SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve assumptions, and describe our future plans, strategies, and expectations. Such statements are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative of these words of other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.
Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our products, our potential profitability, and cash flows (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in this Annual Report on Form 10-K generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors as described in this Annual Report on Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report on Form 10-K will in fact occur.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. Our actual results may vary materially from those expected or projected.
BUSINESS.Throughout this Annual Report on Form 10-K, the terms "we," "us," "our," "registrant,"“we,” “us,” “our,” “registrant,” and "Company"“Company” refer to Mount Tam Biotechnologies, Inc.Banner Energy Services Corp., a Nevada corporation and, where applicable, its wholly-owned subsidiary Mount Tam Biotechnologies, Inc., a Delaware corporation ("Mount Tam").
Overview
corporation.Description of Business
The Company was establishedincorporated in Nevada in November 2011 under the name TabacaleraYsidron.TabacaleraYsidron, Inc. On August 13, 2015,December 9, 2019, the registrant entered intoCompany changed its name to “Banner Energy Services Corp.” by filing a Share Exchangecertificate of amendment to its Articles of Incorporation with the Secretary of State of Nevada. This name change became effective with the Financial Industry Regulatory Authority as of February 11, 2020.
On March 27, 2020, the Company sold Banner Midstream Corp., its former wholly-owned subsidiary, along with its four operating subsidiaries, Pinnacle Frac Transport LLC, Capstone Equipment Leasing LLC, White River Holdings Corp., and Conversion Agreement (the "Exchange Agreement") byShamrock Upstream Energy LLC, through which the Company formerly operated in the oil and amonggas industry, to Ecoark Holdings, Inc. (��Ecoark”). In consideration for the registrant and a holdersale of aits assets, the Company received 8,945,205 shares of Ecoark common stock in addition to Ecoark assuming all of the debt of Banner Midstream Corp. The majority of the issued and outstanding capitalshares of Ecoark common stock ofreceived by the registrant (the "Majority Shareholder"), onCompany in the one hand, and Mount Tam, the stockholders of Mount Tam ("Mount Tam Stockholders"), and the holders of certain convertible promissory notes of Mount Tam ("Mount Tam Noteholders"). Pursuanttransaction were used pay to the Exchange Agreement,Company’s creditors and eliminate its liabilities on its balance sheet. As a result of these developments, the Company’s sole asset is currently 1,000,000 shares of Ecoark common stock. Because the Company acquired all of the issuedholds these shares and outstanding equity securities of Mount Tam and the Mount Tam Stockholders and the Mount Tam Noteholders become the controlling stockholders of the registrant. The transactions contemplated by the Exchange Agreementhas no other assets, we are hereinafter referred tocurrently an “investment company” as the "Share Exchange." Prior to the Share Exchange, the registrant was a "shell company" (as such term is defined in Rule 12b-2 under the Exchange Act), however, afterInvestment Company Act of 1940 (the “1940 Act”). The Company intends to sell these shares for cash in fiscal year 2021 and terminate its status as an investment company under the Share Exchange1940 Act. The Company is currently considering the registrant is no longer a shell company.
Effective on August 31, 2015, the registrant changed its name from TabacaleraYsidron, Inc. to Mount TAM Biotechnologies, Inc. The name change was effected through a parent/subsidiary short-form merger of Mount TAM Biotechnologies, Inc., our wholly-owned Nevada subsidiary which we formed solely for the purposesubsequent use of the
name change, with and intocash proceeds resulting from the
Company, withproposed sale of the
Companyshares, including potentially making a cash distribution to its shareholders.On July 31, 2020, Mr. Jay Puchir notified our Board of Directors (the “Board”) that he was resigning as the surviving corporation. With the exceptionChairman of the name change, there wereBoard and Chief Executive Officer of the Company. On July 31, 2020, the Board appointed Mr. Richard Horgan, 36, as the Chief Executive Officer, and as our sole director and Chairman of the Board, effective August 1, 2020. Mr. Puchir was appointed Chief Accounting Officer of Ecoark as of March 27, 2020.
The Company currently has no changesoperations and is seeking to the Company's Articles of Incorporation or Bylaws. There will be no mandatory exchange of stock certificates.
We are an emerging biopharmaceutical company established to optimize, develop and bring to marketacquire a portfolio of products focused on improving the health and wellbeing of individuals afflicted with serious diseases, with a lead product targeting systemic lupus erythematosus ("SLE") and a strategy to bring to market novel therapeutics across a range of serious disease areas.
On August 17, 2014, Mount Tam entered into a Research Collaboration and License Agreement (the "Buck Institute License Agreement") with the Buck Institute for Research on Aging, an independent non-profit research organization devoted to aging and the diseases of aging based in Northern California ("Buck Institute") pursuant to which Mount Tam secured a worldwide exclusive license to certain compounds and technology to develop, manufacture and commercialize these compounds in the field of autoimmune disease. Our most advanced product candidate is TAM-01, a preclinical stage compound which represents what we believe to be a promising therapeutic candidate for the treatment of SLE. In July 2016 an amendment was signed which broadened the license to include any and all conditions, human and veterinary. In February 2017 we announced that we were advancing into Discovery TAM-03, a novel rapamycin analog ("rapalog") which we consider to be a potential candidate for addressing unmet need in several important cancer types.
All company operations are basednew business in the United States.States, including potentially by means of a reverse merger with an operating entity. We currently have no products that have obtained marketing approval in any jurisdiction, we have not generated revenues since inceptionwe divested our operating subsidiaries and do not expect to do so in the foreseeable futureshort-term due to the early stage nature of our current product candidate.
Background onCompany.We anticipate that the Potential SLE Market
We are currently focusing the developmentevaluation and selection of a product candidate in the field of SLE, an autoimmune disorder where current treatments are often not adequate to fully control disease and a condition where serious unmet need remains.
According to the Lupus Foundation of America, 1.5 million Americans have some form of lupus and more than 16,000 new cases are reported annually in the United States alone, although some other estimates are more conservative. The exact etiology of lupus is unknown. As an autoimmune disease, the immune system is unable to properly differentiate between healthy tissues and foreign invaders leading the immune system to attack healthy tissues. This may cause inflammation of the joints, heart, lungs, kidneys, brain and blood vessels. Lupus is a disease that goes through stages of remission and flares.
SLE is the most serious form of lupus. It is a chronic, inflammatory disorder that can damage many parts of the body, including the skin, joints and internal organs. Lupus nephritis ("LN") is a common and very serious complication for people with SLE, causing inflammation of the kidneys that may lead to significant illness and even death.
There is currently no known cure for SLE and no treatment that fully stabilizes the disease. Patients diagnosed with lupus are treated with a range of therapies including anti-malarials, corticosteroids, immunosuppressants, and newer biologic agents that primarily address the symptoms of the disease. Despite the range of available therapies, the burden of disease for SLE patients remains high, with significant morbidity and mortality seen in this population. SLE also brings a strong economic impact to patients and to society at large through both direct and indirect economic impacts resulting from increased medical costs and lost wages for patients and for caregivers.
Our Product Candidates
TAM-01
Our lead product candidate, TAM-01, is a novel rapalog which exerts its action through direct binding and inhibition of the mammalian Target of Rapamycin ("mTOR"). mTOR is a key regulatory pathway which is altered in individuals suffering from a range of disorders, including autoimmune diseases such as lupus. Based on extensive research conducted by various institutes we now understand that mTOR inhibitors, particularly rapamycin, may reduce disease activity and normalize T cell activation-induced calcium fluxing in SLE patients, and may also normalize immune function through suppression of autoreactive B cells.
The only rapalogs currently approved by FDA are rapamycin (sirolimus) and its first generation analogs (temsirolimus, everolimus), but none of these are approved for use in SLE patients. Unfortunately their potential utility as therapeutic agents for the treatment of chronic diseases such as SLE is limited due to their significant side effects, including impaired glucose tolerance, insulin resistance, and lipid dysregulation. Our lead product candidate, TAM-01, is a novel and proprietary rapalog, which has been shown in extensive preclinical pharmacology studies to deliver the therapeutic efficacy of rapamycin while significantly reducing or abolishing some of its side effects.
Discovery, lead optimization and pre-development activities (including preliminary scale up) have been largely completed for TAM-01 and it is ready for initiation of cGMP manufacturing to be followed by Investigational New Drug Application (IND) enabling safety studies (GLP Tox studies). A number of pharmacological studies in validated disease models (such as the NZBW/F1J SLE mouse model) have demonstrated that TAM-01 exhibits dose-dependent efficacy similar to rapamycin or temsirolimus. At 14-week dosage, TAM-01 is shown to reduce disease progression as measured by proteinuria, renal IgG and IgM deposition, anti-dsDNA antibody titers and ANA antibody titers. Examination of the kidney pathology of the NZBW/F1J mice showed that TAM-01 ameliorated kidney disease and reduced renal IgG and IgM deposits similarly to temsirolimus. Additionally, other studies have shown that, in contrast to both rapamycin and temsirolimus, TAM-01 has minimal impact on glucose levels, glucose tolerance, did not induce hyperlipidemia (cholesterol and triglyceride elevations), and had minimal impact on reticulocyte counts.
Although rapamycin and other rapalogs are thought to act primarily through the inhibition of the protein complex mTOR Complex 1 ("TORC1"), it is now well established that these drugs also have inhibitory effects on mTOR Complex 2 ("TORC2"). Our studies have shown TAM-01 tobusiness opportunity will be a more selective TORC1 inhibitor vs. rapamycincomplex and its analogs (having greater TORC1 inhibitory activity relative to TORC2 inhibitory activity) and we believe that this greater selectivity is the reason TAM-01 has shown a superior adverse event profile in mice vs. other rapalogs while still maintaining a strong efficacy profile. This theory, however, has not been proven in clinical trials and the superior adverse event profile seen in mice may not be demonstrated in clinical trials in humans.
TAM-01 exhibits superior oral bioavailability vs. rapamycin, which is expected to result in reduced variability of absorption and superior pharmacokinetics, making it suitable for administration via a flexible dosing regimen.
TAM-01 has completed preliminary non-GLP 14-day toxicology, safety, PK, ADME, preliminary scale up manufacturing studies, and analytic and purification methods have been established. We are ready to initiate cGMP manufacturing and GLP studies in order to prepare and submit an IND to FDA. We intend to advance TAM-01 to phase 1 clinical development in the United States within 18-24 months from the time we have completed our fundraising targets and recruitment of all required personnel. There can be no assurance, however, that the Company will be able to begin phase 1 clinical development in this time frame, if at all.
TAM-03
TAM-03 is a novel rapalog with a differentiated selectivity profile of TORC1 vs. TORC2 inhibition (as compared to rapamycin, to on-market rapalogs temsirolimus and everolimus, and to TAM-01), and also, favorable potency and bioavailability profiles. We believe that this overall profile makes it an appropriate candidate for further discovery work as a cancer therapy target. We are in the process of undertaking the first steps to characterize the cancer killing potential of TAM-03 through in vitro experimentation, and if positive, to move to early in vivo characterization in standard mouse models.
Rapalogs have been used in cancer therapy for some time to treat a range of cancers. Novartis' Affinitor/Votubia (everolimus), the leading rapalog for treating cancer, was first approved in 2009 to treat advanced kidney cancer and is now approved to treat a range of other cancers including certain breast and pancreatic cancers as well as tuberous sclerosis complex. Company reported sales of Affinitor/Votubia in 2016 were approx. $1.5 billion.
Real unmet need remains in these cancers however, with median progression free survival (PFS) in clinical trials of Affinitor reported to be less than 1 year in several important cancer types. An improved therapy that could meaningfully increase PFS, or as/more importantly, overall survival (OS), while delivering acceptable tolerability would likely be welcome by both healthcare providers and patients and we believe that by altering the mTORC1:2 inhibitory profile we have the potential to accomplish this. However, preclinical and clinical development of cancer therapeutics is particularly challenging and we are at the very early stages with TAM-03. Many challenges, both known and unknown, lie ahead for TAM-03 and so probability of product approval and commercialization must be considered low until more data are generated to support TAM-03 as a development candidate.
Our Suppliers and Manufacturers
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We will rely on third-party contract manufacturers ("CMOs") for the manufacture of our product candidate for larger scale preclinical and clinical testing, as well as for commercial quantities of any product candidates that are approved.
We do not have any current contractual relationships for the manufacture of commercial supplies of our product candidate if it is approved, and we intend to enter into agreements with a third-party contract manufacturer and one or more back-up manufacturers for the commercial production of our product candidates as they near potential approval.
Any drug products to be used in clinical trials and any approved product that we may commercialize will need to be manufactured in facilities, and by processes, that comply with FDA's current good manufacturing practice ("cGMP") requirements and comparable requirements of the regulatory agencies of other jurisdictions in which we are seeking approval.
Competition
We are a development company with no products currently on the market. We face competition from other companies, academic institutions, governmental agencies and other public and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies, in recruiting and retaining highly qualified scientific and management personnel and for licenses to additional technologies. Many of our competitors will have substantially greater financial, technical and human resources than we have. Our success depends in part on our ability to build, obtain regulatory approval for and market acceptance of, and actively manage a portfolio of drugs that addresses serious unmet medical needs.
If approved, our lead compound TAM-01 would compete with currently marketed drugs and therapies used for treatment of SLE and potentially with drug candidates currently in preclinical or clinical development. Patients diagnosed with SLE are currently treated with a range of therapies with varied success. Our main competitor is a biologic product, Benlysta®, the only FDA approved drug specifically for SLE patients. Benlysta targets and blocks B Lymphocyte Stimulator which promotes autoimmunity by permitting autoimmune B cells to live longer. However, Benlysta has not been evaluated in patients with severe active lupus nephritis or severe active central nervous system lupus and is not recommended for these patients. TAM-01 intends to take advantage of these limitations and to provide an effective therapy for these patients. Clinical success, however, is uncertain and our failure to compete effectively could have a material adverse effect on our business.
Intellectual Properties and Licenses
We strive to protect and enhance the proprietary technologiesprocess. Business opportunities that we believe are important to our business and seek to obtain and maintain patents for any patentable aspects of our products and any other inventions that are important to the development of our business. Our success depends in part on our ability to obtain and maintain our patent portfolio and other proprietary protection for commercially important technology, inventions and know-how related to our business, to defend and enforce our patents, to maintain our licenses to use intellectual property owned by third parties, to preserve the confidentiality of our trade secrets and to operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the fields targeted by our diagnostic products and services.
On August 17, 2014, Mount Tam entered into the Buck Institute License Agreement. This agreement establishes a joint research effort with the Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. We provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the termsbest interests of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. Mount Tam retains rights to inventions made by its employees, and Buck Institute will assign to Mount Tam all inventions made under the Buck Institute License Agreement jointly by its employees and Buck Institute personnel, provided that Mount Tam has complied with its funding obligations set forth in the Buck Institute License Agreement. On March 19, 2015 Mount Tam entered into an amendment to the Buck Institute License Agreement to extend the deadline of funding milestones and its reimbursement obligations for expenses that Buck Institute accrued relating to the patents under the Buck Institute License Agreement. On April 1, 2015, Mount Tam satisfied this revised funding milestone deadline with Buck Institute.
During the second quarter of 2016 the Company entered into negotiations with the Buck Institute to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease. On July 18, 2016, the Company entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") between the Company and The Buck Institute.
By way of background, andits shareholders may be scarce, or we may be unable to obtain the businesses we identify as previously disclosedviable for our objectives, including due to competitive forces in the Company's public filings, the Company previously entered into a Research Collaboration and License Agreement (the "Buck Institute License Agreement") with the Buck Institute, which establishes a joint research effort led by the Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. The Company agreed to provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the terms of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. (Additional information about the Buck Institute License Agreement, together with prior amendments thereto, maymarketplace beyond our control. There can be found in the Company's public filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2015.)
Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.
Additionally, pursuant to the Amendment, the parties agreed to settle past research funding amounts owed by the Company to The Buck Institute. The Company agreed to pay $40,000 within ten days of the execution of the Amendment, and The Buck Institute agreed that once this amount is paid, the Company will be deemed to be in full compliance with the terms of the License Agreement, including its payment obligations. On July 19, 2016, the Company made the $40,000 payment to The Buck Institute. In addition to the $40,000 payment, on June 13, 2016, the Company paid to The Buck Institute $11,706 in connection with costs incurred to further the Company's intellectual property position under the License Agreement. Pursuant to the above Amendment The Buck Institute waived $274,247 of payables by the Company.
Moreover, in the Amendment the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders.)
Within the licensed library is TAM-01. TAM-01's composition of matter is patented in the US, having an expiration date of December 2032. TAM-01's composition of matter patent has been recently allowed in Japan, expected to provide coverage for approx. 20 years. Our TAM-01 composition of matter patent application in the EU is pending. We will continue, as part of our ongoing research and development efforts, to strive to defend and to strengthen the intellectual property position of our key assets.
As consideration for the assignments and licenses, we issued Buck Institute 1,200,000 (post-merger) (450,000 pre-merger) shares of our common stock and Mount Tam is obligated to pay to Buck Institute milestone payments on development of its proprietary products claimed by patents assigned or licensed to it by Buck Institute. Mount Tam also is obligated to pay low single digit royalties, including annual minimum royalties, on sales of such products. Should Mount Tam grant licenses or sublicenses to those patents to third parties, Mount Tam is obligated to share a percentage or resulting revenue with Buck Institute. Mount Tam's royalty payment obligations are reduced if currently pending patent applications become invalid or if Mount Tam has to pay third parties to obtain certain licenses for the company to manufacture, use, sell or import its products produced pursuant to the Buck Institute License Agreement. Payment obligations terminate on expiration or annulment of the last patent covered by the Buck Institute License Agreement.
The Buck Institute License Agreement will terminate upon the expiration of our payment obligations thereunder. Mount Tam can terminate the licenses to any or all licensed patents upon specified advance notice to Buck Institute. Buck Institute may terminate the license provisions of the agreement only for cause. Termination of the Buck Institute License Agreement does not terminate Mount Tam's rights in patents assigned to it.
Governmental Regulations
To date, we have conducted and will continue to conduct our preclinical research through contract research organizations ("CROs") and through our partnership with the Buck Institute. We do not have the ability to independently conduct clinical trials for our product candidates, and we expect to continue to rely on CROs, medical institutions and academic clinical investigators to perform this function for both preclinical and clinical activities. Our reliance on these third parties for pre-clinic and clinical development activities reduces our control over these activities. Although we have, in the ordinary course of business, entered into agreements with these third parties, we continue to be responsible for confirming that all of our preclinical and clinical trials are conducted in accordance with approved investigational plans and protocols. Moreover, FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices or cGCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. To date, we believe that our CROs and the Buck Institute have performed well.
The process of complying with FDA guidelines and obtaining approvals from FDA of applications to market drugs and products is costly, time consuming and subject to unanticipated delays. There is no assurance that we will be able to
obtain FDA approvallocate compatible business opportunities for
anythe Company. See “Item 1A - Risk Factors.”Competition and Market Conditions
We will face substantial competition in our efforts to identify and pursue a business venture. The primary source of competition is expected to be from other companies organized and funded for similar purposes, including small venture capital firms, blank check companies, and wealthy investors, many of which may have substantially greater financial and other resources than we do. In light of our products.
Discoverylimited financial and Development Activities
To gain regulatory approvalhuman resources, we anticipate being at a competitive disadvantage compared to many of our
products,competitors in our efforts to obtain an operating business or assets necessary to commence our operations in a new field. Additionally, with the economic downturn caused by the coronavirus pandemic, many venture capital firms and similar firms and individuals have been seeking to acquire businesses at discounted rates, and we
must demonstrate, through experiments, preclinical studiesmay therefore face additional competition and
clinical trialsresultant difficulty obtaining a business on favorable terms or at all, at least until such time as the economy recovers. This disadvantage may also be heightened by the reality that our
drug product candidate meetscurrent sole asset is less liquid than cash, and many of our competitors have cash on hand for the
safety and efficacy standards establishedpurpose of making offers to purchase operating businesses. We expect to begin selling our Ecoark common stock on or after September 27, 2020, subject to market conditions. Further, even if we are successful in obtaining a business or assets for new operations, we expect there to be enhanced barriers to entry in the marketplace in which we decide to operate as a result of reduced demand and/or increased raw material costs caused by
FDAthe pandemic and other
international regulatory authorities. In addition,economic forces that are beyond our control.Regulation
As of the date of this Report, we must demonstrate that all development-related laboratory, clinicalvoluntarily file certain reports under the Securities Exchange Act of 1934 (the “Exchange Act”), because our sole asset is shares of common stock of another corporation, we are an investment company as such term is defined by the Investment Company Act and, manufacturing practices comply withas such, are subject to certain rules and regulations of FDA, other international regulatorsthe Securities and whereExchange Commission (the “SEC”) applicable local regulators.
Regulations establish standards for various actions and products including: drug substances and materials, drug manufacturing operations and facilities and analytical laboratories and medical development laboratory processes and environments. These standards apply to research, development, testing, manufacture, quality control, labeling, storage, record keeping, approval, advertising and promotion, and distribution of product candidates, on a product-by-product basis.
Preclinical Studies and Clinical Trials
Development testing generally begins with laboratory testing and experiments, as well as research studies using animal modelssuch entities. We may be required to obtain preliminary information on a product's efficacy and to identify potential safety issues. The results of these studies are compiled along with other information in an IND application, which is filed with FDA. After resolving any questions raised by FDA, which may involve additional testing and animal studies, clinical trials may begin. Regulatory agencies in other countries generally require a Clinical Trial Applicationmake significant expenditures to be submitted and approved before each trial can commence in each country.
Clinical trials normallycompliant with these regulations, including disclosure requirements, until such time as we are
conducted in three sequential phases and mayno longer subject to them.Depending on the direction management decides to take many years to complete. Phase 1 consists of testing the drug product in a small number of humans, often healthy volunteers, to determine preliminary safety and a tolerable dose range. Phase 2 usually involves studies in a limited patient population to evaluate the effectiveness of the drug product in humans having the diseasebusiness or medical condition for which the product is indicated, determine dosage tolerance and optimal dosage and identify possible common adverse effects and safety risks. Phase 3 consists of additional controlled testing at multiple clinical sites to establish clinical safety and effectiveness in an expanded patient population of geographically dispersed test sites to evaluate the overall benefit-risk relationship for administering the product and to provide an adequate basis for product labeling. Phase 4 clinical trialsbusinesses we may be conducted after approval to gain additional experience from the treatment of patientsacquire in the intended therapeutic indication.
