issued 1,652,500 shares of its restricted common stock through common stock purchase warrant exercises. The warrants were exercised at a price of $0.50 per share and the Company received proceeds of $826,250 for equity from the exercise of the warrants.
Following is a summary of outstanding stock warrants at September 30, 2013 and December 31, 2012 and activity during the periods then ended:
Summary of outstanding warrants as of September 30, 2013:
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4. Capital Structure-Common Stock and Common Stock Purchase Warrants (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2013
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Capital Structure-Common Stock And Common Stock Purchase Warrants Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of outstanding stock warrants | Following is a summary of outstanding stock warrants at September 30, 2013 and December 31, 2012 and activity during the periods then ended:
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Summary of outstanding warrants |
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2. Summary of Significant Accounting Policies
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9 Months Ended |
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Sep. 30, 2013
|
|
Accounting Policies [Abstract] | |
2. Summary of Significant Accounting Policies | Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the U.S. Securities and Exchange Commission (SEC), as amended for interim financial information. The financial information as of December 31, 2012 is derived from the audited financial statements presented in the Companys Form 10 Registration Statement filed with the Commission on April 22, 2013 and the Amended Registration Statements on Form 10-/A filed on June 7, 2013, July 18, 2013, August 23, 2013, September 25, 2013, and October 11, 2013 for the year ended December 31, 2012. The unaudited consolidated financial statements should be read in conjunction with the Companys Form 10 Registration Statement, which contains the audited financial statements and notes thereto, together with Managements Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2012 and 2011.
Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is managements opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the nine months ended September 30, 2013 are not necessarily indicative of results for the full fiscal year.
Use of Estimates
The preparation of the Companys financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.
Cash, Cash Equivalents, and Short-Term Investments
The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets.
Fair Value of Financial Instruments
In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. Cash, accounts payable, payable to officer, and patent liability are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payable to a related party also approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.
Computer Equipment
Computer equipment is stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense from continuing operations for the nine months ended September 2013 and 2012 was $682 and $327, respectively.
Intangible Assets
Costs incurred to acquire and/or develop the Companys product licenses and patents are capitalized and amortized by straight-line methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated fair market value. During the nine months ended September 30, 2013, the Company capitalized $2,710,539 of such costs incurred for the acquisition of the Companys patents. (See Note 10 of the Companys Form 10 Registration Statement). Amortization expense for the nine months ended September 30, 2013 and 2012 was $2,133,549 and $10,685, respectively. The Company estimates its amortization expense related to these assets will approximate $2,800,000 each year for the next five years.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by ASC Topic 360, Property, Plant and Equipment. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. No impairment losses were recognized for the nine months ended September 30, 2013 or for the corresponding period in 2012.
Research and Development Costs
Research and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies, clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain research and development activities on the Companys behalf and third-party service fees, including clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as operating expenses.
Income Taxes
The Company follows FASB ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Companys policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2013, the Company has no accrued interest or penalties related to uncertain tax positions.
Share-Based Compensation and Issuance of Stock for Non-Cash Consideration
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable.
The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, Equity-Based Payments to Non-Employees. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Companys net loss position.
Recent Accounting Standards
The Company qualifies as an emerging growth company as defined in Section 101 of the Jumpstart our Business Startups Act (JOBS Act) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2012, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
Any new accounting pronouncements issued by the Financial Accounting Standards Board, as applicable, have been or will be adopted by the Company upon or before the expiration of the extended transition period provided under Section 102(b)(1) of the JOBS Act.
|
5. Stock Compensation
|
9 Months Ended |
---|---|
Sep. 30, 2013
|
|
Equity [Abstract] | |
5. Stock Compensation | Founders Shares and Shares Issued for Services
During the nine months ended September 30, 2013, the Company issued 10,228,000 shares of common stock, for prepaid services, which included founder shares. The Company valued these shares based upon the fair value of the common stock at the date of the agreements. The consulting fees are amortized over the contract periods, which are typically twelve months. The Company recognized an expense from common stock issued for services of $17,101,965 and $0 for the nine months ended September 30, 2013 and 2012, respectively. The amortization of prepaid services totaled $36,318,767 and $0 for the nine months ended September 30, 2013 and 2012, respectively. |
3. Promissory Notes
|
9 Months Ended |
---|---|
Sep. 30, 2013
|
|
Debt Disclosure [Abstract] | |
3. Promissory Notes | In April 2013 the Company issued two short-term promissory notes to third party investors totaling $200,000. Under the terms of the notes, the Company was required to issue a total of 20,000 shares of restricted common stock to the note holders as loan origination fees. The notes matured 14 days from the date of issuance. Under the terms of the notes, if the loans were not repaid, the note holders would collectively receive 20,000 shares of restricted common stock on the maturity date and every 30 days thereafter that the notes remain unpaid. As of the date of this filing, the notes have not been repaid.
On March 11, 2013 the Company issued four short-term promissory notes to third party investors totaling $249,000. Under the terms of the notes, the Company was required to issue a total of 25,000 shares of restricted common stock to the note holders as loan origination fees. The notes matured on March 25, 2013. Under the terms of the notes, if the loans were not repaid, the note holders would collectively receive 25,000 shares of restricted common stock on the maturity date and every 30 days thereafter that the notes remain unpaid. As of the date of this filing, the notes have not been repaid.
The Company has an outstanding note payable to K-C Operations (an unrelated party) issued on October 15, 2009. The balance as of September 30, 2013 and December 31, 2012 was $326,333 and $398,000, respectively. The note matured on October 31, 2010 and accrues interest at a rate of 6% per annum and is convertible to shares of common stock at a rate of $0.20 per share.
The Company has an outstanding note payable to Robert Johnson (former officer and director) issued on September 30, 2006 with a balance as of September 30, 2013 and December 31, 2012 of $21,547 and $21,547, respectively. The note matured on September 30, 2007 and is convertible to shares of common stock at a rate of $0.20 per share.
The Company has an outstanding note payable to Lexicon (an unrelated party) issued on January 15, 2009. The note is due upon demand. The balance as of September 30, 2013 and December 31, 2012 was $10,317 and $12,817, respectively. The note bears an interest rate of 6% per annum and is convertible to shares of common stock at a rate of $0.01 per share.
During the nine months ended September 30, 2013, the Company issued 1,545,833 shares of common stock for the retirement of $74,167 of promissory notes payable and accrued interest. The Company recognized a loss on conversion of the above debt of $7,108,495 and $0 in the nine months ended September 30, 2013 and 2012 respectively. |
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