The conduct of clinical trials isfuture, we may become subject to stringent medicalother laws or regulations that require us to make material expenditures on compliance including the increasing state level regulation of privacy. Any such requirements could require us to divert significant human and regulatory requirements. The time and expense required to establish clinical sites, provide training and materials, establish communications channels and monitor a trial over a long period of time is substantial. The conduct of clinical trials at institutions located around the world is subject to foreign regulatory requirements governing human clinical trials, which vary widely from country to country. Delays or terminations of clinical trials could result from a number of factors, including stringent enrollment criteria, slow rate of enrollment, size of patient population, having to compete with other clinical trials for eligible patients, geographical considerations and others. Clinical trials are monitored by the regulatory agencies as well as medical advisory and standards boards,capital resources on compliance, which could determine at any time to reevaluate, alter, suspend, or terminate a trial based upon accumulated data, including data concerning the occurrence of adverse health events during or related to the treatment of patients enrolled in the trial, and the regulator's or monitor's risk/benefit assessment with respect to patients enrolled in the trial. If they occur, such delays or suspensions could have a material impact on our development programs.
Regulatory Review
The results of preclinical and clinical trials are submitted to FDA in a New Drug Application ("NDA"), with comparable filings submitted to other international regulators. After the initial submission FDA has a period of time in which it must determine if the NDA is complete. After an NDA is submitted, although the statutory period provided for FDA's review is less than one year, dealing with questions or concerns of the agency while taking into account the statutory timelines governing such communications, review periods can actually ttake several years. If an NDA is accepted for filing, following FDA's review, FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not provide an adequate basis for approval. If FDA grants approval, the approval may be conditioned upon the conduct of post-marketing clinical trials or other studies to confirm the product's safety and efficacy for its intended use. Until FDA has issued its approval, no marketing activities can be conducted in the United States. Similar regulations apply in other countries. There can be no assurance that any of the Company's drug candidates will receive FDA approval or the approval of regulators in other countries.
Fast Track and Breakthrough Designations
FDA has various programs, including fast track and breakthrough therapy designations, which are intended to expedite the process for reviewing drugs. Even if a drug qualifies for one or more of these programs, FDA may later decide that the drug no longer meets the conditions for qualification. Generally, drugs that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments.
Fast track designation is intended to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. Designation may be granted on the basis of preclinical data. A sponsor of a drug that receives fast track designation will typically have more frequent interactions with FDA during drug development. In addition, products that have been designated as fast track can obtain rolling review.
Breakthrough therapy designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features, more intensive FDA guidance on an efficient drug development program, an organizational commitment involving senior managers, and eligibility for rolling review and priority review.
A key difference between fast track designation and breakthrough designation is what needs to be demonstrated to qualify for the programs. A breakthrough therapy designation is for a drug that treats a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies. In contrast, a fast track designation is for a drug that treats a serious or life-threatening condition, and nonclinical or clinical data demonstrate the potential to address unmet medical needs for the serious condition.
When appropriate, the Company intends to seek fast track designation for our TAM-01 to treat SLE. There can be no assurance that FDA will grant fast track designation. Even if such designation is provided, it may not result in a faster development or review time. Moreover, fast track designations do not increase the odds of approval. A fast track designation may be rescinded at any time if the drug candidate does not continue to meet the qualifications for these programs.
Manufacturing Standards
FDA and other international regulators establish standards and routinely inspect facilities and equipment, analytical and quality laboratories and processes used in the manufacturing and monitoring of products. Prior to granting approval of a drug product, FDA will conduct a pre-approval inspection of the manufacturing facilities, and the facilities of suppliers, to determine that the drug product is manufactured in accordance with cGMP and product specifications. Following approval, FDA will conduct periodic inspections. If, in connection with a facility inspection, FDA determines that a manufacturer does not comply with cGMP regulations and product specifications, FDA will issue an inspection report citing the potential violations and may seek a range of remedies, from administrative sanctions, including the suspension of our manufacturing operations, to seeking civil or criminal penalties.
International Approvals
Even if we were to succeed in gaining regulatory approval to market our products in the United States, we will still need to apply for approval with other international regulators if we want to sell outside the United States. Regulatory requirements and approval processes are similar in approach to that of the United States. With certain exceptions, although the approval of FDA carries considerable weight, international regulators are not bound by the findings of FDA and there is a risk that foreign regulators will not accept a clinical trial design or may require additional data or other information not requested by FDA.
Post-approval Regulations
Following the grant of marketing approval, FDA regulates the marketing and promotion of drug products. Promotional claims are generally limited to the information provided in the product package insert for each drug product, which is negotiated with FDA during the NDA review process. In addition, FDA enforces regulations designed to guard against conflicts of interest, misleading advertising and improper compensation of prescribing physicians. FDA will review, among other things, direct-to-consumer advertising, prescriber-directed advertising and promotional materials, sales representative communications to healthcare professionals, promotional programming and promotional activities on the Internet. FDA will also monitor scientific and educational activities. If FDA determines that a company has promoted a product for an unapproved use ("off-label"), or engaged in other violations, it may issue a regulatory letter and may require corrective advertising or other corrective communications to healthcare professionals. Enforcement actions may also potentially include product seizures, injunctions and civil or criminal penalties. The consequences of such an action and the related adverse publicity could have a material adverse effect on a developer's ability to market its drug and its business as a whole.
Following approval, FDA and other international regulators will continue to monitor data to assess the safety and efficacy of an approved drug. A post-approval discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or a recall or withdrawal of the product from the market, as well as possible civil or criminal sanctions. Similar oversight is provided by regulators in jurisdictions outside the US.
None of our products under development has been approved for marketing in the United States or elsewhere. We may not be able to obtain regulatory approval for any of our products under development. If we do not obtain the requisite governmental approvals or if we fail to obtain approvals of the scope we request, we or our licensees or strategic alliance or marketing partners may be delayed or precluded entirely from marketing our products, or the commercial use of our products may be limited. Such events would have a material adverse effect on our business, financial condition and results of operations.
Other Healthcare Laws and Regulations
If we obtain regulatory approval for any of our current or future product candidates, we may also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
| · | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; |
| · | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent; |
| · | federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| · | the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; |
| · | Health Insurance Portability and Accountability Act of 1996, as amended by Health Information Technology for Economic and Clinical Health Act of 2009, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and |
| · | state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
If our operations are found to be in violation of anyoperating results.Employees
As of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuringdate of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and impact our financial results.
Employees
We currently have three employees. In addition, we use advisors and consultants for research and development, clinical, regulatory, legal and administrative activities. We plan to hire additional staff as we expand research, production, business development, and sales and marketing programs. None of our employees are represented by a labor union.
We estimate thatthis Report, we have spent $785,347 on research and development activities during the last two fiscal years.
Compliance with Environmental Laws
Our operations may require the use of hazardous materials (including biological materials) which subject us to a variety of federal, provincial and local environmental and safety laws and regulations. Some of the regulations under the current regulatory structure provide for strict liability, holding a party potentially liable without regard to fault or negligence. We could be held liable for damages and fines as a result ofone employee, our or others', business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict how changes in laws or development of new regulations will affect our business operations or the cost of compliance.
Chief Executive Officer.
Before deciding to purchase, hold or sellRISK FACTORS.Investing in our common stock youinvolves a high degree of risk. Investors should carefully consider the risks described belowfollowing Risk Factors before deciding whether to invest in addition to the other information contained in this Annual Report and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. TheCompany. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also affectimpair our business.financial condition. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on the Company,events discussed in the Risk Factors below occur, our business, consolidated financial condition, results of operations and/or liquidityprospects could be seriously harmed.materially and adversely affected. In that event,such case, the market pricevalue and marketability of our common stock will likely decline, and you may lose all or part of your investment.
could decline.Risks RelatedRelating to Our Business
Our success depends heavily and Financial ConditionBecause our sole asset consists of 1 million shares of Ecoark common stock, which is traded on the successful development, regulatory approvalOTCQB, an illiquid market, we may not realize the expected benefits after we begin to sell the shares.
While we intend to liquidate as promptly as possible the 1 million shares of common stock of Ecoark common stock that represents our sole material asset, we may not realize the benefits we expect due to a number of factors including:
| ● | The OTCQB is generally not a liquid market although Ecoark has traded actively; |
| ● | The market price for Ecoark common stock has substantially declined in the month of September falling from a closing price of $3.16 on September 1, 2020 to $2.20 as of September 30, 2020; |
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| ● | We have no control over the market price of Ecoark and our only option is be patient, but we must either sell all shares prior to March 27, 2021 to avoid the very onerous 1940 restrictions or acquire another business by that date; |
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| ● | Our investment is subject to all of the risks that the stock market poses for larger companies, except that in a falling stock market, the OTCQB may be more volatile than major stock exchanges where larger, more established issuers which trade; |
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| ● | The political risk that the U.S. presidential election may have generally and on companies like Ecoark that have significant oil and gas assets; and |
| | |
| ● | The risks we summarize relating to our common stock which all apply to Ecoark common stock. |
We currently have no operations, and commercializationinvestors therefore have no basis on which to evaluate the Company’s future prospects.
We currently have no operations and will be reliant upon a merger with or acquisition of TAM-01,an operating business to commence operations and generate revenue. Because we have no operations or have not generated revenues since we divested our lead product candidate.
We do notoperating subsidiaries on March 27, 2020, investors have any products that have been granted regulatory approval. We cannot commercialize TAM-01 or any future product candidates in the United States without first obtaining regulatory approval for the product from FDA, nor can we commercialize TAM-01 or any future product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Clinical trials require yearsno basis upon which to complete and FDA review process typically takes 10 months or more and approval is never guaranteed. As a result, our near-term prospects, includingevaluate our ability to financeachieve our operationsbusiness objective of locating and generate revenue, are substantially dependent on our abilitycompleting a business combination with a target business. We have no current arrangements or understandings with any prospective target business concerning a business combination and may be unable to obtain regulatory approval for and, if approved, to successfully commercialize TAM-01complete a business combination in a timely manner.
Obtaining regulatory approval for marketing of any product candidate in one country does not ensurereasonable timeframe, on reasonable terms or at all. If we fail to complete a business combination as planned, we will
be ablenever generate any operating revenues.Because we became an inadvertent investment company when we sold Banner Midstream on March 27, 2020, we have until March 27, 2021 to obtain regulatory approval in other countries, whilecease being an investment company under the 1940 Act or we will have to comply with the onerous provisions of the 1940 Act which as a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
Even ifpractical matter we
were to successfully obtain approval for any product candidate from FDA and comparable regulatory authorities outside the United States, any approval might contain significant limitations related to use restrictions or may be subject to burdensome and costly post-approval study or risk management requirements. If we are unable to obtain regulatory approval for our product candidate in one or more jurisdictions, or if any approval contains significant limitations, we maywill not be able to
obtain sufficient fundingdo.When we sold Banner Midstream on March 27, 2020 and our principal asset became Ecoark common stock, we became an investment company under the 1940 Act. Once Ecoark common stock becomes 40% or generate sufficient revenue to continue our operations. Also, any regulatory approvalless of our product candidate, once obtained, maytotal assets (exclusive of Government securities and cash items), we will no longer be withdrawn byan “investment company” under the regulatory authority. Furthermore, even if1940 Act. But the value of the stock fluctuates so we obtain regulatory approval, commercial success will depend onneed some cushion. Moreover, we will need to be very careful where we deposit and how successfully we use our cash that we generate from the sale of Ecoark common stock. While bank deposits are ablenot investment securities, money market accounts with a money market fund are securities and included in the test. If our management is not careful, we can trip the investment company test. If we acquire an operating business prior to address a number of challenges, including the following:
development of our own commercial organization and/or establishment of commercial collaborations with partners;
establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;
the ability of our third-party manufacturers to manufacture quantities of TAM-01 and our other product candidates using commercially viable processes at a scale sufficient to meet anticipated demand andMarch 27, 2021, that are compliant with applicable regulations;
our success in educating physicians, other health care professionals and patients about the benefits, administration and use of TAM-01;
the availability, actual advantages, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and
the effectiveness of our own orwill solve our potential commercial collaborators' marketing, salesproblem. Compliance with the 1940 Act is very expensive and distribution strategy and operations.
Many of these factors are beyond our control. Ifas a practical matter we or any commercialization partners are unable to successfully commercialize TAM-01 or any other product candidate, we maywill not be able to earn sufficient revenues to continue our business.
The regulatory approval processes of FDA and comparable authorities outside the United States are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidate, our business will be substantially harmed.
The time required to complete clinical trials and to obtain approval by FDA and comparable authorities outside the United States is unpredictable and typically takes many years. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's development and may vary among jurisdictions. We have not obtained regulatory approval for our product candidate, and it is possible that our existing product candidate or any product candidates we may seek to develop in the future will never obtain regulatory approval.
Our product candidate(s) could fail to receive regulatory approval for many reasons, including the following:
FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of any clinical trials that we propose to conduct or require us to conduct additional clinical trials;
we may be unable to demonstrate to the satisfaction of FDA or comparable foreign regulatory authorities that our product candidate is both safe and effective for its proposed indication;
we may be unable to demonstrate that our product candidate's clinical and other benefits outweigh its safety risks;
FDA or comparable regulatory authorities outside the United States may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidate may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
FDA or comparable regulatory authorities outside the United States may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of FDA or comparable regulatory authorities outside the United States may change significantly in a manner rendering our clinical data insufficient for approval.
Failing to obtain regulatory approval to market our product candidate would harm our business, results of operations and prospects significantly.
In addition, even if we were to obtain approval, such regulatory approval may be for more limited indications than we request, may impact the price we intend to charge for our products, may be contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of our product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidate.
We have not previously submitted an NDA or any similar drug approval filing to FDA or any comparable authority outside the United States for our product candidate, and we cannot be certain that our product candidate will be successful in clinical trials or receive regulatory approval. Further, our product candidate may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidate, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our product candidate in one or more jurisdictions, our revenue will be dependent, to a significant extent, upon the size of the markets in the jurisdictions for which we gain regulatory approval.
Even if TAM-01 and our other future product candidates receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, healthcare payors and others in the medical community necessary for commercial success.
Existing therapies for SLE have well-established market positions and familiarity with physicians, payers and patients. If we are unable to achieve significant differentiation for TAM-01 from existing and widely accepted therapies for SLE, our opportunity for TAM-01 to be commercialized successfully, if approved, would be adversely affected.
If TAM-01 or any of our future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, payers and others in the medical community. The degree of market acceptance of our product candidate, if approved for commercial sale, will depend on a number of factors, including the following:
convenience and ease of administration of the product candidates compared to alternative treatments;
the prevalence and severity of any side effects;
their efficacy and potential advantages compared to alternative treatments;
the willingness of physicians and other health care providers to change their current treatment practices;
the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;
the strength of marketing and distribution support; and
the price we charge for our product candidate.
TAM-01 has never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale.
We have never manufactured our product candidates on a commercial scale and there are risks associated with scaling up manufacturing to commercial scale including, amongst others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for TAM-01 or other product candidates there is no assurance that our manufacturer that we have not yet engaged, will be able to manufacture the approved product to specifications acceptable to FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand.
If our suppliers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.
We may not be successfulface difficulties or delays in our efforts to build a pipeline of drug candidates.
A key element of our strategy is to use and expand our proprietary drug discovery platform to build a pipeline of drug candidates to address different targets, and progress those drug candidates through clinical development for the treatment of a variety of different types of diseases. Although our research efforts to date have resulted in identification of a series of targets, we may not be able to develop drug candidates that are safe and effective inhibitors or promoters of all or any of these targets. Even if we are successful in building a product pipeline, the potential drug candidates that we identify may not be suitable for clinical developmentsearch for a number of reasons, including causing harmful side effects or demonstrating other characteristics that indicate a low likelihood of receiving marketing approval or achieving market acceptance. If our methods of identifying potential drug candidates fail to produce a pipeline of potentially viable drug candidates, then our success as a business will be dependent on the success of fewer potential drug candidates, which introduces risks to our business model and potential limitations to any success we may achieve.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new specialty pharmaceutical products is highly competitive. We face competition with respect to TAM-01, and will face competition with respect to TAM-03 and any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that are developing or currently market and sell products to our target patient groups. These companies typically have a greater ability to reduce net prices for their competing drugs in an effort to gain or retain market share and undermine the value proposition that we might otherwise be able to offer to payers. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. There may also be companies unknown to us that are engaged in the development of products that are potentially competitive with those that we are developing. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
We currently have no sales representatives or distribution personnel and no marketing capabilities. If we are unable to develop a sales and marketing and distribution capability, we will not be successful in commercializing TAM-01 or other future product candidates.
We have not yet built out an infrastructure to sell, market or distribute therapeutic products. If TAM-01 or other future product candidates are approved, we intend to commercialize them, whether on our own or as part of a strategic partnership, with our own specialty sales force in the United States and with commercial partners globally.
There are risks involved with both establishing our own sales and marketing and distribution capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
We may be unable to identify appropriate commercial partners to distribute and market our products outside the United States or to negotiate terms with such commercial partners that are favorable or acceptable to us. Also, we may be unable to maintain those relationships. The inability to identify, successfully negotiate with, and maintain relationships with commercial partners for distribution outside the United States could limit and/or delay our ability to commercialize our products outside the United States.
If we obtain approval to commercialize any of our product candidates outside the United States, we will be subject to additional risks.
If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business, including:
different regulatory requirements for drug approvals in countries outside the United States;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
non-United States taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
Even if we receive regulatory approval for TAM-01 or future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements.
Any regulatory approvals that we may receive for our product candidates will contain approved indicated uses, and we will be required to market any approved products in accordance with the indicated uses and our approved labeling. In addition, any regulatory approvals may contain conditions for approval or requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. In addition, if FDA or a comparable regulatory authority outside the United States approves our product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, Quality System Regulation, or QSR, requirements and current good clinical practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
fines, warning or untitled letters or holds on clinical trials;
refusal by FDA to approve pending applications or supplements to approved applications filed, or suspension or revocation of product approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions, the imposition of civil penalties or criminal prosecution.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. If we are not able to maintain regulatory compliance or if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, regulatory sanctions may be applied or we may lose any marketing approval that we may have obtained,combination, and we may not
achievehave access to sufficient capital to consummate a business combination.We may face difficulty identifying a viable business opportunity or sustain profitability, which would adversely affectnegotiating or paying for any resulting business combination. Economic factors that are beyond our control, including the COVID-19 pandemic and consequent economic downturn, as well as increased competition for acquisitions of operating entities that we expect to encounter as a result thereof, may hinder our efforts to locate and/or obtain a business that is suitable for our business prospects, financial condition and results of operations.
Our product candidates may cause serious adverse side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.
It is impossible to predict when or if our product candidate will prove safe enough to receive regulatory approval. Undesirable side effects could result in a more restrictive label or the delay or denial of regulatory approval by FDA or other comparable regulatory authority outside the United States for the affected product candidate. Additionally, if our product candidate receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
we may be forced to suspend the marketing of such product;
regulatory authorities may withdraw their approvals of such product;
regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products;
FDA or other regulatory bodies may issue safety alerts, "Dear Healthcare Provider" letters, press releases or other communications containing warnings about such product;
FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies, or REMS, or a comparable regulatory authority outside the United States may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome and costly implementation requirements on us;
we may be required to change the way the product is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to subjects or patients;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidate, if approved.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to any of our future product candidates. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
significant costs to defend the related litigation;
substantial monetary awards to patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
Insurance coverage is increasingly expensive. We currently do not have any product liability insurance, and may not be able to obtain and maintain insurance coveragegoals at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We rely on third parties to conduct our preclinical studiesprice we can afford and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for our drug candidates and our business could be substantially harmed.
We depend upon independent investigators and contractors, such as CROs, universities, the Buck Institute and medical institutions to conduct our preclinical studies and clinical trials. We rely upon, and plan to continue to rely upon, such third-party entities to execute our preclinical studies and clinical trials and to monitor and manage data produced by and relating to those studies and trials. However, we may not be able to in the future establish arrangements with CROs when needed or on terms that are acceptablewill enable us to us, or at all, which could negatively affectsufficiently grow our development efforts with respectbusiness to generate value to our drug candidates and materially harm our business, operations and prospects. As a result of the use of third-party contractors, we willshareholders. We have only limited control over certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies, including each of our clinical trials, is conducted in accordance with the applicable protocol, legal and regulatory requirements as well as scientific standards, and our reliance on any third-party entity will not relieve us of our regulatory responsibilities.
Based on our present expectations, we and our third-party contractors will be required to comply with current cGCP for all of our drug candidates in clinical development. Regulatory authorities enforce cGCP through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of our contractors fail to comply with applicable cGCP, the clinical data generated in the applicable trial may be deemed unreliable and FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving a drug candidate for marketing, which we may not have sufficient cash or other resources to support and which would delay our ability to generate revenue from any sales of such drug candidate. Any agreements governing our relationships with outside contractors such as CROs or other contractors we may engage in the future, may provide those outside contractors with certain rights to terminate a clinical trial under specified circumstances. If such an outside contractor terminates its relationship with us during the performance of a clinical trial, we would be forced to seek an engagement with a substitute contractor, which we may not be able to do on a timely basis or on commercially reasonable terms, if at all, and the applicable clinical trial would experience delays or may not be completed.
If our contractors do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to a failure to adhere to our clinical protocols, legal and regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminatedcapital, and we may not be able to
obtain regulatory approvaltake advantage of any available business opportunities on favorable terms or at all due to the limited availability of capital. There can be no assurance that we will have sufficient capital to provide us with the necessary funds to successfully develop and implement our plan of operation or acquire a business we deem to be appropriate or necessary to accomplish our objectives, in which case we may be forced to terminate our business plan and your investment in the Company could become worthless.If we are not successful in acquiring a new business and generating material revenues, it would have a material adverse effect on our business.
If we are not successful in developing a viable business plan and acquiring a new business through which to implement it, our investors’ entire investment in the Company could become worthless. Even if we are successful in combining with or acquiring the assets of an operating entity, we can provide no assurances that the Company will be able to generate significant revenue therefrom in the short-term or at all or that investors will derive a profit from their investment. While we believe the proceeds from a sale of our Ecoark common stock to be necessary for or successfully commercialize, the affected drug candidates. In addition,us to acquire a business and commence operations, we cannot guarantee that we will be unablesuccessful in consummating such sale or that proceeds from a sale will be sufficient for us to control whetheracquire an attractive target candidate, establish material revenue or become profitable. If we are not they devote sufficient time and resources tosuccessful, our preclinical and clinical programs. These outside contractorsinvestors may lose their entire investment.
If we cannot manage our growth effectively, we may not assignbecome profitable.
Businesses, including development stage companies such as great a priorityours and/or any operating business or businesses we may acquire, often grow rapidly and tend to have difficulty managing their growth. If we are able to acquire an operating business, we will likely need to expand our programs management team and other key personnel by recruiting and employing experienced executives and key employees and/or pursue them as diligently as we would if we were undertaking such programs ourselves. As a result,consultants capable of providing the necessary support.
We cannot assure you that our operationsmanagement will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and the commercial prospects for the effected drug candidates would be harmed, our costs could increase and our ability to generate revenuesyour investment could be delayed. These contractorslost.
Because we have limited capital, we may also have relationships with other commercial entities, some of whom may compete with us. If our contractors assist our competitorsneed to our detriment, our competitive position would be harmed.
Clinical drug development involves a lengthy and expensive process with uncertain outcomes, is very difficult to design and implement, and any of our clinical trials could produce unsuccessful results or fail at any stageraise additional capital in the process.
We are still in the preclinical stages of our development of TAM-01 and hope to begin clinical trialsfuture by the end of 2018. Clinical trials conducted on humans are expensive and can take many years to complete, and outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Additionally, any positive results of preclinical studies and early clinical trials of a drug candidate may not be predictive of the results of later-stage clinical trials, such that drug candidate may reach later stages of clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacyissuing debt or adverse safety profiles, notwithstanding promising results in earlier phases of the trials. Therefore, the results of any ongoing or future clinical trials we conduct may not be successful.
We may experience delays in pursuing our planned clinical trials, and any planned clinical trials may not begin on time, may require redesign, may not enroll sufficient healthy volunteers or patients in a timely manner, and may not be completed on schedule, if at all.
Clinical trials may be delayed for a variety of reasons, including delays related to:
obtaining regulatory approval to commence a trial;
reaching agreement on acceptable terms with prospective CROs, and clinical trial sites,equity securities, the terms of which
may dilute our current investors and/or reduce or limit their liquidation or other rights.Even if we can sell a material quantity of the shares of Ecoark common stock held by us at favorable prices, we may require additional capital to acquire a business. We may not be subjectable to extensive negotiationobtain additional capital when required. Future business development activities, as well as administrative expenses such as salaries, insurance, general overhead, legal and compliance expenses and accounting expenses will require a substantial amount of additional capital.
The terms of securities we issue in future capital transactions may be more favorable to new investors, and may vary significantly among different CROsinclude liquidation preferences, superior voting rights or the issuance of other derivative securities, which could have a further dilutive effect on or subordinate the rights of our current investors. Any additional capital raised through the sale of equity securities will likely dilute the ownership percentage of our shareholders. Additionally, any debt securities we issue would likely create a liquidation preference superior that of our current investors and, trial sites;
obtaining institutional review board,if convertible into shares of common stock, would also pose the risk of dilution.We may be unable to obtain necessary financing if and when required.
Our ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets (both in general and in the particular industry or IRB, approvalindustries in which we may choose to operate), our limited operating history and current lack of operations, the national and global economies and the condition of the market for microcap securities. Further, economic downturns such as the current global depression caused by the COVID-19 pandemic may increase our requirements for capital, particularly if such economic downturn persists for an extended period of time or after we have acquired an operating entity, and may limit or hinder our ability to obtain the funding we require. If the amount of capital we are able to raise from financing activities, together with any revenues we may generate from future operations, is not sufficient to satisfy our capital needs, we may be required to discontinue our development or implementation of a business plan, cancel our search for business opportunities, cease our operations, divest our assets at each trial site;
enrolling suitable volunteersunattractive prices or
patientsobtain financing on unattractive terms. If any of the foregoing should happen, our shareholders could lose some or all of their investment.Because we are still developing our business plan, we do not have any agreement for a business combination.
We have no current arrangement, agreement or understanding with respect to participateengaging in a trial;
developingbusiness combination with any specific entity. We may not be successful in identifying and validating companion diagnostics onevaluating a timely basis;
changessuitable acquisition candidate or in dosingconsummating a business combination. We have not selected a particular industry or administration regimens;
having patients completespecific business within an industry for a trial or returntarget company. We have not established specific metrics and criteria we will look for post-treatment follow-up;
inabilityin a target company, and if and when we do we may face difficulty reaching a mutual agreement with any such entity, including in light of market trends and forces beyond our control. Given our early-stage status, there is considerable uncertainty and therefore inherent risk to monitor patients adequately during or after treatment;
clinical investigators deviating from trial protocols or dropping out of a trial;
regulators instituting a clinical hold due to observed safety findings or other reasons;
adding new or substituting clinical trial sites; and
manufacturing sufficient quantities of drug candidate for use in clinical trials.
We plan to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. Although we expectinvestors that we will
have agreementsnot succeed in
place with CROs governing their committed activitiesdeveloping and
conduct, weimplementing a viable business plan.The COVID-19 pandemic could materially adversely affect our financial condition, future plans and results of operations.
This COVID-19 pandemic has had a significant adverse effect on the economy in the United States and on most businesses. The Company is not able to predict the ultimate impact that COVID -19 will have limited influence over their actual performance. As a result, we ultimately do noton its business; however, if the pandemic and will not have control over a CRO's compliance with the terms of any agreement it may have with us, its compliance with applicable regulatory requirements, or its adherence to agreed time schedules and deadlines, and a future CRO's failure to perform those obligations could subject any ofgovernment action in response thereto impose limitations on our clinical trials to delays or failure.
Further, we may also encounter delays if a clinical trial is suspended or terminated by us, by any IRB or Ethics Committee at an institution in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for the trial, if applicable, or by FDA, or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements, inspection of the clinical trial operations or trial site by FDAresult in a prolonged economic recession or other regulatory authorities resulting indepression, the imposition of a clinical hold, exposing participants to health risks caused by unforeseen safety issues or adverse side effects, development of previously unseen safety issues, failure to demonstrate a benefit from using a drug candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Therefore, we cannot predict with any certainty the schedule for commencement or completion of any currently ongoing, planned or future clinical trials.
If we experience delays in the commencement or completion of, or due to suspension or termination of, any clinical trial for our drug candidates, the commercial prospects of the drug candidate could be harmed, and our ability to generate product revenues from the drug candidate may be delayed or eliminated. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug candidateCompany’s development and
approval process and jeopardize regulatory approvalimplementation of
our drug candidatesits business plan and our ability to commence
sales and
grow our operations, as well as our ability to generate
revenues. The occurrencematerial revenue therefrom, will be hindered, which would have a material negative impact on the Company’s financial condition and results of operations.Because we are dependent upon Richard Horgan, our Chief Executive Officer and sole director to manage and oversee our Company, the loss of him or any difficulty hiring or retaining other key personnel could adversely affect our plan and results of operations.
We currently have a sole director and officer, Richard Horgan, who manages the Company and is presently evaluating a viable plan for our future operations. We will rely solely on his judgment in connection with selecting a target company and the terms and structure of any resulting business combination. In order to be successful, we will need to obtain key personnel to assist Mr. Horgan in his efforts to develop and implement the Company’s business plan. We may be unable to obtain such personnel prior to acquiring a business or at all. Competition in the market for the human resources that we expect we will need is intense, and we may have difficulty procuring adequate employees and/or consultants without investing significant financial resources on their salaries, fees, or other compensation. Further, given our current search for a business opportunity, we may have to delay hiring additional personnel until such time as we have sufficient capital to meet both the required amounts to make attractive offers to operating entities and to fund our future operations. The loss of these eventsour Chief Executive Officer, or any difficulty or inability to procure other qualified personnel, could harmdelay or prevent the achievement of our business financial condition,objectives, which could have a material adverse effect upon our results of operations and financial position.
Because we lack a controlling shareholder, if Mr. Horgan were unavailable we may be unable to cause the Company to elect a replacement director. In that event we would cease operations.
In addition, the officers and directors of an acquisition candidate may resign upon completion of a combination with their business. The departure of a target’s key personnel could negatively impact the operations and prospects significantly.
of our post-combination business. The role of a target’s key personnel upon the completion of the transaction cannot be ascertained at this time. Although we contemplate that certain or all members of a target’s management team may remain associated with the target following a change of control thereof, there can be no assurance that all of such target’s management team will decide to remain in place. The loss of key personnel, either before or after a business combination and including management of either us or a combined entity could negatively impact the operations and profitability of our business.Risks Related to a Potential Business Acquisition
We relymay encounter difficulty locating and consummating a business combination, including as a result of the competitive disadvantages we have.
We expect to continueface intense competition in our search for a revenue-producing business to rely completelycombine with or acquire. Given the current economic climate, venture capital firms, larger companies, blank check companies such as special purpose acquisition companies and other investors are purchasing operating entities or the assets thereof in high volumes and at relatively discounted prices. These parties may have greater capital or human resources than we do and/or more experience in a particular industry within which we choose to search. Most of these competitors have a certain amount of liquid cash available to take advantage of favorable market conditions for prospective business purchaser such as those caused by the recent pandemic. Any delay or inability to locate, negotiate and enter into a business combination as a result of the relative illiquidity of our current asset or other disadvantages we have relative to our competitors could cause us to lose valuable business opportunities to our competitors, which would have a material adverse effect on third partiesour business.
We may expend significant time and capital on a prospective business combination that is not ultimately consummated.
The investigation of each specific target business and any subsequent negotiation and drafting of related agreements, SEC disclosure and other documents will require substantial amounts of management’s time and attention and material additional costs in connection with outsourced services from accountants, attorneys and other professionals. We will likely expend significant time and resources searching for, conducting due diligence on, and negotiating transaction terms in connection with a proposed business combination that may not ultimately come to formulatefruition. In such event, all of the time and manufacturecapital resources expended by the Company in such a pursuit may be lost and unrecoverable by the Company or its shareholders. Unanticipated issues which may be beyond our preclinical, clinical trialcontrol or that of the seller of the applicable business may arise that force us to terminate discussions with a target company, such as the target’s failure or inability to provide adequate documentation to assist in our investigation, a party’s failure to obtain required waivers or consents to consummate the transaction as required by the inability to obtain the required audits, applicable laws, charter documents and post-approval drug supplies. The developmentagreements, the appearance of a competitive bid from another prospective purchaser, or the seller’s inability to maintain its operations for a sufficient time to allow the transaction to close. Such risks are inherent in any search for a new business and commercializationinvestors should be aware of them before investing in an enterprise such as ours.
Conflicts of interest may arise between us and our shareholders, directors, or management, which may have a negative impact on our ability to consummate a business combination or favorable terms or generate revenue.
Our Chief Executive Officer, Mr. Horgan, is not required to commit his full time to our affairs, which may result in a conflict of interest in allocating his time between managing the Company and other businesses in which he is or may be involved. We do not intend to have any full-time employees prior to the consummation of a business combination. Mr. Horgan is not obligated to contribute any specific number of hours to our affairs, and he may engage in other business endeavors during his employment with the Company. If any of his other business affairs require him to devote substantial amounts of time to such matters, it could materially limit his ability to devote his time and attention to our drug candidatesbusiness which could have a negative impact on our ability to consummate a business combination or generate revenue.
Although no determination has been made as to the industry in which we intend to search or the operating business that we may obtain, it is possible that we obtain an operating company in which a director or officer of the Company has an ownership interest in or that he or she is an officer, director or employee of. If we do obtain any business affiliated with an officer or director, such business combination may be stopped, delayedon terms other than what would be arrived at in an arms-length transaction. If any conflict of interest arises, it could adversely affect a business combination or made less profitable if thosesubsequent operations of the Company, in which case our shareholders may see diminished value relative to what would have been available through a transaction with an independent third parties failparty.
We may engage in a business combination that causes tax consequences to provide us with sufficient quantities ofand our shareholders.
Federal and state tax consequences will, in all likelihood, be a significant factor in considering any business combination that we may undertake. Under current federal law, such drug supplies or failtransactions may be subject to dosignificant taxation to the buyer and its shareholders under applicable federal and state tax laws. While we intend to structure any business combination so at acceptable quality levels, includingas to minimize the federal and state tax consequences to the extent practicable in accordance with applicableour business objectives, there can be no assurance that any business combination we undertake will meet the statutory or regulatory requirements of a tax-free reorganization or contractual obligationssimilar favorable treatment or that the parties to such a transaction will obtain the tax treatment intended or expected upon a transfer of equity interests or assets. A non-qualifying reorganization, combination or similar transaction could result in the imposition of significant taxation, both at the federal and state levels, which may have an adverse effect on both parties to the transaction, including our shareholders.
It is unlikely that our shareholders will be afforded any opportunity to evaluate or approve a business combination.
It is unlikely that our shareholders will be afforded the opportunity to evaluate and approve a proposed business combination. In most cases, business combinations do not require shareholder approval under applicable law, and our operationsArticles of Incorporation and bylaws do not afford our shareholders with the right to approve such a transaction. Accordingly, our shareholders will be relying almost exclusively on the judgement of our Board and Chief Executive Officer and any persons on whom they may rely with respect to a potential business combination. In order to develop and implement our business plan, may in the future hire lawyers, accountants, technical experts, appraisers, or other consultants to assist with determining the Company’s direction and consummating any transactions contemplated thereby. We may rely on such persons in making difficult decisions in connection with the Company’s future business and prospects. The selection of any such persons will be made by our Board, and any expenses incurred or decisions made based on any of the foregoing could prove to be adverse to the Company in hindsight, the result of which could be harmeddiminished value to our shareholders.
Because our search for a business combination is not presently limited to a particular industry, sector or any specific target businesses, prospective investors will be unable to evaluate the merits or risks of any particular target business’ operations until such time as they are identified and disclosed.
We are still determining the Company’s business plan, and we may seek to complete a result.
Webusiness combination with an operating entity in any number of industries or sectors. Because we have not yet selected or approached any specific target business, prospective investors currently have no
experiencebasis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition, prospects or other metrics or qualities they deem appropriate in
drug formulation or manufacturing. We do not currently have, nor do we planconsidering to
acquire, the infrastructure or capability internally, such as our own manufacturing facilities, to manufacture our preclinical and clinical drug supplies for useinvest in the
conductCompany. Further, if we complete a business combination, we may be affected by numerous risks inherent in the operations of
the business we acquire. For example, if we acquire a financially unstable business or an entity lacking an established operating history, we may be affected by the risks inherent in the business and operations of a new business or a development stage entity. Although our
clinical trials or commercial quantities of any drug candidates that may obtain regulatory approval. Therefore, we lackmanagement intends to evaluate and weigh the
resourcesmerits and
expertise to formulate or manufacture our own drug candidates. We have entered into agreements with third-party CMOs forrisks inherent in a particular target business and make a decision based on the
clinical-stage manufacture of certain of our drug candidate. We plan to enter into agreements with one or more manufacturers to manufacture, supply, storeCompany and
distribute drug supplies for our current and future clinical trials and/or commercial sales. We intend to establish or continue those relationships for the supply of our drug candidates, however,its shareholders’ interests, there can be no assurance that we will
properly ascertain or assess all the significant risks inherent in a target business, that we will have adequate time to complete due diligence or that we will ultimately acquire a viable business and generate material revenue therefrom. Furthermore, some of these risks may be outside of our control and leave us with no ability to reduce the likelihood that those risks will adversely impact a target business or mitigate any harm to the Company caused thereby. Should we select a course of action, or fail to select a course of action, that ultimately exposes us to unknown or unidentified risks, our business will be harmed and you could lose some or all of your investment.Past performance by our management and their affiliates may not be indicative of future performance of an investment in us.
While our Chief Executive Officer has experience in advising public and private companies, his past performance, the performance of other entities or persons with which he is involved, or the performance of any other personnel we may retain in the future will not necessarily be an indication of either (i) that we will be able to retain those relationshipslocate a suitable candidate for our initial business combination or (ii) the future operating results of the Company including with respect to any business combination we may consummate. You should not rely on commercially reasonable terms, if at all. If we are unable to maintain those relationships, we could experience delays in our development efforts as we locate and qualify new CMOs. If our current drug candidatethe historical record of him or any drug candidatesother of our personnel or their affiliates’ performance as indicative of our future performance or that an investment in us will be profitable. In addition, an investment in the Company is not an investment in any entities affiliated with our management or other personnel. While management intends to endeavor to locate a viable business opportunity and generate shareholder value, there can be no assurance that we will succeed in this endeavor.
We may seek business combination opportunities in industries or sectors that are outside of our management’s area of expertise.
We will consider a business combination outside of our management’s area of expertise if a business combination candidate is presented to us and we determine that such candidate offers an attractive opportunity for the Company. Although management intends to endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all the significant risks, or that we will accurately determine the actual value of a prospective operating entity to acquire. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s ability to evaluate and make decisions on behalf of the Company may be limited, or we may developmake material expenditures on additional personnel or acquireconsultants to assist management in the future receive regulatory approval, we will rely on one or more CMOs to manufactureCompany’s operations. Investors should be aware that the commercial supply of such drugs.
Our reliance on a limited number of CMOs exposes us toinformation contained herein regarding the following risks:
We may be unable to identify manufacturers on acceptable terms, or at all, because the number of potential manufacturers is limited and FDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, productionareas of our products after receipt of FDA approval, if any.
Our third-party manufacturers mightmanagement’s expertise will not necessarily be unablerelevant to formulate and manufacture our drugs in the volume andan understanding of the quality requiredbusiness that we ultimately elect to meetacquire. As a result, our clinical needs and commercial needs, if any.
Our future contract manufacturers may not perform as contractually agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.
Drug manufacturers are subject to ongoing periodic unannounced inspection by FDA, the Drug Enforcement Administration, and corresponding state agencies to ensure strict compliance with current good manufacturing practices, or cGMP, regulations and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers' compliance with these regulations and standards.
If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.
Each of these risks could delay our clinical trials, the approval, if any, of our drug candidates by FDA or the commercialization of our drug candidates or result in higher costs or deprive us of potential product revenues.
We expect to have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of FDA or other comparable foreign authorities, we would be prevented from obtaining regulatory approval for our drug candidates unless and until we engage a substitute contract manufacturer that can comply with such requirements, which wemanagement may not be able to do. Any such failure byadequately ascertain or assess all the significant risks or strategic opportunities that may arise. Accordingly, any of our contract manufacturers would significantly impact our ability to develop, obtain regulatory approval for or market our drug candidates, if approved.
Further, we plan to rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our drug candidates for our clinical trials. We do not have, nor do we expect to enter into, any agreements for the commercial production of these raw materials, and we do not expect to have any control over the process or timing of our contract manufacturers' acquisition of raw materials needed to produce our drug candidates. Any significant delayshareholders in the
supplyCompany following a business combination could suffer a reduction in the value of
their shares, and any resulting loss will likely not be recoverable.We may attempt to complete a drug candidatebusiness combination with a private target company about which little information is available, and such target entity may not generate revenue as expected or otherwise by compatible with us as expected.
In pursuing our search for a business to acquire, we may seek to complete a business combination with a privately held company. Very little public information generally exists about private companies, and the only information available to us prior to making a decision may be from documents and information provided directly to us by the target company in connection with the transaction. Such documents or information or the raw material components thereof for an ongoing clinical trial dueconclusions we draw therefrom could prove to a manufacturer's need to replace a third-party supplier of raw materials could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our drug candidates. Additionally, if our future manufacturersbe inaccurate or we are unable to purchase these raw materials to commercially produce any of our drug candidates that gain regulatory approvals, the commercial launch of our drug candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our drug candidates.
Disagreements with respect to the commercial terms of our sales, licensing, purchase or manufacturing agreements may limit our commercial success.
The rights and obligations of the partners to whichmisleading. As such, we may licensebe required to make our TAM-01 technology are governed by the Buck Institute License Agreement. In addition, our relationships with CROs and CMOs are governed by the service agreements between us and each manufacturer. Although we attemptdecision on whether to address the full range of possible events that may occur during the developmentpursue a potential business combination based on limited, incomplete or the manufacturing of TAM-01 drug candidate and products, unanticipated or extraordinary events may occur beyond those contemplated by said agreements. Furthermore, our business relationships with our product manufacturers and our collaborators may include assumptions, understandings or agreements that are not included in our agreements with them, or that are inaccurately or incompletely represented by their terms. In addition, key terms in such agreements may be misunderstood or contested, even when both we and the other party previously believed that we had a mutual understanding of our obligations.
Any differences in interpretation or misunderstandings between us and other partiesfaulty information, which may result in substantial costs and delays with respect to the development, manufacturing or sale of TAM-01 drug product, and may negatively impact our revenues and operating results. Product manufacturers may fail to produce the products and partners may fail to develop the drug candidate under the timeline or in the manner we anticipated,subsequent operations generating less revenue than expected, which could materially harm our financial condition and results may differ from the terms upon which we had agreed. As a result, we may be unable to supply drugs of the quality or in the quantity demanded or required. We may suffer harm to our reputation in the market from missed development goals or deadlines, and may be unable to capitalize upon market opportunities as a result. Resolution of these problems may entail costly and lengthy litigation or dispute resolution procedures. In addition, there is no guarantee that we will prevail in any such dispute or, if we do prevail, that any remedy we receive, whether legal or otherwise, will adequately redress the harm we have suffered. The delays and costs associated with such disputes may themselves harm our business and reputation and limit our ability to successfully compete in the market going forward.
Our future success depends on our ability to retain our chief executive officer and chief financial officer and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on our chief executive officer, chief financial officer and the other principal members of our management team that may be hired in the future. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives.
Recruiting and retaining qualified and experienced scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers or engaged by entities other than us and may have commitments under employment, consulting or advisory contracts with other entities that may limit their availability to us.
operations.Our ability to timely submit an Investigational New Drug to FDA will depend on our ability to recruit all necessary personnel and to raise sufficient funds for such recruitment.
Our ability to execute on our current plan forassess the completionmanagement of all activities and submission of an IND to FDA will depend on our ability to recruit the necessary personnel to support our development activities. Failure to complete all hires as planned will result in significant delays in the submission of the IND, if at all. Further, our ability to hire and retain such personnel will depend on our ability to raise sufficient funds for such recruitment. Any delays in raising the necessary funds will result in recruiting delays, which in turn will delay the submission of the IND.
We expect to expand our development, regulatory and sales and marketing capabilities,a prospective target business may be limited and, as a result, we may encounter difficulties in managing our growth,acquire a target business whose management does not have the skills, qualifications or abilities to enable a seamless transition, which could, disruptin turn, negatively impact our results of operations.
We currently have three employees. We expectWhen evaluating the desirability of a potential business combination, our ability to experience significant growthassess the target business’s management may be limited due to a lack of time, resources or information. Our management’s assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities expected. Further, in most cases the target’s management may be expected to want to manage us and replace our Chief Executive Officer. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company or assist with their former entity’s merger or combination into ours, the operations and profitability of the post-acquisition business may be negatively impacted and our shareholders could suffer a reduction in the numbervalue of our employeestheir shares.
Any business we acquire will likely lack diversity of operations or geographical reach, and in such case we will be subject to risks associated with dependence on a single industry or region.
Our search for a business will likely be focused on entities with a single or limited business activity and/or that operate in a limited geographic area. While larger companies have the ability to manage their risk by diversifying their operations among different industries and regions, smaller companies such as ours and the entities we anticipate reviewing for a potential business combination generally lack diversification, in terms of both the nature and geographic scope of our operations if we are able to successfully develop and commercialize TAM-01, particularly in the areas of regulatory affairs, sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the anticipated expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Future growth would impose significant added responsibilities on members of management, including:
managing our clinical trials effectively, which we anticipate being conducted at numerous clinical sites;
identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require;
managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
managing additional relationships with various strategic partners, suppliers and other third parties;
improving our managerial, development, operational and finance reporting systems and procedures; and
expanding our facilities.
Our failure to accomplish any of these tasks could prevent us from successfully growing our Company. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on our product candidate or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates and are currently focused principally on TAM-01 as well as certain activities intended to advance TAM-03 as an oncology candidate, or in other disease areas where we deem TAM-03 to have the potential to address serious unmet need.their business. As a result, we may foregowill likely be impacted more acutely by risks affecting the industry or delay pursuit of opportunities withthe region in which we operate than we would if our business were more diversified. In addition to general economic risks, we could be exposed to natural disasters, civil unrest, technological advances, and other product candidatesuncontrollable developments that will threaten our viability if and to the extent our future operations are limited to a single industry or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs.region. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
Guidelines and recommendations published by various organizations can reduce the use ofdiversify our product candidate.
Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidate. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of therapies. Recommendations or guidelines suggesting the reduced use of our product candidate or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidate.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We are a development stage company with limited operating history. To date, we have focused primarily on developing our lead product candidate, TAM-01. Our product candidate will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurred cumulative net loss from inception (August 13, 2014) to December 31, 2016 of $4,533,706.
We have devoted most of our financial resources to product and technology development. To date, we have financed our operations, primarily through the sale of equity securities and convertible debt securities. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, our product candidate has not been commercialized, and if our product candidate is not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market our product candidate in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success inside and outside the United States.
We expect to continue to incur substantial and increased expenses as we expand our development activities. We also expect an increase in our expenses associated with creating additional infrastructure to support operations as a public company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.
We have never generated any revenue and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidate. We do not anticipate generating revenue from sales of our product candidate for the foreseeable future, if ever. Our ability to generate future revenue from product sales depends heavily on our success in:
completing development of TAM-01;
obtaining regulatory approval for TAM-01; and
launching and commercializing our product candidate for which we receive regulatory approval, either by building our own targeted sales force or by collaborating with third parties.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses, when, or if, we will begin to generate revenue from product sales, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by FDA or other regulatory authority to perform studies in addition to those that we currently anticipate.
Even if our product candidate is approved for commercial sale, to the extent we do not engage a third party collaborator, we anticipate incurring significant costs associated with commercializing any approved product candidate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
If we fail to obtain additional financing, we would be forced to delay, reduce or eliminate our product development programs.
Developing pharmaceutical products is expensive. As of December 31, 2016, we had cash and cash equivalents of $375,499. As such, we will need additional financing in order to execute our plans. Attempting to secure financing will divert our management from day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that any financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:
significantly delay, scale back or discontinue the development or commercialization of our product candidates;
seek corporate partners for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;
relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or
significantly curtail, or cease, operations.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects.
There could be an adverse change or increase in the laws and/or regulations governing our business.
We and our operating subsidiary are subject to various laws and regulations in different jurisdictions, and the interpretation and enforcement of laws and regulations are subject to change. We are also subject to different tax regulations in each of the jurisdictions where we conduct our business or where our management or the management of our operating subsidiary is located. We expect the scope and extent of regulation in the jurisdictions in which we conduct our business, or where our management or the management of our operating subsidiary is located, as well as regulatory oversight and supervision, to generally continue to increase. There can be no assurance that future regulatory, judicial and legislative changes in any jurisdiction will not have a material adverse effect on us or hinder us in the operation of its business.
Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our market.
While we intend to continue to apply for patent protection with respect to our product candidates, the strength of patents in the life sciences field involves complex legal and scientific questions and can be uncertain. Patent applications may fail to result in issued patents with claims that cover the products in the United States or in other countries. If this were to occur, early generic competition could be expected against product candidates in development. There is also no assurance that all of the potentially relevant prior art relating to a patent application, which can invalidate a patent or prevent a patent from issuing based on a pending patent application, will be found.
Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated, which could adversely affect our ability to establish market share or successfully execute our business strategy to increase sales of our products and would negatively impact our financial condition and results of operations including causing a significant decrease in our revenues and cash flows.
Furthermore, patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our patent claims. If a patent application fails to issue or if the breadth or strength of protection of a patent or patent application is threatened, competitors could directly compete against our products and we would have no recourse. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be
found validat risk.Changes in laws or regulations, or a failure to comply with the laws and enforceable or will be unthreatenedregulations applicable to us, may adversely affect our business, ability to negotiate and complete a business combination, and results of operations.
We are subject to laws and regulations enacted by third parties or will offer adequate coverage of our products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate could be reduced. Since patent applications in the United Statesfederal, state and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file or invent any patent application. Furthermore, if a third party has filed such patent application, an interference proceeding in the United States can be provoked by such third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In the United States, the natural expiration of a maintained patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Once the patent life has expired, we may be open to competition from competitors that will be able to freely use our technology described in our expired patent(s).
local governments. In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreementsSEC regulations to protect proprietary know-how that is not patentable or which we elect not to patent, processes for which patents are difficult to enforce andsubject, any other elements of our development processes that involve proprietary know-how, information or technology that is not covered by patents. Althoughbusiness we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, our competitors may independently discover our trade secrets and proprietary information. For example, FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how FDA's disclosure policies may changeacquire in the future if at all.
Changes in either the patent laws or interpretations of the patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. An inability to obtain, enforce and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Further, thesubject to substantial legal or regulatory oversight and restrictions, which could hinder our growth and expend material amounts on compliance. Compliance with, and monitoring of, applicable laws of some foreign countries do not tendand regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application by courts and administrative judges may also change from time to protect proprietary rights to the same extent or in the same manner as the laws of the United States. Consequently, we may nottime, and any such changes could be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement may not be as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuanceunfavorable to us in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. We may be unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, and therefore we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
Further, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not tend to favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
If we breach any of the agreements under which we license from third parties the intellectual property rights or commercialization rights to our drug candidate, particularly our license agreement with Buck Institute, we could lose license rights that are important to our business and our operations could be materially harmed.
Under the Buck Institute License Agreement, Mount Tam licenses significant intellectual property related to TAM-01 and TAM-03 from the Buck Institute. Under the terms of the Buck Institute License Agreement, Buck Institute assigns to Mount Tam certain assets, materials and records resulting from the research. Mount Tam retains rights to inventions made by its employees, and Buck Institute assigns to Mount Tam all inventions made under the Buck Institute License Agreement jointly by Mount Tam's employees and Buck Institute personnel, provided that Mount Tam's employees have made a certain inventive contribution. With respect to all other inventions made in the course of the research, Buck Institute grants to Mount Tam worldwide exclusive license rights under patents and patent applications claiming such inventions. Buck Institute retains rights to practice these inventions for research and teaching purposes. Mount Tam bears the costs of filing, prosecution and maintenance of patents assigned or licensed to us under the Buck Institute License Agreement.
As consideration for the assignments and licenses, Mount Tam is obliged to pay to Buck Institute milestone payments on development of its proprietary products claimed by patents assigned or licensed to Mount Tam by Buck Institute. Mount Tam also is obliged to pay low single-digit royalties, including annual minimum royalties, on sales of such products. Should Mount Tam grant licenses or sublicenses to those patents to third parties, Mount Tam is obliged to pay to Buck Institute certain undisclosed variable fees as a function of out-licensing revenues, or the Out-License Fee, where such Out-License Fees are creditable against annual license payments to Buck Institute. Mount Tam's payment obligations are reduced by our proportionate contribution to a joint invention. Payment obligations terminate on expiration or annulment of the last patent covered by the agreement.
In addition to the Buck Institute License Agreement, we may seek to enter into additional agreements with other third parties in the future granting similar license rights with respect to other potential drug candidates. If we fail to comply with any of the conditions or obligations or otherwise breach the terms of the Buck Institute License Agreement, or any future license agreement we may enter on which our business or drug candidates are dependent, Buck Institute or other licensors may have the right to terminate the applicable agreement in whole or in part and thereby extinguish our rights to the licensed technology and intellectual property and/or any rights we have acquired to develop and commercialize certain drug candidates, including, with respect to the Buck Institute License Agreement, our TAM-01 drug therapies. Under the Buck Institute License Agreement, Mount Tam can terminate the licenses to any or all licensed patents upon specified advance notice to Buck Institute. Buck Institute may terminate the license provisions of the agreement only for cause. Termination of the agreement does not terminate Mount Tam's rights in patents assigned to Mount Tam but would terminate Mount Tam's rights to patents licensed to it under the Buck Institute License Agreement. The loss of the rights licensed to Mount Tam under the Buck Institute License Agreement, or any future license agreement that we may enter granting us rights on which our business or drug candidates are dependent, would eliminate our ability to further develop the applicable drug candidates and would materially harm our business, prospects, financial condition and results of operations.
Claims that we infringe the intellectual property rights of others may prevent or delay our drug discovery and development efforts.
Our research, development and commercialization activities, as well as any drug candidates or products resulting from those activities, may infringe or be accused of infringing a patent or other form of intellectual property under which we do not hold a license or other rights. Third parties may assert that we are employing their proprietary technology without authorization.
There may be third-party patents of which we are currently unaware with claims that cover the use or manufacture of our drug candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our drug candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our drug candidates infringes upon these patents. If our activities or drug candidates infringe the patents or other intellectual property rights of third parties, the holders of such intellectual property rights may be able to block our ability to commercialize such drug candidates unless we obtain a license under the intellectual property rights or until any applicable patents expire or are determined to be invalid or unenforceable.
Defense of any intellectual property infringement claims against us, regardless of their merit, would involve substantial litigation expense and would be a significant diversion of resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, limit our business to avoid the infringing activities, pay royalties and/or redesign our infringing drug candidates or alter related formulations, processes, methods or other technologies, any or all of which may be impossible or require substantial time and monetary expenditure. Further, if we were to seek a license from the third party holder of any applicable intellectual property rights, we may not be able to obtain the applicable license rights when needed or on reasonable terms, or at all. Some of our competitors may be able to sustain the costs of complex patent litigation or proceeding more effectively than us because they have substantially greater resources. The occurrence of any of the above events could prevent us from continuing to develop and commercialize one or more of our drug candidates and our business could materially suffer.
We may desire to, or be forced to, seek additional licenses to use intellectual property owned by third parties, and such licenses may not be available on commercially reasonable terms or at all.
In addition to Buck Institute, other third parties may also hold intellectual property, including patent rights, that are important or necessary to the development of our drug candidate, in which case we would need to obtain a license from that third party or develop a different formulation of the product that does not infringe upon the applicable intellectual property, which may not be possible. Additionally, we may identify drug candidates that we believe are promising and whose development and other intellectual property rights are held by third parties. In such a case, we may desire to seek a license to pursue the development of those drug candidates. Any license that we may desire to obtain or that we may be forced to pursue may not be available when needed on commercially reasonable terms or at all. Any inability to secure a license that we need or desire could have a material adverse effect on our business, financial conditioninvestments and prospects.
The patent protection covering our drug candidate may be dependent on third parties, who may not effectively maintain that protection.
While we expect that we will seekresults of operations. In addition, a failure to gain the right to fully prosecute any patents covering our drug candidate we may in-license from third-party owners, it is possible that the platform technology patents that cover our drug candidate remain controlled by our licensors. Similarly, some of our future licensing partners may retain the right,comply with applicable laws or may seek the rights, to prosecute patents covering the drug candidates we license to themregulations, as interpreted and we may grant such rights to those partners for business reasons. If such third parties fail to appropriately maintain that patent protection, we may not be able to prevent competitors from developing and selling competing products and our ability to generate revenue from any commercialization of the affected drug candidates may suffer.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, whichapplied, could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our current or potential licensors. To attempt to stop infringement or unauthorized use, we may need to file infringement claims, which can be expensive and time-consuming and distract management.
If we pursue any infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the relevant technology on the grounds that our patents do not cover the technology in question. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, which could reduce the likelihood of success of, or the amount of damages that could be awarded resulting from, any infringement proceeding we pursue in any such jurisdiction. An adverse result in any infringement litigationmaterial defense or defense proceedings could put one remedial costs and/or more ofdamages have a material adverse effect on our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing, which could limit the ability of our drug candidates to compete in those jurisdictions.
Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.
Risks Related to an Investment in Our Securities
OurCommon StockDue to factors beyond our control, our stock price may be volatile.
There is currently a limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of any investment inmarket for our common stock.
Our operations to date have been primarily limited to developing TAM-01stock, and TAM-03. In addition, as an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated an ability to obtain regulatory approval for or to commercialize a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing a significant number of pharmaceutical products.
Our common stock has limited liquidity.
Our common stock is quoted on the OTC Markets (OTC Pink). OTC Pink securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTC Pink securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Pink issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange. As such, our securities are thinly traded compared to larger more widely known companies in the same industry. Thinly traded common stockthere can be
more volatile than stock trading inno guarantee that an active
public market. We cannot predict the extent to which an active public market for our common stock will develop,
oreven if we are successful in consummating a business combination. Further, even if an active market for our common stock develops, it will likely be
sustained. In addition, there is no assurancesubject to by significant price volatility when compared to more seasoned issuers. We expect that
trading in the
Company'sprice of our common stock will continue
to be more volatile than more seasoned issuers for the foreseeable future. Fluctuations in the price of our common stock can be based on various factors in addition to those otherwise described in this Report, including: | ● | A prospective business combination and the terms and conditions thereof; |
| ● | The operating performance of any business we acquire, including any failure to achieve material revenues therefrom; |
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| ● | The performance of our competitors in the marketplace, both pre- and post-combination; |
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| ● | The public’s reaction to our press releases, SEC filings, website content and other public announcements and information; |
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| ● | Changes in earnings estimates of any business that we acquire or recommendations by any research analysts who may follow us or other companies in the industry of a business that we acquire; |
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| ● | Variations in general economic conditions, including as may be caused by uncontrollable events such as the COVID-19 pandemic and the resulting decline in the economy; |
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| ● | Our declaration of a dividend to our shareholders which may occur in the future; |
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| ● | The public disclosure of the terms of any financing we disclose in the future; |
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| ● | The number of shares of our common stock that are publicly traded in the future; |
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| ● | Actions of our existing shareholders, including sales of common stock by our directors and executive officers or by significant investors; and |
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| ● | The employment or termination of key personnel. |
Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of whether we can consummate a business combination and of our current or subsequent operating performance and financial condition. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
Because trading in our common stock is so limited, investors who purchase our common stock may depress the market if they sell common stock.
Our common stock trades on the OTC Pink Market, the successor to the pink sheets. The OTC Pink Market generally is illiquid and most stocks traded there are of companies that are not required to file reports with the SEC under the Securities Exchange Act of 1934. While we voluntarily file Forms 10-Q and 10-K with the SEC, we are a voluntary filer and not required to file reports with the SEC. Our common stock itself infrequently trades. For example, on September 21, 2020, it traded 53 shares and closed at $0.51. Yahoo Finance reported that the average daily volume was 172 shares. Accordingly, any sales may depress the trading price.
The market price of our common stock may decline if a substantial number of shares of our common stock are sold at once or on any other securities exchange or quotation medium.
Ourin large blocks.Presently the market for our common stock is categorized as a penny stock. Tradinglimited. If an active market for our shares develops in the future, some or all of our shareholders may sell their shares of our common stock which may depress the market price. Further, Rule 144 will not be restrictedavailable if we are deemed to be a “shell” company, unless an exemption from the definition applies. Any sale of a substantial number of these shares in the public market, or the perception that such a sale could occur, could cause the market price of our common stock to decline, which could reduce the value of the shares held by our other shareholders.
Future issuance of our common stock could dilute the interests of our existing shareholders, particularly in connection with an acquisition and any resulting financing.
We may issue additional shares of our common stock in the future. The issuance of a substantial amount of our common stock could substantially dilute the interests of our shareholders. In addition, the sale of a substantial amount of common stock in the public market, either in the initial issuance or in a subsequent resale by the SEC's pennytarget company in a business combination which received our common stock regulations which may limit a shareholder's ability to buy and sellas consideration or by investors who has previously acquired such common stock could have an adverse effect on the market price of our common stock.
OurBecause our common stock is categorized as a penny stock. subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.
The SEC has adopted Rule 15g-9regulations which generally defines "penny stock"define “penny stock” to be anyan equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securitiesspecific exemptions. The market price of our common stock on the OTC Pink Market is presently less than $5.00 per share and therefore we are covered by the pennyconsidered a “penny stock” company according to SEC rules. Further, we do not expect our stock rules, which impose additional sales practice requirements on broker-dealers who sellprice to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risksrise above $5.00 in the penny stock market.foreseeable future. The “penny stock” designation requires any broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson inselling our securities to disclose certain information concerning the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior toobtain a transaction in a penny stock not otherwise exemptwritten agreement from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receivedetermine that the purchaser's written agreementpurchaser is reasonably suitable to purchase the transaction.securities. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affectlimit the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketabilitysolicit purchases of our common stock.
stock and therefore reduce the liquidity of the public market for our shares.Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority (“FINRA”), a growing number of broker-dealers decline to permit investors to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The “penny stock” designation may have a depressive effect upon our common stock price.
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Because of FINRA sales practice requirements may also limit a shareholder's ability to buy and sellwhich affect broker-dealers, the market price for our stock.
In addition to the "penny stock" rules described above, common stock will be adversely affected.FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low pricedlow-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer'scustomer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low pricedlow-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy shares of our common stock, which may limit yourour shareholders’ ability to buy and sell our common stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends Further, due to FINRA regulation, there are a limited number of broker dealers which will handle penny stocks, which impairs the market and no cash dividends will be paid inreduces the foreseeable future.
We do not anticipate paying cash dividends onmarket price.Due to recent changes to Rule 15c2-11 under the Exchange Act, our common stock may become subject to limitations or reductions on stock price, liquidity or volume.
On September 16, 2020, the SEC adopted amendments to Rule 15c2-11 under the Exchange Act. This Rule applies to broker-dealers who quote securities listed on over-the-counter markets such as our common stock. The Rule as amended prohibits broker-dealers from publishing quotations on OTC markets for an issuer’s securities unless they are based on current publicly available information about the issuer. When it becomes effective, the amended Rule will also limit the Rule’s “piggyback” exception, which allows broker-dealers to publish quotations for a security in reliance on the foreseeable future andquotations of a broker-dealer that initially performed the information review required by the Rule, to issuers with current publicly available information or issuers that are up-to-date in their Exchange Act reports. As of this date, we are uncertain as what actual effect the Rule may not have sufficient funds legally available to pay dividends. Even ifon us.
The Rule changes could harm the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings forliquidity and/or market price of our operations.
Our common stock by either preventing our shares are notfrom being quoted or driving up our costs of compliance. There is currently traded with any substantial volume, and you may be unable to sell at or near ask prices or at all if you need to sell or liquidate a substantial number of shares at one time.
We cannot predict the extent to which an active public market“stop” sign on OTC Pink for our common stock, will develop or be sustained.
Our common shares are currently quoted, but currently with little to no volume, based on quotations on the OTC Markets (OTC Pink), meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situationwhich is attributable to a number of factors, including the fact thatissued when current material information about an issuer is not made publicly available. Because we are a smallvoluntary filer under Section 15(d) of the Exchange Act and not a public reporting company, the practical impact of these changes is to require us to maintain a level of periodic disclosure we are not presently required to maintain, which is still relatively unknownwould cause us to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that evenincur material additional expenses. Further, if we came to the attentioncannot or do not provide or maintain current public information about our company, our stockholders may face difficulties in selling their shares of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will developat desired prices, quantities or be sustained,times, or that trading levels will be sustained.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for "penny stocks" has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the future volatility of our share price.
Our corporate actions are substantially controlled by our principal shareholders and affiliated entities.
As of March 24, 2017, our principal shareholders, which includes our officers and directors, own approximately 6.4% of our outstanding shares of common stock. These shareholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal shareholders and their affiliated entities, elections of our Board will generally be within the control of these shareholders and their affiliated entities. Whileat all, of our shareholders are entitled to vote on matters submitted to our shareholders for approval, the concentration of shares and voting control presently lies with these principal shareholders and their affiliated entities. As such, it would be difficult for shareholders to propose and have approved proposals not supported by management. There can be no assurances that matters voted upon by our officers and directors in their capacity as shareholders will be viewed favorably by all of our shareholders.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation, as amended, contain a provision permitting us to eliminate the liability of our directors for monetary damages to our company and shareholders to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
Legislative actions, higher insurance costs and potential new accounting pronouncements may impact our future financial position and results of operations.
There have been regulatory changes and there may potentially be new accounting pronouncements or additional regulatory rulings that will have an impact on our future financial position and results of operations. In addition, insurers are likely to increase premiums as a result of high claims rates over the past several years, which we expect will increase our premiums for insurance policies. Further, there could be changes in certain accounting rules. These and other potential changes could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results.
We may have material liabilities that were not discovered before, and have not been discovered since, the closing of the Exchange Agreement.
As a result of the Share Exchange, the former business plan and management of the registrant, previously known as "TabacaleraYsidron, Inc.", have been abandoned and replaced with the business and management team of Mount Tam. Prior to the Share Exchange, there were no relationships or other connections among the businesses or individuals associated with those two entities. As a result, we may have material liabilities based on activities before the Share Exchange that have not been discovered or asserted. We could experience losses as a result of any such undisclosed liabilities that are discovered in the future, which could materially harm our business and financial condition. Although the Exchange Agreements and the other agreements entered into in connection with the Share Exchange contains customary representations and warranties from Mount Tam and the registrant concerning their respective assets, liabilities, financial condition and affairs, there may be limited or no recourse against pre-Share Exchange shareholders or principals in the event those representations prove to be untrue. As a result, our current and future shareholders will bear some, or all, of the risks relating to any such unknown or undisclosed liabilities.
We may be exposed to additional risks as a result of "going public" by means of a reverse acquisition transaction.
We may be exposed to additional risks because the business of Mount Tam has become a public company through a "reverse acquisition" transaction. There has been increased focus by government agencies on transactions such as the Share Exchange in recent years, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result of the
completionamendments to the Rule.Our shareholders do not have dissenters’ rights with respect to an acquisition of a controlling interest in the Company.
Section 78.378 of the Nevada Revised Statutes allows a corporation to limit the application of the statutory provisions with respect to dissenters’ rights applicable to the acquisition of a controlling interest in a corporation. On August 19, 2015 we amended our bylaws to provide that transaction. Further, asSection 78.3793 of the Nevada Revised Statutes, Nevada’s dissenters’ rights statute, does not apply to the shareholders of the Company. As a result, any of our existence asshareholders who do not approve a "shell company"transaction that results in the issuance or transfer of a controlling interest in the Company will not have the rights generally afforded under applicable rulesthat provision with respect to such a transaction, including the right to receive payment of the SEC priorfair value of their shares as provided therein. Therefore, if the acquisition of a controlling interest in the Company were to the closing of the Exchange Agreement on August 13, 2015, we are subject to certain restrictions and limitations for certain specified periods of time relating to potential future issuancesoccur, any of our securitiesdissenting shareholders may be left without recourse and compliancemay be unable to subsequently sell their shares at the prices they desire or at all.
Because we may issue preferred stock without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third-party to acquire us and could depress our stock price.
Our Board may issue, without a vote of our shareholders, one or more series of preferred stock that have voting rights, liquidation preferences, dividend rights and other rights that are superior to those of our common stock. Any issuance of preferred stock could adversely affect the rights of holders of our common stock in that such preferred stock could have priority over the common stock with applicable SEC rulesrespect to voting, dividend or liquidation rights. Further, because we can issue preferred stock having voting rights per share that are greater than the equivalent of one share of our common stock, our Board could issue preferred stock to investors who support us and regulations.our management and give effective control of our business to our management. Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our "going public" by meansstock price and a decline in interest of a reverse acquisition transaction mayour common stock. This could make it more difficult for usshareholders to obtain coverage from securities analysts of major brokerage firms followingsell their common stock and/or cause the Share Exchange because there may be little incentive to those brokerage firms to recommend the purchasemarket price of our common stock. Further, investment banks may be less likelystock shares to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common stock. The occurrence of any such event could cause our business or stock price to suffer.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent material misstatements.
The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company's internal controls over financial reporting in its annual report, which contains management's assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover,drop significantly, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may issue a report thatbusiness is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Effective internal controls, particularly those related to sales revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent material misstatements, or in certain extreme cases, fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
performing well.ITEM 1B. Unresolved Staff Comments.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
UNRESOLVED STAFF COMMENTS.Not applicable.
Effective March 1, 2017, Mount Tam rents office space at 7250 Redwood Blvd, Suite 300, Novato, CA 94945. The rental agreement expires August 31, 2017. The Company believes that its facilities are sufficient to meet its current needs and the Company will look for suitable additional space as and when needed.
Prior to March 1, 2017, Mount Tam rented office and laboratory spaces from The Buck Institute at Buck Institute 8001 Redwood Boulevard, Novato, California. Originally Mount Tam was under a lease that provided for an annual rental payment of $24,500 plus $2,000 per year for administrative services, however, the agreement was amended in September 2015 to reduce the annual rental payment to $9,500. In 2016 The Buck billed the Company $9,875 for office space fees plus a $2,000 administration fee, for a total of $11,875 for office space and administration services. For the fiscal year ended December 31, 2016, the Company paid $13,199 to the Buck for office space, which includes $2,125 of expense from 2015.
None.
ITEM 3. Legal Proceedings.
The Company is not currentlyLEGAL PROCEEDINGS.From time-to-time, we may be involved in any material legal proceedings, nor has it been involvedlitigation relating to claims arising out of our operations in any such proceedings that have had or may have a significant effect on the Company. The Company isnormal course of business. As of the date of this Report, we are not aware of any other pending or threatened lawsuits that could reasonably be expected to have a material legal proceedings.
ITEM 4. Mine Safety Disclosures.
MINE SAFETY DISCLOSURES.Not Applicable
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The registrant'sMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.Our common stock is not listed on any stocksecurities exchange, and is quoted on the OTC Markets (OTC Pink)Pink Market under the symbol "MNTM."
“BANM.” Because our common stock is not listed on a securities exchange and its quotations on OTC Pink are limited and sporadic, there is currently no established public trading market for our common stock.The following table reflects the high closing sales information for our common stock for each fiscal quarter during the fiscal years ended December 31, 20152019 and 2016.2018. This information was obtained from OTC Pink and reflects inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| Quarter Ended | | High | | | Low | |
| Fiscal 2016 | | | | | | |
| | | | | | | |
| December 31, 2016 | | $ | 0.50 | | | $ | 0.29 | |
| September 30, 2016 | | $ | 0.90 | | | $ | 0.36 | |
| June 30, 2016 | | $ | 0.93 | | | $ | 0.49 | |
| March 31, 2016 | | $ | 1.27 | | | $ | 0.66 | |
| | | | | | | | | |
| Fiscal 2015 | | | | | | | | |
| | | | | | | | | |
| December 31, 2015 | | $ | 1.48 | | | $ | 0.77 | |
| September 30, 2015 | | $ | 1.01 | | | $ | 0.04 | |
| June 30, 2015 | | $ | 0.04 | | | $ | 0.04 | |
| March 31, 2015 | | | N/A | | | | N/A | |
| | | COMMON STOCK MARKET PRICE | |
| | | HIGH | | | LOW | |
| FISCAL YEAR ENDED DECEMBER 31, 2019: | | | | | | | | |
| First Quarter | | $ | 3.32 | | | $ | 1.72 | |
| Second Quarter | | $ | 4.75 | | | $ | 0.53 | |
| Third Quarter | | $ | 7.59 | | | $ | 1.42 | |
| Fourth Quarter | | $ | 4.00 | | | $ | 0.26 | |
| | | COMMON STOCK MARKET PRICE | |
| | | HIGH | | | LOW | |
| FISCAL YEAR ENDED DECEMBER 31, 2018: | | | | | | | | |
| First Quarter | | $ | 16.62 | | | $ | 3.56 | |
| Second Quarter | | $ | 14.25 | | | $ | 0.48 | |
| Third Quarter | | $ | 5.51 | | | $ | 1.71 | |
| Fourth Quarter | | $ | 4.56 | | | $ | 1.19 | |
Holders
As of March 24, 2017,October 1, 2020, there were approximately 99136 shareholders of record of the Company'sCompany’s common stock based upon the records of the shareholders provided by the Company'sCompany’s transfer agent. The Company'sCompany’s transfer agent is VStock Transfer, LLC, whose address is 18 Lafayette Place, Woodmere, New York 100598,11598, and whose telephone number is (212) 828-8436.
Dividends
Dividend Policy
The Company has never paid cash dividends on its common stock. The Company may declare dividends in the future, including potential distributions of proceeds from the sale of shares of Ecoark common stock that the Company currently holds, or a direct distribution of such Ecoark shares to the Company’s shareholders. The Company’s management is currently evaluating a possible sale of these shares and/or distribution of a portion of the proceeds therefrom to its shareholders. Our ability to make dividend payment or other distributions to shareholders will depend on the legal requirements and market conditions which may be beyond our control.
Unregistered Sales of Equity Securities
The following information reflects unregistered securities sold during the period covered by this Report which were not previously disclosed by the Company:
On December 30, 2019, the Company issued 50,000 shares of common stock to Eprodigy LLC for services rendered to the Company valued at $65,000. The transaction was exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our ability to sell the shares of Ecoark common stock held by us, any subsequent distribution of a portion of the proceeds of such sale to our shareholders and the sufficiency and use of any remaining amounts thereafter, our ability to locate and acquire an operating business and the resources and efforts we intend to dedicate to such an endeavor, our development of a viable business plan and commencement of operations, our ability to terminate our status as an “investment company” within a reasonable timeframe or at all, and our ability to locate sources of capital necessary to commence operations or otherwise meet our business needs and objectives. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are summarized in Item 1A. – Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Company Overview
As of about March 31, 2020, we began seeking new business opportunities in the United States after the March 27, 2020 merger with Ecoark. Among other things, we are currently considering selling our shares of common stock in Ecoark, distributing all or a portion of the proceeds to our shareholders or using the proceeds to attract an acquisition target.
We have no revenue, have incurred losses since inception and our only asset is shares of common stock of Ecoark which we acquired in March 27, 2020 in exchange for the sale of our operating subsidiaries. Prior to that transaction, we were engaged in providing equipment and services to businesses in the oil and gas industry, but in connection with the transaction, the Company has terminated its operations.
Our principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business, rather than immediate, short-term earnings. Our search for a business opportunity is not currently limited to any particular geographical area or industry, except that we are focusing our search to businesses located within the United States.
Plan of Operation
The Company has no operations or revenue as of the date of this Report. We have terminated our operations in the oil and gas industry, and are currently in the process of developing a business plan, including with respect to the disposition of our remaining asset, and the use of the proceeds therefrom to distribute to shareholders and locate a business opportunity in the U.S.
Management intends to keepexplore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our Chief Executive Officer has experience in consulting both private and public companies in operational processes, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. For more information about the risk of coronavirus on our business, see Item 1A “Risk Factors.”
We do not currently engage in any business activities that provide revenue or cash flow. During the next 12 month period we anticipate incurring costs in connection with selling the shares of Ecoark common stock held by us, investigating, evaluating and negotiating potential business combinations, filing SEC reports, and consummating an acquisition of an operating business. We anticipate using a portion of the proceeds from the sale of Ecoark common stock to fund these costs and compensate our Chief Executive Officer.
Given our limited capital resources, we may consider a business combination with an entity which has recently commenced operations, is a developing company or is otherwise in need of additional funds for the development of new products or services or expansion into new markets, or is an established business experiencing financial or operating difficulties and is in need of additional capital. Alternatively, a business combination may involve the acquisition of, or merger with, an entity which desires access to the U.S. capital markets.
As of the date of this Report, our management has not had any discussions with any representative of any other entity regarding a potential business combination. Any target business that is selected may be financially unstable or in the early stages of development. In such event, we expect to be subject to numerous risks inherent in the business and operations of a financially unstable or early stage entity. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk or in which our management has limited experience, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Our management anticipates that we will likely only be able to effect one business combination due to our limited capital. This lack of diversification will likely pose a substantial risk in investing in the Company for the indefinite future, earnings,because it will not permit us to offset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the extent we acquire a business operating in a single industry or geographical region.
We anticipate that the selection of a business combination will be a complex and risk-prone process. Because of general economic conditions, including unfavorable conditions caused by the coronavirus pandemic, rapid technological advances being made in some industries and shortages of available capital, management believes that there are a number of firms seeking business opportunities at this time at discounted rates with which we will compete. We expect that any potentially available business combinations may appear in a variety of different industries or regions and at various stages of development, all of which will likely render the task of comparative investigation and analysis of such business opportunities extremely difficult and complicated.
Results of Operations For the Year ended December 31, 2019 compared with the Year ended December 31, 2018
The following overview of our results of operations should be read in light of the fact that we recently divested our operating subsidiaries and assets, and have since ceased our operations pending management’s determination of the future direction of the Company, be it by reverse merger or similar business combination or otherwise. This comparison relates to our former business but is included to meet SEC disclosure requirements. Under generally accepted accounting principles we are required to include Banner Midstream as if any,we owned it on January 1, 2018.
Revenue
We had revenues of $14,715,217 and $8,614,989 for the year ended December 31, 2019 and 2018, respectively. This increase was due to financeour acquisition of Banner Midstream in November 2019, which was subsequently sold to Ecoark on March 27, 2020. We do not expect to generate material revenue in 2020 following the expansionsale of Banner Midstream.
Operating Expenses
We incurred operating expenses of $5,521,640 and $4,318,003 during the year ended December 31, 2019 and 2018, respectively. The increase in general and administrative expenses was mainly due to the acquisition of additional operating subsidiaries. Because we subsequently sold our operating subsidiaries, we do not expect this trend to be reflective of this line item in the short-term.
Other Expense
Other expense was $4,253,109 and $644,612 during the year ended December 31, 2019 and 2018, respectively. Because we subsequently sold our operating subsidiaries, we do not expect this trend to be reflective of this line item in the short term.
Net Loss
During the years ended December 31, 2019 and 2018, we recorded a net loss of $5,292,936 and $3,708,360, respectively.
Liquidity and Capital Resources
Historically, our principal sources of cash have been proceeds from private placements of common stock and incurrence of debt. As of December 31, 2019, the Company had an accumulated deficit of $9,001,296. We expect our cash balance to temporarily increase if we can successfully sell our shares of Ecoark common stock.
Net Cash used by Operating Activities:
We reported negative cash flow from operations for the years ended December 31, 2019 and 2018 in the amount of $(2,091,610) and $(1,493,866). It is anticipated that we will continue to report negative operating cash flow in future periods, as we have ceased operations and are considering the Company’s next steps. However, given that there are and will continue to be lower expenses until we determine and commence our future operations, the significance of negative cash flows will likely be diminished during that time.
Cash Flows from Investing Activities:
In 2019, net cash provided by investing activities was $6,724 in contrast to using $(2,260,856) of cash in investing activities in 2018.
Cash Flows from Financing Activities:
For the year ended December 31, 2019, net cash provided from financing activities was $2,118,076 compared to $4,283,152 during the year ended December 31, 2018. We expect this decline to continue in fiscal year 2021 until we commence operations, however we may require additional capital to consummate a business combination.
Once we have developed and begun to implement our business plan, management intends to fund our working capital requirements through a combination of proceeds from the sale of Ecoark common stock, if not distributed as a dividend, and future issuances of debt or equity securities as needed. Our working capital requirements are expected to be stable in the short-term and increase in line with completion of an acquisition.
Based upon our current operations, if we are successful in selling the shares of Ecoark common stock, we believe we will have sufficient working capital to fund our operations over more than the next 12 months. If we are able to close a reverse merger, asset purchase or similar transaction to acquire an operating business, it is likely we will need additional capital, including potentially as a condition of closing the acquisition. Because of the inherent uncertainties of the Company at this stage, we cannot be certain as to how much capital we need, if and how we can capital will be raised or the type or quantity of securities we will be required to issue to do so. In connection with a business combination, we may issue a significant number our shares of our common stock or securities convertible or exercisable into our common stock to the target’s shareholders which will be dilutive to our shareholders.
We anticipate that we will incur operating losses during the next 12 months. Our ability to develop and implement our business plan will be subject to a number of risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of revenue sources; and the management of growth.
2020 Developments
On March 27, 2020, the Company divested all of its operating subsidiaries in exchange for shares of Ecoark common stock. The Company used a majority of these shares to repay its creditors and as of the date of this Report has 1,000,000 shares of Ecoark common stock as its only asset. In connection with the transaction, the Company has ceased operations and is currently seeking new business opportunities in the U.S., including by means of a reverse merger or asset purchase.
On July 31, 2020 Mr. Richard Horgan became the Company’s sole officer and director and is responsible for managing the Company and determining its future business plan.
COVID-19 Update
To date, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. See Item 1A”Risk Factors” for more information.
Off Balance Sheet Arrangements
As of the date of this Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Going Concern
The independent registered public accounting firm auditors’ report accompanying our December 31, 2019 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and the other information required by this Item can be found beginning on page F-1.
 | 805 Third Avenue New York, NY 10022 Tel. 212.838.5100 Fax 212.838.2676 www.rbsmllp.com |
To the Shareholders and Audit Committee
Banner Energy Services, Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Banner Energy Services, Corp. (The “Company”) as of December 31, 2019 and for the period from inception April 2, 2018 through December 31, 2018, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the year ended December 31, 2019 and for the period from inception April 2, 2018 through December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principles
The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2019.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, recurring losses, and negative cash flows that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Subsequent Event
As discussed in Note 13 to the financial statements, on March 27, 2020, the Company sold of its major subsidiary Banner Midstream and substantially all of its operations. That division represents a significant portion of the Company’s total assets and operations. Our opinion is not modified with respect to that matter.
| /s/ RBSM LLP | |
| |
| We have served as the Company’s auditor since 2014. | |
| |
| 805 Third Avenue | |
| New York, NY 10022 | |
October 8, 2020. | |
Banner Energy Services Corp.
Consolidated Balance Sheets
December 31, 2019 and 2018
| | | 2019 | | | 2018 | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash | | $ | 226,917 | | | $ | 207,094 | |
| Accounts receivable, net | | | 43,845 | | | | 20,550 | |
| Prepaid expenses and other current assets, current portion | | | 522,950 | | | | 254,740 | |
| Total current assets | | | 793,712 | | | | 482,384 | |
| Noncurrent assets: | | | | | | | | |
| Prepaid expenses, long-term portion | | | - | | | | 69,375 | |
| Fixed assets, net | | | 3,488,993 | | | | 4,868,275 | |
| Right of use assets | | | 779,199 | | | | - | |
| Other assets | | | - | | | | 101 | |
| Assets of discontinued operations | | | 249,017 | | | | 290,149 | |
| Total noncurrent assets | | | 4,517,209 | | | | 5,227,900 | |
| Total assets | | $ | 5,310,921 | | | $ | 5,710,284 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Deficit | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and other current liabilities | | $ | 2,198,558 | | | $ | 1,049,284 | |
| Accounts payable – related parties | | | 1,862 | | | | 3,324 | |
| Current liabilities of discontinued operations | | | 227,522 | | | | 276,785 | |
| Current portion of lease liability | | | 220,234 | | | | - | |
| Current portion of long-term debt | | | 5,412,287 | | | | 3,423,432 | |
| Notes payable – related parties | | | 2,029,492 | | | | 1,100,000 | |
| Total current liabilities | | | 10,089,955 | | | | 5,852,825 | |
| | | | | | | | | |
| Long-term debt, net of current portion | | | 463,269 | | | | 1,561,512 | |
| Lease liability, net of current portion | | | 566,145 | | | | - | |
| Total liabilities | | | 11,119,369 | | | | 7,414,337 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ Deficit: | | | | | | | | |
| Common stock, $0.0001 par value; 200,000,000 shares authorized, 6,865,853 and 5,668,246 shares issued and outstanding at December 31, 2019 and 2018, respectively | | | 686 | | | | 567 | |
| Additional paid in capital | | | 3,192,162 | | | | 2,003,740 | |
| Accumulated deficit | | | (9.001,296 | ) | | | (3,708,360 | ) |
| Total stockholder’ deficit | | | (5,808,448 | ) | | | (1,704,053 | ) |
| Total liabilities and stockholders’ deficit | | $ | 5,310,921 | | | $ | 5,710,284 | |
The accompanying notes are an integral part of the consolidated financial statements.
Banner Energy Services Corp.
Consolidated Statements of Operations
For the Year Ended December 31, 2019 and Period April 2, 2018 (Inception) through December 31, 2018
| | | 2019 | | | 2018 | |
| | | | | | | |
| Revenue | | $ | 14,715,217 | | | $ | 8,614,989 | |
| Cost of Sales | | | 10,228,168 | | | | 7,052,762 | |
| Gross Profit | | | 4,487,049 | | | | 1,562,227 | |
| Operating expenses: | | | | | | | | |
| Salaries and wages, including stock-based compensation | | | 2,005,050 | | | | 2,117,285 | |
| Selling, general and administrative expenses | | | 3,516,590 | | | | 2,200,718 | |
| Total operating expenses | | | 5,521,640 | | | | 4,318,003 | |
| Operating loss | | | (1,034,591 | ) | | | (2,755,776 | ) |
| | | | | | | | | |
| Other income (expense): | | | | | | | | |
| Bargain purchase gain | | | - | | | | 208,690 | |
| Forgiveness of debt | | | 300,643 | | | | - | |
| Other income (expense) | | | (1,099,303 | ) | | | 315,055 | |
| Interest expense | | | (3,454,449 | ) | | | (1,168,357 | ) |
| Total other income (expense) | | | (4,253,109 | ) | | | (644,612 | ) |
| | | | | | | | | |
| Loss from continuing operations before provision for income taxes | | | (5,287,700 | ) | | | (3,400,388 | ) |
| Provision for income taxes | | | - | | | | - | |
| Loss from continuing operations | | | (5,287,700 | ) | | | (3,400,388 | ) |
| Loss from discontinued operations | | | (5,236 | ) | | | (307,972 | ) |
| | | | | | | | | |
| Net loss | | $ | (5,292,936 | ) | | $ | (3,708,360 | ) |
| | | | | | | | | |
| Net loss per share: | | | | | | | | |
| Basic and diluted – continuing operations | | $ | (0.89 | ) | | $ | (0.93 | ) |
| Basic and diluted – discontinued operations | | | (0.00 | ) | | | (0.09 | ) |
| Net loss per share | | $ | (0.89 | ) | | $ | (1.02 | ) |
| | | | | | | | | |
| Weighted average shares outstanding | | | 5,895,534 | | | | 3,622,057 | |
The accompanying notes are an integral part of the consolidated financial statements.
Banner Energy Services Corp.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Year ended December 31, 2019 and Period April 2, 2018 (Inception) through December 31, 2018
| | | Common | | | Additional Paid-In | | | Stock Subscription | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Payable | | | Deficit | | | Total | |
| Balances at April 2, 2018 | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued to founder | | | 5,326,491 | | | | 533 | | | | (533 | ) | | | - | | | | - | | | | - | |
| Shares issued for cash in private placement | | | 75,431 | | | | 7 | | | | 212,906 | | | | - | | | | - | | | | 212,913 | |
| Shares issued for services | | | 266,325 | | | | 27 | | | | 749,973 | | | | - | | | | - | | | | 750,000 | |
| Warrants granted with placement of convertible note | | | - | | | | - | | | | 1,041,394 | | | | - | | | | - | | | | 1,041,394 | |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | (3,708,360 | ) | | | (3,708,360 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2018 | | | 5,668,246 | | | $ | 567 | | | $ | 2,003,740 | | | $ | - | | | $ | (3,708,360 | ) | | $ | (1,704,053 | ) |
| Shares issued for services | | | 63,918 | | | | 6 | | | | 179,994 | | | | - | | | | - | | | | 180,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for cash in private placement | | | 197,260 | | | | 20 | | | | 355,521 | | | | - | | | | - | | | | 355,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued in reverse merger with Banner Midstream | | | 586,429 | | | | 58 | | | | (58 | ) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for secured note | | | 300,000 | | | | 30 | | | | 587,970 | | | | - | | | | - | | | | 588,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 50,000 | | | | 5 | | | | 64,995 | | | | - | | | | - | | | | 65,000 | |
| Net loss for the year | | | - | | | | - | | | | - | | | | - | | | | (5,292,936 | ) | | | (5,292,936 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2019 | | | 6,865,853 | | | $ | 686 | | | $ | 3,192,162 | | | $ | - | | | $ | (9,001,296 | ) | | $ | (5,808,448 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
Banner Energy Services Corp.
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2019 and Period April 2, 2018 (Inception) through December 31, 2018
| | | 2019 | | | 2018 | |
| | | | |
| Cash flows from operating activities | | | | | | | | |
| Net loss | | $ | (5,287,700 | ) | | $ | (3,400,388 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation, amortization and impairment | | | 1,336,557 | | | | 352,836 | |
| Gain from settlement | | | - | | | | (87,731 | ) |
| Loss from disposal of assets | | | 36,000 | | | | 314,114 | |
| Share based compensation | | | 245,000 | | | | 750,000 | |
| Shares issued for interest expense | | | 588,000 | | | | - | |
| Bargain purchase gain | | | - | | | | (208,690 | ) |
| Forgiveness of debt | | | (300,643 | ) | | | - | |
| Amortization of debt discount | | | 317,532 | | | | 712,986 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (23,295 | ) | | | 698,050 | |
| Prepaid expenses | | | (198,835 | ) | | | (323,251 | ) |
| Interest of lease liability | | | (146,188 | ) | | | - | |
| Amortization of right of use asset | | | 153,369 | | | | - | |
| Other assets | | | 101 | | | | (202 | ) |
| Accounts payable and other current liabilities | | | 1,188,491 | | | | (301,590 | ) |
| Net cash used in operating activities | | | (2,091,610 | ) | | | (1,493,866 | ) |
| Cash flows from investing activities | | | | | | | | |
| Cash paid for acquisition | | | - | | | | (303,434 | ) |
| Proceeds from sale of fixed assets | | | 32,000 | | | | - | |
| Purchase of fixed assets | | | (25,276 | ) | | | (1,957,422 | ) |
| Net cash provided by (used in) investing activities | | | 6,724 | | | | (2,260,856 | ) |
| Cash flows from financing activities | | | | | | | | |
| Proceeds from issuance of shares | | | 355,541 | | | | 212,913 | |
| Proceeds from notes payable – related parties | | | 155,463 | | | | 400,000 | |
| Proceeds from long-term debt | | | 5,637,823 | | | | 5,910,573 | |
| Payments on long-term debt | | | (4,030,751 | ) | | | (2,243,658 | ) |
| Proceeds (repayments) from related parties | | | - | | | | 3,324 | |
| Net cash provided by financing activities | | | 2,118,076 | | | | 4,283,152 | |
| Net cash used in discontinued operations – operating activities | | | (13,367 | ) | | | (33,923 | ) |
| Net cash used in discontinued operations – investing activities | | | - | | | | (287,413 | ) |
| Net cash used in discontinued operations | | | (13,367 | ) | | | (321,336 | ) |
| Net increase in cash and cash equivalents | | | 19,823 | | | | 207,094 | |
| Cash and restricted cash – beginning of year | | | 207,094 | | | | - | |
| Cash and restricted cash – end of year | | $ | 226,917 | | | $ | 207,094 | |
| | | | | | | | | |
| Supplemental schedule of cash flow information | | | | | | | | |
| Cash paid for interest | | $ | 762,237 | | | $ | 161,123 | |
| Cash paid for income taxes | | $ | 48,429 | | | $ | – | |
| | | | | | | | | |
| Supplemental schedule of non-cash information | | | | | | | | |
| Lease liability for right of use assets at inception | | $ | 932,567 | | | $ | - | |
| Debt for payment of convertible note via intermediary | | | 500,000 | | | $ | - | |
| Payment of convertible note via intermediary | | $ | (500,000 | ) | | $ | - | |
| Original issue discounts on notes payable | | $ | 551,504 | | | $ | 301,413 | |
| Shares issued in reverse acquisition | | $ | 58 | | | $ | - | |
| Warrant value attached to convertible note payable | | $ | - | | | $ | 1,041,394 | |
| Assets acquired from acquisition of LAH | | $ | - | | | $ | 4,297,267 | |
| Liabilities assumed from acquisition of LAH | | $ | – | | | $ | 3,785,042 | |
The accompanying notes are an integral part of the consolidated financial statements.
Banner Energy Services Corp.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
| NOTE 1: | DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
The terms “we,” “us,” “our,” “registrant,” “Banner Energy”, and the “Company” refer to Banner Energy Services, Inc., a Nevada corporation.
Entry into Merger Agreement; Creation of Merger Subsidiary; Closing Conditions for Merger
On November 18, 2019, the Company merged with Banner Midstream Corp., a Delaware corporation (“Banner Midstream”). Banner Midstream has two operating subsidiaries: Pinnacle Frac Transport LLC, a Texas limited liability company (“Pinnacle Frac”) and Capstone Equipment Leasing LLC, a Texas limited liability company (“Capstone”).
On September 26, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) by and among the Company, Banner Midstream and MTB Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), relating to a merger (the “Merger”) between Banner Midstream and Merger Sub. The closing of the Merger which occurred on November 18, 2019, was conditioned on the satisfaction of certain conditions by the various parties, as discussed in more detail below.
In anticipation of the Agreement, on September 23, 2019, the Company formed Merger Sub.
Pursuant to the Agreement, the Merger Sub was merged with and into Banner Midstream, with Banner Midstream being the surviving entity (the “Surviving Entity”). The outstanding shares of Banner Midstream prior to the Merger were converted into the right to receive shares of the Company, on a one-share-for-one-share basis. The shares of Merger Sub owned by the Company were converted into shares of the Surviving Entity, pursuant to which the Surviving Entity will be a wholly owned subsidiary of the Company. The directors and officers of Banner Midstream prior to the closing of the Merger remained the directors and officers of the Surviving Entity following the closing of the Merger. The Merger with Banner Midstream represents a reverse merger, and in accordance with the reverse merger, Banner Midstream is the accounting acquirer and the historical amounts presented prior to the Merger are those of Banner Midstream. The shareholders of Banner Midstream received shares equal to 90% of the outstanding stock of Banner Energy following the Merger.
The Company amended its Articles of Incorporation (the “Amendment”) to effectuate a 1-for-95 reverse stock split of its outstanding shares of common stock (the “Reverse Split”). The Reverse Split became effective November 14, 2019. As a result of the Reverse Split, all share and per share figures contained in the financial statements have been amended to reflect the Reverse Split for the periods presented.
Additionally, immediately following the closing of the Merger, the Company and its secured debt holders finalized an agreement whereby the debt holders took possession of the Company’s biotechnology assets and assumed certain other Company obligations in lieu of payment by the Company of the amounts due in the secured debt instruments.
On March 27, 2020, Banner Midstream was acquired by Ecoark Holdings, Inc., (“Ecoark”) pursuant a Stock Purchase Agreement, dated March 27, 2020 (the “Banner Purchase Agreement”), between Ecoark and Banner Energy. Pursuant to the Banner Purchase Agreement, Ecoark acquired 100% of the outstanding capital stock of Banner Midstream in consideration for 8,945,205 shares of common stock of Ecoark valued at $0.544 per share and assumed approximately $11,774,000 in short-term and long-term debt of Banner Midstream and its subsidiaries.
As of March 27, 2020, Banner Midstream had four operating subsidiaries: Pinnacle Frac, Capstone, White River Holdings Corp., a Delaware corporation (“White River”); and Shamrock Upstream Energy LLC, a Texas limited liability company (“Shamrock”). White River and Shamrock were both acquired on March 27, 2020 by Banner Midstream and were acquired by Ecoark in this transaction, and are engaged in oil and gas exploration, production, and drilling operations on over 10,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi.
Banner Midstream entered into an agreement with Ozark Empire Capital Management (“Ozark”) on June 20, 2018 for 2,130,596 shares for Ozark to manage the executive function of Banner Midstream, raise capital for Banner Midstream, identify and complete acquisitions for Banner Midstream. Banner Midstream is operating as a holding company and acquisition vehicle for an ongoing roll-up of oilfield services companies focused on drilling rig, fracking, and oil and natural gas production services.
Banner Midstream acquired one hundred percent of the issued and outstanding membership interests of Pinnacle Frac for 3,195,894 shares on May 24, 2018. Pinnacle Frac was an Arkansas limited liability company established on January 15, 2018. Pinnacle Frac has three wholly owned subsidiaries, LAH Lease Service LLC (“LAH”), LSQL Truck & Trailer Sales LLC (“LSQL”), and Triumph Energy Services, LLC (“Triumph”) which are Texas limited liability companies. Pinnacle Frac acquired one hundred percent of the issued and outstanding membership interests of LAH and LSQL on April 30, 2018, and subsequently transferred selected operations, employees, equipment, and contracts into Pinnacle Frac. Neither LAH nor LSQL currently have active operations or any assets. Pinnacle Frac acquired one hundred percent of the issued and outstanding membership interests of Triumph on November 6, 2018, and subsequently transferred selected contracts into Pinnacle Frac. Pinnacle Frac commenced operations in May 2018 and is engaged in the business of providing transportation of frac sand and logistics services to major hydraulic fracturing and drilling operators in the domestic United States.
Banner Midstream established Pinnacle Vac Service LLC (“Pinnacle Vac”) a Texas limited liability company on May 8, 2018, with the Company having ownership of one hundred percent of the issued and outstanding membership interests of Pinnacle Vac. Pinnacle Vac is currently structured as a wholly owned subsidiary of the Company. Pinnacle Vac commenced operations in July 2018 and engaged in the business of providing water transportation (“vacuum services”) and roustabout work to major drilling operators and production wells in the United States. As of November 15, 2018, Pinnacle Vac no longer has any active operations or employees. See NOTE 8 – DISCONTINUED OPERATIONS.
Banner Midstream established Capstone as a Texas limited liability company on May 23, 2018, with the Company having ownership of one hundred percent of the issued and outstanding membership interests of Capstone. Capstone is currently structured as a wholly owned subsidiary of the Company. Capstone commenced operations in October 2018 and is engaged in the business of procuring and financing equipment to various oilfield transportation services contractors (“owner-operators”).
History
Prior to the Merger with Banner Midstream, the Company was an early-stage life sciences and technology company pursuing the development of bio-pharmaceuticals to treat autoimmune diseases, which was known as Mount Tam Biotechnologies, Inc.
The following reflected the Company’s post-merger corporate structure (State of Incorporation):
Mount Tam Biotechnologies, Inc., formerly TabacaleraYsidron, Inc. (Nevada)
Mount Tam Biotechnologies, Inc. (Delaware) - Sold October 2018.
Mount Tam Therapeutics, Inc. (Delaware) – Formed October 2018.
The Company is subject to a number of risks, including the need to acquire and successfully operate a new business, the risk of selling its Ecoark common stock and raising capital through equity and/or debt financings. See Item 1A “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
The Company was established in November 2011 under the name TabacaleraYsidron.
On October 18, 2018, the “Company” and Mount Tam (“Mount Tam”), its wholly-owned subsidiary, entered into a stock purchase agreement (the “SPA”) with ARJ Consulting, LLC, a New York limited liability company (the “Buyer”), pursuant to which the Company sold 100% of the capital stock of Mount Tam to the Buyer (the “Sale Transaction”). Prior to the Sale Transaction, the Company caused Mount Tam to transfer certain assets, including the Buck Institute License Agreement, that Mount Tam was holding to another wholly-owned subsidiary of the Company, Mount Tam Therapeutics, Inc., a newly formed Delaware corporation. At the time of the Sale Transaction Mount Tam possessed certain Net Operating Losses and tax credits. Pursuant to the terms of the SPA, the Buyer purchased Mount Tam for a purchase price of $410,000.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, all of which have a year end of December 31. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, estimates of discount rates in lease, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards. Actual results could differ from those estimates.
Acquisition Accounting
The Company’s acquisitions are accounted for under the acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The excess of the fair value of the net assets acquired over the fair value of the consideration conveyed is recorded as a nonoperating gain on acquisition. The statements of operations for the periods presented include the results of operations for each of the acquisitions from the date of acquisition. See NOTE 7 –ACQUISITION.
Customer Concentration and Credit Risk
During 2019 and 2018, one of our customers accounted for approximately 88.0% and 93.5% respectively of our total gross revenues within our core frac sand transportation division. No other customers exceeded 10% of revenues during 2019 and 2018. 86.1% and two customers accounting for 57.3% and 28.8% of accounts receivable at December 31, 2019, and with the customer with the higher balance in 2019 accounting for 100% of accounts receivable at December 31, 2018. The Company believes it will continue to reduce the customer concentration risks by engaging new customers within its core frac sand transportation business and by continuing acquisitions exploration and production (E&P) for diversification purposes.
57% and three vendors account for 20.6%, 18.3%, and 18.1% respectively of accounts payable at December 31, 2019. 37% and, 37% and two different vendors account for 20.6% and 17.2% respectively at December 31, 2018. No other vendors exceeded 10% of accounts payable at December 31, 2019 and 2018.
The Company maintains demand deposits with commercial banks. At times, certain balances held within these accounts may not be fully guaranteed or insured by the U.S. federal government. The uninsured portion of cash are backed solely by the assets of the underlying institution. As such, the failure of an underlying institution could result in financial loss to the Company.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with original maturities of three months or less. The Company often maintains cash balances more than the $250,000 FDIC insured limit per account holder. The Company does not anticipateconsider this risk to be material.
Accounts Receivable
Accounts receivable are comprised of unsecured amounts due from customers that have been conveyed to a factoring agent without recourse. The Company receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance fee charged by the factoring agent, and realizes cash for the 98% net proceeds received. The Company does not record an allowance for bad debts on any amounts that have been factored non-recourse.
The Company, at times, may conduct business with a customer that has not been approved by the factoring agent to be factored with recourse. The Company will record an allowance for bad debts on receivables that have been factored with recourse due to risk of non-collection falling on the Company versus the factoring agent. As of December 31, 2019, and 2018, all receivables were factored without recourse, so the Company did not record an allowance for doubtful accounts. The factoring agent has the ability to hold various receivables into a reserve account due to various reasons such as documentation errors or customer disputes. As of December 31, 2019, and 2018, the Company had a factoring agent reserve balance of $0 and ($12,100) so a contra asset for that reserve was recorded against the Company’s accounts receivable balances.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of ten years for all property and equipment, except leasehold improvements which are depreciated over the term f the lease, which is shorter than the estimated useful life of the improvements.
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash dividends willflows from its operations on an undiscounted basis. If such assets are determined to be paidimpaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the foreseeable future. The Company's future paymentmanner of dividends, if any, will depend on its earnings, capital requirements, expansion plans, financial conditionuse of the acquired assets or the strategy for the overall business; and other relevant factors
3. Significant negative industry or economic trends.
When the Company determines that the Company's boardcarrying value of directorsintangibles may deem relevant.not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company's retained earnings deficit currently limitsCompany measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company tested the carrying value of its ability to pay dividends.
Duringlong-lived assets for recoverability during the
fiscal year ended December 31,
2016, we2019 and period April 2, 2018 (Inception) through December 31, 2018, and there was impairment recorded in the amount of $525,693 for the year ended December 31, 2019.Accrued Expenses
To prepare its financial statements, the Company estimates accrued expenses. The accrual process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time. Although the Company does not expect the estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period. Historically, the estimated accrued liabilities have approximated actual expenses incurred. Subsequent changes in estimates may result in a material change in the accruals.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Income Taxes
The Company provides for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Codification Number (“ASC”) 740, “Accounting for Income Taxes.” ASC 740 requires the use of an asset and liability approach in accounting for income taxes. ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. In accordance with ASC 740, the Company must evaluate its tax positions and determined that there was no tax loss carryforward and no deferred tax assets or deferred tax liabilities at December 31, 2019 and 2018.
Share-Based Payment Arrangements
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
Leases
The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. As of December 31, 2019, the Company leased office and production facilities for terms typically ranging from three to five years. Rent escalations over the term of a lease are considered at the inception of the lease such that the monthly average for all payments is recorded as straight-line rent expense with any differences recorded in accrued liabilities.
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Going Concern
The Company concluded that its negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued.
Management believes that with the Company being acquired by Ecoark on March 27, 2020 as discussed below, this will result in sufficient capital to sustain operations for the next 12 months. Even though management believes this plan will allow the Company to continue as a going concern, there are no guarantees to the successful execution of this plan.
These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
On March 27, 2020, Banner Midstream was acquired by Ecoark for 8,945,205 shares of common stock, and Ecoark assumed all of the debt of the Company. As of September 2020, the Company retained the 1,000,000 shares of Ecoark common stock.
Impact of COVID-19
Any initial impact from COVID-19 occurred prior to the sale of Banner Midstream to Ecoark on March 27, 2020.,. While it is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments could disrupt the operation of the Company’s business. The principal effect will be to reduce the number of potential acquisition targets. At the same time, deterioration in the economy may or may not reduce the cost of any acquisition. This is largely dependent upon whether the number of competitors remains level, or decreases. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on the Company’s potential to conduct financings on terms acceptable to the Company, if at all. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the actions to contain its impact, and the extent and duration of economic downturns resulting therefrom.
NOTE 2: REVENUE
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2019. No cumulative adjustment to members equity was required, and the adoption did not repurchase anyhave a material impact on our financial statements, as no material arrangements prior to the adoption were impacted by the new pronouncement.
The following table disaggregates the Company’s revenue by major source for the year ended December 31, 2019 and period April 2, 2018 (Inception) through December 31, 2018:
| | | 2019 | | | 2018 | |
| Revenue: | | | | | | | | |
| Transportation and logistics | | $ | 13,652,256 | | | $ | 8,418,966 | |
| Equipment rental revenue | | | 923,617 | | | | 194,788 | |
| Fuel rebate | | | 139,344 | | | | - | |
| Other revenue | | | - | | | | 1,235 | |
| | | $ | 14,715,217 | | | $ | 8,614,989 | |
There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of our securities.
unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
| | | 2019 | | | 2018 | |
| Machinery and equipment – Pinnacle Frac Transport | | $ | 4,343,242 | | | $ | 4,750,923 | |
| Machinery and equipment – Capstone Equipment Leasing | | | 456,622 | | | | 456,622 | |
| Leasehold improvements | | | 25,276 | | | | - | |
| Accumulated depreciation and impairment | | | (1,336,147 | ) | | | (339,270 | ) |
| Property and equipment, net | | $ | 3,488,993 | | | $ | 4,868,275 | |
Machinery and equipment with a net book value of $1,741,365 was recorded at the time of the acquisition of LAH Lease Service on April 30, 2018. Depreciation expense net of disposals from inception to December 31, 2018 was $339,270, and loss on disposal of assets was $314,114.
Depreciation expense for the year ended December 31, 2019 was $483,183 and impairment expense on fixed assets of $525,693. Loss on disposal via assets sold was $36,000, while loss on disposal via assets impaired or taken out of service was $327,682.
NOTE 4: LONG-TERM DEBT
Long-term debt consisted of the following as of December 31:
| | | 2019 | | | 2018 | |
| Senior secured bridge loan (a) | | $ | 1,666,667 | | | $ | 3,534,475 | |
| Note payable – working capital (b) | | | 200,000 | | | | - | |
| Note payable – LAH 1 (c) | | | 110,000 | | | | 110,000 | |
| Note payable – Unsecured note payable (d) | | | 500,000 | | | | - | |
| Merchant Cash Advance (MCA) loan –1 (e) | | | 266,786 | | | | - | |
| MCA loan – 2 (f) | | | 347,222 | | | | - | |
| MCA loan - 3 (g) | | | 135,417 | | | | - | |
| Note payable – Alliance Bank (h) | | | 1,368,500 | | | | - | |
| Commercial loan – Pinnacle Frac – Firstar Bank (i) | | | 999,692 | | | | 1,261,517 | |
| Auto loan 1 – Pinnacle Vac – Firstar Bank (j) | | | 42,155 | | | | 52,260 | |
| Auto loan 2 – Pinnacle Frac – Firstar Bank (k) | | | 55,532 | | | | 68,496 | |
| Auto loan 3 – Pinnacle Vac – Ally Bank (l) | | | 44,435 | | | | 53,508 | |
| Auto loan 4 – Pinnacle Vac – Ally Bank (m) | | | 45,824 | | | | 51,398 | |
| Auto loan 5 – Pinnacle Vac – Ally Bank (n) | | | 45,629 | | | | 51,649 | |
| Auto loan 6 – Capstone – Ally Bank (o) | | | 248,269 | | | | 301,148 | |
| Tractor Loan 7 – Capstone – Tab Bank (p) | | | 111,717 | | | | 130,314 | |
| Total long-term debt | | | 6,187,845 | | | | 5,614,765 | |
| Less: debt discount | | | (312,289 | ) | | | (629,821 | ) |
| Less: current portion | | | (5,412,287 | ) | | | (3,423,432 | ) |
| Long-term debt, net of current portion | | $ | 463,269 | | | $ | 1,561,512 | |
| (a) | On November 21, 2019, the Company entered into a senior secured convertible note for $1,666,667 with an original issue discount of $204,230 ($182,295 at December 31, 2019). The note bears interest at the rate of 10% per annum and is due on November 15, 2020. The Company also issued 300,000 shares of common stock to the lender upon issuance. The Company’s previous senior secured note holders agreed to waive $261,500 of outstanding principal and $39,143 in remaining interest on their note at the request of the new senior lender to facilitate the successful closure of the transaction. Accrued interest on the note was $18,519 as of December 31, 2019. |
| (b) | An unrelated third-party advanced $200,000 to the Company. These amounts were due April 15, 2020 and bears interest at 14% interest per annum. Accrued interest on this note as of December 31, 2019 is $3,392. |
| (c) | Unsecured note payable previously issued April 2, 2018 which was assumed by the Company in the acquisition of a previous entity. The amount is past due and bears interest at 15% per annum. Accrued interest at December 31, 2019 is $18,188. |
| (d) | Unsecured notes payable issued in October 2019 to two unrelated third parties at 12% interest. There are two notes to this party in total. Accrued interest on these notes at December 31, 2019 is $10,795. |
| (e) | Merchant cash advance loan. Accrued interest on this note at December 31, 2019 is $104,119. |
| (f) | Merchant cash advance loan. Accrued interest on this note at December 31, 2019 is $135,417. |
| (g) | Merchant cash advance loan. Accrued interest on this note at December 31, 2019 is $40,625. |
| (h) | Original interest only loan dated June 14, 2019 with an original maturity date of April 14, 2020. The Company extended this loan at 4.95% with a new maturity date of April 14, 2025. Debt discount on this loan at December 31, 2019 was $129,994. |
| (i) | Original loan date of February 28, 2018, due July 28, 2020 at an interest rate of the Wall Street Journal Prime Rate adjusting annually on the anniversary of the note for $1,428,132 for 18 tractor trucks maturing on February 28, 2020. The note is secured by the collateral purchased and accrues interest annually at 4.50% with principal and interest payments due monthly. |
| (j) | On July 20, 2018, Pinnacle Vac Service entered into a long-term secured note payable for $56,300 for a service truck maturing July 20, 2023. The note is secured by the collateral purchased and accrued interest annually at 6.50% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| (k) | On August 3, 2018, Pinnacle Frac Transport entered into a long-term secured note payable for $72,669 for a service truck maturing August 3, 2023. The note is secured by the collateral purchased and accrued interest annually at 6.50% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| (l) | On July 18, 2018, Pinnacle Vac Service entered into a long-term secured note payable for $55,525 for a service truck maturing August 17, 2024. The note is secured by the collateral purchased and accrued interest annually at 9.00% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| (m) | On July 26, 2018, Pinnacle Vac Service entered into a long-term secured note payable for $53,593 for a service truck maturing September 9, 2024. The note is secured by the collateral purchased and accrued interest annually at 7.99% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| (n) | On July 26, 2018, Pinnacle Vac Service entered into a long-term secured note payable for $55,268 for a service truck maturing September 9, 2024. The note is secured by the collateral purchased and accrued interest annually at 7.99% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| (o) | On November 5, 2018, Capstone entered into four long-term secured notes payable for $139,618 maturing on November 5, 2021. The notes are secured by the collateral purchased and accrued interest annually at rates ranging between 6.89% and 7.87% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
| |
| (p) | On November 7, 2018, Capstone entered into a long-term secured note payable for $301,148 maturing on November 22, 2023. The note is secured by the collateral purchased and accrued interest annually at 10.25% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2019. |
In addition, on September 28, 2018 the Company repaid a short-term senior secured note payable, originally due July 31, 2018, for $1,536,437. This note was issued on April 30, 2018 with interest accruing at 10% annually with interest due upon maturity. The note principal and all accrued interest totaling $55,891 were paid in full on September 28, 2018.
The Company incurred interest expense of $2,866,449 and $1,168,357 for the year ended December 31, 2019 and period April 2, 2018 (Inception) through December 31, 2018, respectively.
The following is a list of maturities (net of discount) as of December 31:
| 2020 | | $ | 5,412,287 | |
| 2021 | | | 197,936 | |
| 2022 | | | 123,586 | |
| 2023 | | | 117,389 | |
| 2024 | | | 24,358 | |
| | | $ | 5,875,556 | |
Options
NOTE 5: NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of the following as of December 31:
| | | 2019 | | | 2018 | |
| Note - Director (a) | | $ | 631,492 | | | $ | 77,000 | |
| Notes - Director (b) | | | 1,080,500 | | | | 968,000 | |
| Note – Director (c) | | | 250,000 | | | | - | |
| Note – Officer (d) | | | 67,500 | | | | 55,000 | |
| Total Notes Payable – Related Parties | | | 2,029,492 | | | | 1,100,000 | |
| Less: Current Portion of Notes Payable – Related Parties | | | (2,029,492 | ) | | | (1,100,000 | ) |
| Long-term debt, net of current portion | | $ | - | | | $ | - | |
| (a) | A director advanced $234,000 in four notes ($474,492) and in advances ($157,000) to the Company. One of the note amounts is past due and bears interest at 10% per annum. Accrued interest at December 31, 2019 is $39,365. |
| (b) | A director advanced $1,080,500 in four separate notes to the Company. Two of these amounts are past due and these notes are due at various times through December 2020 and bear interest at 10-15% interest per annum. Accrued interest on these notes as of December 31, 2019 is $153,560. |
| |
| (c) | On January 16, 2019, the Company entered into a short-term junior secured promissory note payable with a director for $250,000 maturing on June 15, 2019, extended to December 16, 2019, and further extended to June 30, 2020. The note accrues interest annually at 10% and has a subordinated security interest to the senior secured convertible note payable entered into on August 24, 2018. Accrued interest at December 31, 2019 is $19,041. |
| (d) | An officer of the Company advanced $67,500 in two notes. This amount is due July 2020 and bears interest at 10-15% interest per annum. Accrued interest on these notes as of December 31, 2019 is $14,786. |
The Company'sCompany incurred interest expense of $129,036 and $97,718 for the year ended December 31, 2019 and period April 2, 2018 (Inception) through December 31, 2018, respectively.
NOTE 6: STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
The Company has authority to issue up to 200,000,000 shares, par value $0.0001 per share. Our shareholders approved an increase in the authorized number of shares from 100,000,000 to 200,000,000 in May 2018. As of December 31, 2019, there were 6,865,853 shares of the Company’s common stock issued and outstanding. On November 14, 2019, the Company completed a 1 for 95 reverse stock split. All shares and per share figures have been retroactively adjusted to account for this reverse split and reverse acquisition.
The Company issued in total 5,326,491 shares of restricted common stock for one hundred percent of the issued and outstanding membership interest of Pinnacle Frac Transport LLC on May 24, 2018 and on June 20, 2018 as a part of a management agreement with Ozark Empire Capital Management to manage the executive function of the Company, raise capital for the Company, identify and complete acquisitions for the Company, and lead the Company’s effort to file to go public. The Company issued an additional 75,431 shares of restricted common stock in September through December 2018 for proceeds totaling $212,913 to various high net worth accredited investors as a part of an equity financing round. The Company issued an additional 266,325 shares of restricted common stock in October through December 2018 to various advisors representing the Company for business development, for a total $750,000.
The Company issued an additional 197,260 shares of common stock in January through April 2019 for proceeds totaling $355,541 to various high net worth accredited investors as a part of an equity financing round.
On February 1, 2019 and on April 1, 2019, the Company issued 63,918 total to an advisor representing the Company for business development valued at $180,000.
During the year ended December 31, 2019, the Company issued 586,429 shares for the acquisition of Banner Midstream; 300,000 shares for the entering into a secured note payable valued at $588,000 and 50,000 shares issued for services rendered valued at $65,000.
Stock Options
The Company’s Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the "2016 Plan"“2016 Plan”) on May 12, 2016. A majority of the stockholders approved the 2016 Plan by written consent on June 27, 2016. A copy of the 2016 Plan is included as Exhibit A to the Company'sCompany’s Information Statement filed with the SEC on July 11, 2016.
On May 2, 2016, the Company granted options to purchase up to 6,330,0002,737 shares of Common Stock under the Plan in the aggregate, with an exercise price of $0.59$56.05 per share. Options will vest as per below table
Name | Number of Stock Options | Vesting Schedule |
Richard Marshak (CEO) | 4,200,000 | Options Vesting over 4 years, 25% (1,050,000 options) per year |
Tim Powers (CSO) | 1,120,000 | Options Vesting over 3 years. 33.33% (373,333 options) per year |
Jim Stapleton (CFO) | 750,000 | Options vesting over 4 years, 25% (187,500 options) per year |
Brian Kennedy (Chairman) | 250,000 | Options vesting over 4 years, 25% (62,500) per year |
Juniper Pennypacker (consultant - assistant to Brian Kennedy) | 10,000 | Options vesting over 4 years, 25% (2,500 options) per year |
On
October 2, 2016,December 28, 2018, the Company granted options to purchase up to
135,00051,683 shares of Common Stock under the Plan in the aggregate, with an exercise price of
$0.40$1.90 per share. Options will vest as per below
tabletables:| Name | | Number of Stock Options | | | Vesting Schedule |
| Brian Kennedy (Chairman) – 5/2/2016 | | | 2,632 | | | Options vesting over 4 years, 25% (658) per year |
| Juniper Pennypacker – 5/2/2016 | | | 105 | | | Options vesting over 4 years, 25% (26 options) per year |
| Name | | Number of Stock Options | | | Vesting Schedule |
| Richard Marshak (CEO) – 12/28/2018 | | | 37,105 | | | 50% vested. Balance vesting over 2 years, 25% (9,276 options) per year |
| Jim Stapleton (CFO) – 12/28/2018 | | | 10,789 | | | 50% vested. Balance vesting over 2 years, 25% (2,697 options) per year |
| Brian Kennedy (Chairman) – 12/28/2018 | | | 3,684 | | | 50% vested. Balance vesting over 2 years, 25% (921) per year |
| Juniper Pennypacker – 12/28/2018 | | | 105 | | | 50% vested. Balance vesting over 2 years, 25% (25 options) per year |
On October 2, 2016, the Company granted options to purchase up to 1,421 shares of Common Stock under the Plan in the aggregate, with an exercise price of $38.00 per share. On December 28, 2018, the Company granted options to purchase up to 4,579 shares of Common Stock under the Plan in the aggregate, an exercise price of $1.90 per share. Options will vest as per below tables:
| Name | | Number of Stock Options | | | Vesting Schedule |
| Bryan Cox (consultant) – 10/7/2016 | 100,000 | | 1,053 | | | Options Vesting over 4 years, 25% (25,000(263 options) per year |
| Jim Stolzenbach (consultant) – 10/7/2016 | 35,000 | | 368 | | | Options vesting over 4 years, 25% (8,750)(92) per year |
Stock-based compensation expense related to vested options was $648,188 for the twelve months ended December 31, 2016. | Name | | Number of Stock Options | | | Vesting Schedule |
| Bryan Cox (consultant) – 12/28/2018 | | | 3,158 | | | 50% vested. Balance vesting over 2 years, 25% (789 options) per year |
| Jim Stolzenbach (consultant) – 12/28/2018 | | | 1,421 | | | 50% vested. Balance vesting over 2 years, 25% (355) per year |
The Company determined the value of share-based compensation using the Black-Scholes fair value option-pricing model using the following weighted average assumptions for options granted during the year ended December 31, 2016.2018. All options stand completely vested on the date of the reverse merger November 18, 2019.
| | | Date of Grant | |
| Expected term (years) | | | 10 | |
| Expected volatility | | | 131%-153283 | % |
| Risk-free interest rate | | | 1.26%-1.322.55 | % |
| Dividend yield | | | 0 | % |
As summary of option activity under the 2016 Plan as of December 31, 2016,2019 and 2018, and changes during the periodperiods then ended is presented below:
| | | Number of Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | |
| Balance outstanding at December 31, 2017 | | | 68,052 | | | $ | 56.05 | | | | 8.10 | |
| Granted | | | 56,263 | | | | 1.90 | | | | 5.00 | |
| Exercised | | | - | | | | - | | | | - | |
| Forfeited | | | - | | | | - | | | | - | |
| Expired | | | - | | | | - | | | | - | |
| Canceled | | | (63,894 | ) | | | 56.05 | | | | 8.10 | |
| Balance outstanding at December 31, 2018 | | | 60,421 | | | $ | 28.50 | | | | 8.68 | |
| Exercisable at December 31, 2018 | | | 56,263 | | | $ | 28.50 | | | | 8.68 | |
| | | Number of Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | |
| Balance outstanding at December 31, 2018 | | | 60,421 | | | $ | 28.50 | | | | 8.68 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | |
| Forfeited | | | - | | | | - | | | | - | |
| Expired | | | - | | | | - | | | | - | |
| Canceled | | | - | | | | - | | | | - | |
| Balance outstanding at December 31, 2019 | | | 60,421 | | | $ | 28.50 | | | | 7.68 | |
| Exercisable at December 31, 2019 | | | 60,421 | | | $ | 28.50 | | | | 7.68 | |
| Options | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2015 | | | - | | | $ | - | | | | - | | | $ | - | |
| Granted | | | 6,465,000 | | | | 0.59 | | | | 9.35 | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited or expired | | | - | | | | - | | | | - | | | | - | |
| Outstanding at December 31, 2016 | | | 6,465,000 | | | $ | 0.59 | | | | 9.35 | | | $ | - | |
| Exercisable at December 31, 2016 | | | - | | | $ | - | | | | - | | | $ | - | |
As of December 31, 2016, there was $3,065,529 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years.
ITEM 6. Selected Financial Data.
As a "smaller reporting company" as defined by ItemWarrants
On August 10, of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report. Words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements.
We believe that our assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company's products and services and competition.
The Share Exchange was treated as a reverse acquisition for financial accounting and reporting purposes. As such, Mount Tam is treated as the acquirer for accounting and financial reporting purposes while the Company was treated as the acquired entity for accounting and financial reporting purposes. Further, as a result, the historical financial statements that will be reflected in the Company's future financial statements filed with the SEC will be those of Mount Tam, and the Company's assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of Mount Tam. Accordingly, for clarity and continuity, we are presenting the historical financial statements for Mount Tam for the periods presented.
Overview
We are an early stage company primarily engaged in the development of bio-pharmaceuticals to treat a range of disease areas with high unmet need. Our lead program is focused on SLE, and we intend to optimize and bring to market a portfolio of leading products focused on improving the health and well-being of millions of people who have been affected by a range of serious disease conditions. To that end, we have formed a strategic partnership with the Buck Institute, an independent research facility focused on understanding the connection between aging and chronic disease. As part of the partnership, we have signed the License Agreement that includes many of the Buck Institute's intangible research and development assets. The initial focus of our research and development efforts will be a preclinical stage compound for the treatment of SLE, a serious form of lupus.
Plan of Operations
As shown in the accompanying consolidated financial statements, the Company incurred net losses of $2,180,571 for the year ended December 31, 2016 and has an accumulated deficit of $4,533,706 as of December 31, 2016.
Liquidity and Capital Resources
Our principal sources of cash have been proceeds from private placements of common stock and incurrence of debt. As of December 31, 2016, the Company had working capital deficit of $240,561 with cash balance of $375,499. Our cash increased by $370,052 during the year ended December 31, 2016.
During the second quarter of 20162017, the Company entered into negotiationsa Securities Purchase Agreement with the Buck Institutetwo investors to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease. On July 18, 2016, Mount Tam Biotechnologies, Inc. (the "Company"), entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") betweenpurchase from the Company and The Buck Institute for Research on Aging ("The Buck Institute").
Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.
Additionally, pursuant to the Amendment, the parties agreed to settle past research funding amounts owed by the Company to The Buck Institute. The Company agreed to pay $40,000 within ten days of the execution of the Amendment, and The Buck Institute agreed that once this amount is paid, the Company will be deemed to be in full compliance with the terms of the License Agreement, including its payment obligations. On July 19, 2016, the Company made the $40,000 payment to The Buck Institute. In addition to the $40,000 payment, on June 13, 2016, the Company paid to The Buck Institute $11,706 in connection with costs incurred to further the Company's intellectual property position under the License Agreement. Pursuant to the above amendment The Buck Institute waived $274,247 of payable by the Company. In addition, the Company issued to Buck Institute 1,009,016 shares of common stock, which was the number of shares required to equal to 5% of the Company's total outstanding shares. Pursuant to the original License Agreement, and the Amendment, The Buck Institute's equity interest in the Company will not be reduced below 5% of the total aggregate shares of common stock until such time that the Company has raised and received a total of $5,000,000 of investment in equity, debt, grants, contributions, or donations. As of December 31, 2016, the Company has issued 2,209,01642,510 shares of the
Company'sCompany’s common stock
for an aggregate purchase price of $525,000. The investors received a warrant to
The Buck Institutepurchase an additional 5,314 shares at an exercise price of $14.25 per share, and
committeda warrant to
issue 192,983purchase an additional 5,314 shares
at an exercise price of $19.00 per share. Both warrants have a call provision when the Company’s common stock trades for five consecutive days at a price equal or greater than 500% of the
Company's common stock as additional shares.exercise price of each warrant agreement. Both warrant agreements expire August 10, 2022.| Warrants | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2017 | | | 10,628 | | | $ | 16.625 | | | | 4.90 | | | $ | 176,683 | |
| Granted | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited or expired | | | - | | | | - | | | | - | | | | - | |
| Outstanding at December 31, 2018 | | | 10,628 | | | $ | 16.625 | | | | 3.7 | | | $ | 176,683 | |
| Exercisable at December 31, 2018 | | | 10,628 | | | $ | 16.625 | | | | 3.7 | | | $ | 176,683 | |
| Warrants | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2018 | | | 10,628 | | | $ | 16.625 | | | | 3.7 | | | $ | 176,683 | |
| Granted | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited or expired | | | - | | | | - | | | | - | | | | - | |
| Outstanding at December 31, 2019 | | | 10,628 | | | $ | 16.625 | | | | 2.7 | | | $ | - | |
| Exercisable at December 31, 2019 | | | 10,628 | | | $ | 16.625 | | | | 2.7 | | | $ | - | |
Moreover, the parties agreed that the fieldNOTE 7: ACQUISITIONS – BANNER MIDSTREAM
LAH Lease Service LLC Acquisition
Banner Midstream made a bargain purchase of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis$100 for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders). The foregoing is qualified in its entirety to the terms of the Amendment, a copy ofLAH Lease Service LLC, on April 30, 2018, which was filed as Exhibit 99.1 to our Form 8-K filed on July 21, 2016.
Negative Operating Cash Flow
We reported negative cash flow from operations forinsolvent at the year ended December 31, 2016 and,2015. It is anticipated that we will continue to report negative operating cash flow in future periods, likely until one or more of our products are placed into production and released to our customers.
Our cash balance of $375,499 may not be sufficient to fund our operations for at least the next 12 months. Additionally, if we are unable to generate sufficient revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have historically financed our operations through private equity and debt financings. Recent economic turmoil and lack of liquidity in the debt capital markets together with high volatility in prices in the equity capital markets have severely and adversely affected capital raising opportunities. We do not have any commitments for financing at this time, and financing may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity financing in amounts sufficient to fund our operations, if necessary, we will be forced to suspend or curtail our operations. In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.
Results of Operations
For the Year ended December 31, 2016 compared with the Year ended December 31, 2015
Revenue
We had no revenues for the year ended December 31, 2016 and 2015. We are in the research and development stage.
Operating Expenses
We incurred operating expenses of $2,078,762 and $2,087,253 during the year ended December 31, 2016 and 2015, respectively. Our operating expenses included research and development expenses in the amount of $329,397 and $455,950, and general and administrative expenses in the amount of $1,749,364 and $1,631,303 for year ended December 31, 2016 and 2015, respectively. The increase in general and administrative expenses was mainly due to an increase in stock option expense of $648,188, partially offset by a decrease in legal of $244,011, and a decrease in consulting expenses of $344,270.
Other Expense
Other expense totaled $101,810 and $8,076 during the year ended December 31, 2016 and 2015, respectively. The increase is due to interest owed on notes used to finance our operations. Other expenses included interest expense in the amount of $14,331 and $5,418, and amortization of debt discount in the amount of $87,479 and $2,658 for the year ended December 31, 2016 and 2015, respectively
Net Loss
As a result of the foregoing, during the year ended December 31, 2016 and 2015, we recorded a net loss of $2,180,571 and $2,095,329, respectively.
Liquidity and Capital Resources
We had cash and equivalents of $375,499 at December 31, 2016.
Operating Activities
During the year ended December 31, 2016, we used $1,174,448 of cash in operating activities, compared to $1,067,230 for the year ended December 31, 2015. Non-cash adjustments included $57,895 and $527,741 related to stock based compensation, $87,479 and $2,658 related to amortization of beneficial conversion feature, $648,188 and $0 related to fair value of options, $0 and $66,004 in expenses paid by the convertible note holder, $20,854 and $20,000 in amortization of prepaid expenses and net change in accounts payable and accrued liabilities of $216,731 and $411,696 during the year ended December 31, 2016 and 2015, respectively.
Financing Activities
Financing activities provided $1,544,500 to us during the year ended December 31, 2016 compared to $1,071,796 for the year ended December 31, 2015. We received $477,000 in net proceeds from loans for the year ended December 31, 2016, compared to $971,791 for the year ended December 31, 2015. In addition, we received $1,067,500 in proceeds from issuance of common stock during the year ended December 31, 2016, compared to $100,005 in proceeds from issuance of common stock during the year ended December 31, 2015.
Sources of Liquidity and Capital
During the year ended December 31, 2016, we received net proceeds from the sale of common stock of $1,067,500 and issuance of debt in the amount of $477,000. During the year ended December 31, 2015, we received net proceeds from the sale of common stock of $100,005 and issuance of debt in the amount of $971,791. The capital raised has been used primarily for continuation of the Company's research and development efforts and to support its operations. As of December 31, 2016, the Company had remaining cash of $375,499 with net working capital deficit of $240,561. As of December 31, 2015, the Company had remaining cash of $5,447 with net working capital deficit of $780,709. As a result of the Company's significant operating expenditures and the lack of any significant product sales revenue, we expect to incur losses from operations for the near future.
We reported negative cash flow from operations year ended December 31, 2016 and 2015. It is anticipated that we will continue to report negative operating cash flow in future periods, likely until one or more of our products are placed into production and released to our customers.
Our cash balance of $375,499 may not be sufficient to fund our operations for at least the next 12 months. Additionally, if we are unable to generate sufficient revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have historically financed our operations through private equity and debt financings. Recent economic turmoil and lack of liquidity in the debt capital markets together with volatility in the equity capital markets have severely and adversely affected capital raising opportunities. We do not have any commitments for financing at this time, and financing may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity financing in amounts sufficient to fund our operations, if necessary, we will be forced to suspend or curtail our operations. In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.
To the extent we raise additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders. The incurrence of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants that would restrict our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. Economic crisis and disruptions in the U.S. and global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business. The Company cannot provide any assurances that it will be able to raise the additional capital needed to fund its operations, or if the Company is able to raise such additional capital, that any such financing will be on terms which are beneficial to the existing shareholders.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, the Company evaluates its critical accounting policies and estimates. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's critical accounting policies and estimates are discussed on the footnote Note 2.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
| Page |
| |
Report of Independent Registered Public Accounting Firm | F-1 |
Consolidated Balance Sheets as of December 31, 2016 and 2015 | F-2 |
Consolidated Statements of Operations for the year ended December 31, 2016 and 2015. | F-3 |
Consolidated Statements of Stockholders' Deficit for the year ended December 31, 2016 and 2015. | F-4 |
Consolidated Statements of Cash Flows for the year ended December 31, 2016 and 2015. | F-5 |
Notes to Consolidated Financial Statements | F-6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mount Tam Biotechnologies, Inc.
We have audited the accompanying consolidated balance sheet of Mount Tam Biotechnologies, Inc. (the "Company") as of December 31, 2016, and 2015, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the two year period ended December 31, 2016. Mount Tam Biotechnologies Inc. management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of, Mount Tam Biotechnologies, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a limited operating history and suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
Larkspur, CA
March 31, 2017
Mount TAM Biotechnologies, Inc. |
Consolidated Balance Sheets |
| | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | |
| Assets | | | | | | |
| Cash and cash equivalents | | $ | 375,499 | | | $ | 5,447 | |
| Prepaid expense | | | 4,171 | | | | - | |
| Total Current Assets | | | 379,669 | | | | 5,447 | |
| | | | | | | | | |
| Total Assets | | $ | 379,669 | | | $ | 5,447 | |
| | | | | | | | | |
| Liabilities and Stockholders' Deficit | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 593,421 | | | $ | 406,361 | |
| Accounts payable and accrued liabilities- related parties | | | 9,308 | | | | 253,884 | |
| Notes payable | | | 17,501 | | | | 17,500 | |
| Convertible debenture, net of discount | | | - | | | | 108,411 | |
| Total Current Liabilities | | | 620,230 | | | | 786,156 | |
| | | | | | | | | |
| Long Term Debt: | | | | | | | | |
| Convertible debenture, non-current, net of discount | | | 553,640 | | | | - | |
| Total Long Term Debt | | | 553,640 | | | | - | |
| | | | | | | | | |
| Total Liabilities | | | 1,173,870 | | | | 786,156 | |
| | | | | | | | | |
| Stockholders' Deficit | | | | | | | | |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 47,846,984 and 43,171,300 shares issued and outstanding | | | 4,784 | | | | 4,317 | |
| Stock subscription payable | | | (45) | | | | (45) | |
| Stock to be issued | | | 57,895 | | | | 42,500 | |
| Additional paid in capital | | | 3,676,871 | | | | 1,525,653 | |
| Accumulated deficit | | | (4,533,706) | | | | (2,353,134) | |
| Total Stockholders' Deficit | | | (794,201) | | | | (780,709) | |
| Total Liabilities and Stockholders' Deficit | | $ | 379,669 | | | $ | 5,447 | |
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc. |
Consolidated Statements of Operations for the Year Ended |
| | |
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | |
| Operating Expenses | | | | | | |
| Research and development | | $ | 329,397 | | | $ | 455,950 | |
| General and administrative | | | 1,749,364 | | | | 1,631,303 | |
| Total operating expenses | | | 2,078,762 | | | | 2,087,253 | |
| | | | | | | | | |
| Operating loss | | | (2,078,762 | ) | | | (2,087,253 | ) |
| | | | | | | | | |
| Other Expenses | | | | | | | | |
| Interest expense | | | (14,331 | ) | | | (5,418 | ) |
| Amortization of debt discount | | | (87,479 | ) | | | (2,658 | ) |
| Total other expenses | | | (101,810 | ) | | | (8,076 | ) |
| | | | | | | | | |
| Net Loss | | $ | (2,180,571 | ) | | $ | (2,095,329 | ) |
| | | | | | | | | |
| Net loss per share – basic and diluted | | $ | (0.05 | ) | | $ | (0.07 | ) |
| | | | | | | | | |
| Weighted average common shares – basic and diluted | | | 44,492,590 | | | | 31,286,876 | |
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc. |
Consolidated Statement of Stockholders' Deficit |
| | | | | | | |
| | | | | | Amount | | | Additional Paid in Capital | | | Stock to be issued | | | Stock subscription Payable | | | | | | Total Stockholders' Deficit | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2014 | | | 24,000,000 | | | $ | 2,400 | | | $ | (674 | ) | | $ | - | | | $ | (50 | ) | | $ | (257,805 | ) | | $ | (256,129 | ) |
| Stock subscription received | | | - | | | | - | | | | - | | | | - | | | | 5 | | | | - | | | | 5 | |
| Common stock retained by the TabacaleraYsidron shareholder in connection with the merger agreement | | | 44,533,750 | | | | 4,453 | | | | (72,001 | ) | | | - | | | | - | | | | - | | | | (67,548 | ) |
| Common stock issued on note conversion | | | 2,000,000 | | | | 200 | | | | 999,800 | | | | - | | | | - | | | | - | | | | 1,000,000 | |
| Common stock cancelled by the TabacaleraYsidron shareholder in connection with the merger agreement | | | (28,533,125 | ) | | | (2,853 | ) | | | (21,847 | ) | | | - | | | | - | | | | - | | | | (24,700 | ) |
| Common stock to be issued to Buck | | | - | | | | - | | | | (97 | ) | | | 42,500 | | | | - | | | | - | | | | 42,403 | |
| Common stock issued for cash | | | 200,000 | | | | 20 | | | | 99,980 | | | | - | | | | - | | | | - | | | | 100,000 | |
| Common stock issued for services | | | 970,675 | | | | 97 | | | | 485,241 | | | | - | | | | - | | | | - | | | | 485,338 | |
| Beneficial conversion feature on the convertible note | | | - | | | | - | | | | 35,251 | | | | - | | | | - | | | | - | | | | 35,251 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,095,329 | ) | | | (2,095,329 | ) |
| Balance as of December 31, 2015 | | | 43,171,300 | | | $ | 4,317 | | | $ | 1,525,653 | | | $ | 42,500 | | | $ | (45 | ) | | $ | (2,353,134 | ) | | $ | (780,709 | ) |
| Shares issued to Buck | | | 1,009,016 | | | | 101 | | | | 42,399 | | | | (42,500 | ) | | | | | | | | | | | - | |
| Common stock to be issued to Buck | | | - | | | | - | | | | - | | | | 57,895 | | | | | | | | | | | | 57,895 | |
| Buck settlement | | | - | | | | - | | | | 274,247 | | | | - | | | | - | | | | - | | | | 274,247 | |
| Fair value of options | | | - | | | | - | | | | 648,188 | | | | - | | | | - | | | | - | | | | 648,188 | |
| Beneficial conversion feature on the convertible note | | | - | | | | - | | | | 119,250 | | | | - | | | | - | | | | - | | | | 119,250 | |
| Common stock from private placement | | | 3,666,668 | | | | 366 | | | | 1,067,134 | | | | - | | | | - | | | | - | | | | 1,067,500 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,180,571 | ) | | | (2,180,571 | ) |
| Balance as of December 31, 2016 | | | 47,846,984 | | | $ | 4,784 | | | $ | 3,676,871 | | | $ | 57,895 | | | $ | (45 | ) | | $ | (4,533,706 | ) | | $ | (794,201 | ) |
The accompanying notes are integral to these consolidated financial statements.
| | |
Mount TAM Biotechnologies, Inc. |
Consolidated Statement of Cash Flows For The Year Ended |
| | |
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | |
| Cash Flows from Operating Activities | | | | | | |
| Net loss | | $ | (2,180,571 | ) | | $ | (2,095,329 | ) |
| Adjustment to reconcile net loss to net cash used in operating activities: | | | | | |
| Fair value of options | | | 648,188 | | | | - | |
| Stock based compensation | | | 57,895 | | | | 527,741 | |
| Amortization of debt discount | | | 87,479 | | | | 2,658 | |
| Expenses paid by the note holder | | | - | | | | 66,004 | |
| Amortization of prepaid expenses | | | 20,854 | | | | 20,000 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid expense | | | (25,025 | ) | | | - | |
| Accounts payable and accrued liabilities | | | 216,732 | | | | 411,696 | |
| Net cash used in operating activities | | | (1,174,448 | ) | | | (1,067,230 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities: | | | - | | | | - | |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Proceeds from loans | | | 477,000 | | | | 971,791 | |
| Proceeds from issuance of common stock | | | 1,067,500 | | | | 100,005 | |
| Net cash provided by financing activities | | | 1,544,500 | | | | 1,071,796 | |
| | | | | | | | | |
| Net Increase in cash | | | 370,052 | | | | 4,566 | |
| | | | | | | | | |
| Cash, beginning of period | | | 5,447 | | | | 881 | |
| | | | | | | | | |
| Cash, end of period | | $ | 375,499 | | | $ | 5,447 | |
| | | | | | | | | |
| Supplemental disclosures: | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | |
| Income tax paid | | $ | - | | | $ | - | |
| | | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| Waiver of payable-related parties transferred to additional paid in capital | | $ | 274,247 | | | $ | - | |
| Debt discount due to beneficial conversion feature on note | | $ | 119,250 | | | $ | 35,251 | |
| Shares issued as part of stock to be issued | | $ | 45,000 | | | $ | - | |
| Accrual of finance fees | | $ | - | | | $ | 30,000 | |
| Common stock issued for reverse merger recapitalization | | $ | - | | | $ | 67,548 | |
| Common stock issued for conversion of convertible notes | | $ | - | | | $ | 1,000,000 | |
| Common stock cancelled on reverse merger | | $ | - | | | $ | 24,700 | |
| Common stock to be issued to consultant due to recapitalization | | $ | - | | | $ | 97 | |
| | | | | | | | | |
The accompanying notes are integral to these consolidated financial statements.
Mount TAM Biotechnologies, Inc.
Consolidated Financial Statements
For the year ended December 31, 2016
Note 1 – Nature of the Business
The terms "we," "us," "our," "registrant," and the "Company" refer to Mount Tam Biotechnologies, Inc., a Nevada corporation, and, where applicable, Mount Tam Biotechnologies, Inc., a Delaware corporation and our wholly-owned subsidiary ("Mount Tam"). The Company is an early-stage life sciences and technology company pursuing the development of bio-pharmaceuticals to treat autoimmune diseases. The Company intends to optimize and bring to market a portfolio of products focused on improving the health and wellbeing of individuals afflicted with autoimmune diseases. The Company is headquartered in the San Francisco Bay Area, and may go to market both vertically and horizontally by product/technology specialties and provide our customers with treatment options.
On August 13, 2015, Mount Tam entered into a Share Exchange and Conversion Agreement (the "Exchange Agreement") with the Company and certain other persons party thereto. Immediately following the effective time of the Exchange Agreement, Mount Tam's stockholders (as of immediately prior to the transactions contemplated by the Exchange Agreement (such transactions, the "Share Exchange")) owned approximately 57.14% of the Company's outstanding common stock and the Company's stockholders (as of immediately prior to the Share Exchange) owned approximately 42.86% of the Company's outstanding common stock. Additionally, following the Share Exchange, the business conducted by Mount Tam became the primary the business conducted by the Company.
As a result of the Share Exchange, Mount Tam became a wholly-owned subsidiary of the Company. However, the former stockholders of Mount Tam acquired a majority of the outstanding shares of the Company's common stock. In connection with the Share Exchange, a former shareholder of the Company agreed to surrender all of his shares of the Company's common stock in exchange for $30,000, and allacquisition. All of the issued and outstanding
sharesmembership interests of
Epicurean Cigars, Inc.,LAH were purchased for a cost of $208,690 below net book value which
resulted in the gain on acquisition.LAH LEASE SERVICE LLC
STATEMENT OF ASSETS AND LIABILITIES
As of April 30, 2018
| Assets | | | | |
| Accounts Receivable (net of allowance for uncollectible accounts) | | | 718,600 | |
| Machinery & Equipment (net of accumulated depreciation) | | | 1,741,365 | |
| Total Assets | | $ | 2,459,965 | |
| Liabilities | | | | |
| Cash Overdrawn | | | 3,434 | |
| Accounts Payable | | | 123,423 | |
| Accrued Expenses | | | 1,424,318 | |
| Short-term Notes Payable | | | 100,000 | |
| Related Party Notes Payable | | | 600,000 | |
| Total Liabilities | | $ | 2,251,175 | |
| | | | | |
| Net Book Value | | $ | 208,790 | |
| Acquisition Purchase Price | | | 100 | |
| Gain on Acquisition | | $ | 208,690 | |
Pro forma (Unaudited)
Pinnacle Frac acquired one hundred percent of the issued and outstanding membership interests of LAH and LSQL on April 30, 2018, and subsequently transferred selected operations, employees, equipment, and contracts into Pinnacle Frac.
The following unaudited pro forma information presents the combined results of operations as if the acquisitions had been completed on April 30, 2018. The unaudited pro forma results include amortization associated with preliminary estimates for the acquired intangible assets on these unaudited pro forma adjustments.
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies, or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the timebeginning of the period presented, nor are they indicative of future results of operations:
| From May 1, 2018 to December 31, 2018 |
| Pinnacle
Frac Transport |
|
| LAH |
|
|
LSQL |
|
|
Total |
|
|
Dr |
|
|
Cr |
|
|
Proforma |
|
| Revenues | | $ | 8,420,200 | | | $ | - | | | $ | - | | | $ | 8,420,200 | | | $ | - | | | | | | | $ | 8,420,200 | |
| Net income (loss) | | $ | (1,565,945 | ) | | $ | (372 | ) | | $ | (272 | ) | | $ | (1,566,589 | ) | | | | | | $ | (314,114 | ) | | $ | (1,566,589 | ) |
From May 1, 2018 to December 31, 2018, the proforma adjustment of $314,114 is for a loss on disposal recorded for the 8 months ended December 31, 2018 for equipment that was acquired and not deemed fit to be placed into service. There was no amortization expense recorded from the acquisition date to December 31, 2018 due to the acquisition being purchased below net book value and no goodwill being recorded.
Reverse Merger with Banner Midstream
On September 26, 2019, the Company executed a wholly-ownedreverse merger agreement with Banner Midstream. The Merger closed on November 18, 2019, with Banner Midstream becoming a wholly owned subsidiary of the Company. Under terms of the agreement, Banner Midstream became a subsidiary of the Company. Upon closure of the transaction, the Company whichexecuted the 1-for-95 Reverse Split. The Reverse Split and name change to MTB Corp. then Banner Energy took effect November 14, 2019. At the time of closing, shareholders of the Company had a nominalcombined ownership position of approximately 10%, and the former Banner Midstream shareholders collectively owned approximately 90% of the outstanding stock. On February 12, 2020, the name from MTB Corp. was changed to Banner Energy Services Corp. On March 27, 2020, Banner Energy Services Corp divested Banner Midstream to Ecoark. See NOTE 13: SUBSEQUENT EVENTS.
NOTE 8: DISCONTINUED OPERATIONS
The Company made the decision to discontinue the operations of its wholly owned subsidiary, Pinnacle Vac, effective October 31, 2018 due to the inability of Pinnacle Vac’s management to develop a sustainable, profitable business model. All of the non-managerial staff of Pinnacle Vac were terminated on October 23, 2018 and all of its oilfield services operations were terminated on October 23, 2018. The managerial staff of Pinnacle Vac was terminated on November 15, 2018 and Pinnacle Vac’s rental facility at Sligo Rd was vacated on November 15, 2018.
Pursuant to ASC 205-20, Presentation of Financial Statements – Discontinued Operations, ASC-20-45-1B, paragraph 360-10-45-15, Pinnacle Vac will be disposed of other than by sale via an abandonment and termination of operations with no intent to classify the entity or assets as Available for Sale. Pursuant to ASC 205-20-45-3A, the results of operations of Pinnacle Vac from inception to discontinuation of operations will be reclassified to a separate component of income, below Net Income/(Loss), as a Loss on Discontinued Operations.
All of the equipment assets of Pinnacle Vac and the related loan liabilities will be subsequently transitioned into a separate wholly owned subsidiary of Banner, Capstone Equipment Leasing LLC to continue servicing the debt. The remaining net liability.current assets of Pinnacle Vac will be used to settle any outstanding current liabilities of Pinnacle Vac. A loss contingency will be recorded on the books of Banner if any of the outstanding liabilities or obligations of Pinnacle Vac resulting from this abandonment are reasonably estimable and likely to be incurred.
| December 31, 2019 and 2018 | | 2019 | | | 2018 | |
| Cash and Cash Equivalents | | $ | 51 | | | $ | 183 | |
| Prepaid Expenses | | | - | | | | 10,500 | |
| | | $ | 51 | | | $ | 10,683 | |
| | | | | | | | | |
| Machinery and Equipment (net of accumulated depreciation) | | | 248,966 | | | | 248,966 | |
| Intangible Assets (net of accumulated amortization) | | | - | | | | 30,500 | |
| | | $ | 249,017 | | | $ | 290,149 | |
| | | | | | | | | |
| Accounts Payable | | | 227,522 | | | | 245,285 | |
| Accrued Expenses | | | - | | | | 31,500 | |
| | | $ | 227,522 | | | $ | 276,785 | |
| Year Ended December 31, 2019 and May 8, 2018 (Inception) to October 31, 2018 | | | | | | |
| Revenue | | $ | - | | | $ | 369,781 | |
| Cost of Sales | | | - | | | | 245,759 | |
| Gross Profit | | | - | | | | 124,022 | |
| Operating Expenses | | | 5,236 | | | | 431,994 | |
| Loss from discontinued operations | | $ | (5,236 | ) | | $ | (307,972 | ) |
| Non-cash revenues (expenses) | | | 8,131 | | | | (13,364 | ) |
| Net cash used in discontinued operations | | $ | (13,367 | ) | | $ | (321,336 | ) |
NOTE 9: COMMITMENTS AND CONTINGENCIES
Litigation
Pinnacle Frac retained counsel in connection with certain litigation. The shares were returnedCompany received a full settlement and release from all plaintiffs on December 31, 2019 and incurred no loss liabilities other than the costs for its external legal counsel at ABDM.
The Company has been assigned a $1,661,858 judgment against William “Bill” Hamrick, the former owner of LAH and LSQL. The judgment was transferred by FracSure LLC (“FracSure”) to the Company on September 28, 2018 because of the Company satisfying the payment in full on a $1,536,437 note payable for equipment in September 2018. The Company engaged with the law firm, Pakis, Giotes, Page & Burleson (“Pakis”) on November 15, 2018 to begin collection efforts on the judgment in the State of Texas. The Company retained counsel in Texas and Louisiana seeking to collect the $30,000 duejudgment. As of December 31, 2019, the Company has not been successful in its attempts to collect on the shareholderjudgment.
Accounts Payable
Pinnacle Vac Service has been accrued$227,522 and $245,285 in accounts payable as of December 31, 2015.
Effective2019 and 2018 and has not had sufficient funds to make any significant payments since operations were discontinued in October 2018. The Company has not signed any corporate guaranty on
August 31, 2015,this subsidiary’s payables, but the accounts payable balance remains as a liability until each payable can successfully be satisfied with the vendor.NOTE 10: LEASES
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 2019 when they entered into their first operating lease and will account for their leases in terms of the right of use assets and offsetting lease liability obligations under this pronouncement and the first finance lease was created when the equipment was financed. The Company records their leases at present value, in accordance with the standard, using discount rates ranging between 2.5% and 6.8%. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company changed its name from TabacaleraYsidron, Inc. to Mount TAM Biotechnologies, Inc. The name change was effected through a parent/subsidiary short-form merger of Mount TAM Biotechnologies, Inc., our wholly-owned Nevada subsidiary which we formed solely forused the purpose ofinitial terms ranging between 42 and 60 months. Upon the name change, with and into the Company, with the Company as the surviving corporation. With the exception of the name change, there were no changes to the Company's Articles of Incorporation or Bylaws. There will be no mandatory exchange of stock certificates. The Company's trading symbol on the OTC Markets (OTC Pink) marketplace was changed to "MNTM" from "TQBY".
Mount Tam Biotechnologies, Inc., the Company's wholly-owned legal subsidiary, was the "accounting acquirer," and for accounting purposes, the TYI was deemed as having been "acquired" in the Merger. The board of directors and officers that managed and operated Mount Tam immediately prior to the effective time of the Merger became the Company's board of directors and officers.
To meet its business objectives, Mount Tam formed a strategic partnership with the Buck Institute for Research on Aging ("Buck Institute"), an independent research facility focused on understanding the connection between aging and chronic disease. As part of the partnership, Mount Tam signed an exclusive worldwide licensing and collaboration agreement with the Buck Institute that includes many of the Buck Institute's intangible research and development assets in the area of autoimmune disorders. The initial focus of Mount Tam's research and development efforts will be a pre-clinical stage compound for the treatment and diagnosis of systemic lupus erythematosus, a common form of lupus. Mount Tam has not produced any revenues from the intangible research and development assets it acquired from Buck Institute and it has not commenced its planned principal operations.
The production and marketing of the Company's products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developedelection by the Company
must undergo rigorous preclinical (animal)to extend the lease for additional years, that election will be treated as a lease modification and
clinical (human) testing andthe lease will be reviewed for remeasurement. This lease will be treated as an
extensive regulatory approval process implementedoperating lease under the new standard.The Company has also elected to utilize the transition related practical expedients permitted by the Foodnew standard. The modified retrospective approach provides a method for recording existing leases at adoption and Drug Administration underin comparative periods that approximates the Food, Drugresults of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.
The leased property at the Preston Rd Office was assigned by Razor to Capstone for and Cosmetic Act.in consideration of $10.00 on January 1, 2019. The Company’s co-tenancy agreement with Razor was subsequently terminated on January 1, 2019.
As of December 31, 2019, the value of the unamortized lease right of use asset is $779,199. As of December 31, 2019, the Company’s lease liability was $786,379.
| Maturity of Lease Liability for year ended December 31, | |
| 2021 | | $ | 220,234 | |
| 2022 | | $ | 199,838 | |
| 2023 | | $ | 179,722 | |
| 2024 | | $ | 135,260 | |
| 2025 | | $ | 51,325 | |
| | | | | |
| Total lease payments | | $ | 786,379 | |
| Amortization of the right of use asset for fiscal year ended December 31, | |
| 2021 | | $ | 215,727 | |
| 2022 | | $ | 195,536 | |
| 2023 | | $ | 177,391 | |
| 2024 | | $ | 138,609 | |
| 2025 | | $ | 51,936 | |
| | | | | |
| Total lease payments | | $ | 779,199 | |
NOTE 11: RELATED PARTY TRANSACTIONS
The Company and its subsidiaries Pinnacle Frac Transport, Pinnacle Vac Service, and Capstone are tenants at 5899 Preston Road #505, Frisco, TX 75034 (“Preston Rd Office”) since inception. In addition, the Company's success will dependprincipal operations of the Company and Capstone have been managed out of the aforementioned Preston Road location. The Preston Rd Office is currently being leased but not utilized by a related party managed by Ozark Empire Capital Management, Razor Medical Science LLC (“Razor”). The Company previously had entered into a co-tenancy agreement with Razor where the Company would pay $1,600 per month which is equal to one half of the total lease payment owed by Razor to the lessor; the agreement was for 36 months beginning in partApril 2018, the original usage date by the Company. Razor discontinued operations on its abilityJanuary 1, 2019 and an assignment was executed to obtain and maintain patents, exploit its product license rights, maintain trade secrets, and operate without infringing ontransfer the proprietary rightslease into the name of others, both inCapstone for full-time usage by the United States and other countries.
The following reflects the Company's current, post-merger corporate structure (StateCompany at a rental rate of Incorporation):
Mount Tam Biotechnologies, Inc., formerly TabacaleraYsidron, Inc. (Nevada)
Mount Tam Biotechnologies, Inc. (Delaware)
$3,300 per month.NOTE 12: INCOME TAXES
The Company is a publicly-traded biotechnology company dedicatednewly created legal entity during the tax year 2018 (April 2, 2018) and was not eligible to speedingfile tax returns in prior years. All of the delivery of new treatment optionsCompany’s wholly owned subsidiaries were disregarded entities prior to patients affected by autoimmune diseases through the developmentacquisition and application of highly specialized drug targeting platforms and formulation expertise.continue to be after acquisition. The Company focuses on underserved patient populations where it can have the greatest potential impact. Mount Tam's clinical division advances clinical-stage product candidates towards marketing approval and commercialization.
The Company is subjecthas elected to a number of risks, including: the need to raise capital through equity and/or debt financings; the uncertainty whether the Company's research and development efforts will result in successful commercial products; competition from larger organizations; reliance on licensing proprietary technology of others; dependence on key personnel; uncertain patent protection; and dependence on corporate partners and collaborators. See the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K.
History
The Company was established in November 2011 under the name TabacaleraYsidron. Mount Tam was incorporated on August 13, 2014 (date of inception). On August 13, 2014, Mount Tam issued 9,000,000 shares of common stock, $0.0001 par value, for $900.
On August 13, 2015, Mount Tam and the Company entered into the Exchange Agreement as described above.
The Share Exchange was treated as a reverse acquisition of the Company, a public shell company at the time, by Mount Tam for financial accounting and reporting purposes. As such, Mount Tam was treated as the acquirer for accounting and financial reporting purposes while the Company is treated as the acquired entity for accounting and financial reporting purposes. As a result of the Share Exchange, $50,048 account payable and $17,500 note payable of the Company was brought forward at their book values and no goodwill has been recognized. Prior to the Share Exchange, the Company was a non-operating public shell company with nominal operations and nominal assets.
Note 2 – Summary of Significant Accounting Policies
The significant accounting policies applied in the annual consolidated financial statements of the Companyreport its fiscal year end as of December 31 2016 are applied consistently in these consolidated financial statements.
Basisand has elected tax treatment as of Presentation
The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States. All intercompany accounts have been eliminated.
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Through December 31
2016, the Company had accumulated losses of approximately $4,533,706 and a working capital deficit of $240,561. Management expects to incur further losses for the foreseeable future. calendar year end.The Company plans to continue to review strategic partnerships, collaborations and potential equity sales as a potential means to fund its preclinical and clinical programs in the future. Until the Company can generate sufficient levels of cash from its operations, the Company expects to continue to finance future cash needs primarily through proceeds from equity or debt financings, loans and collaborative agreements with corporate partners or through a business combination with a company that has such financing in order to be able to sustain its operations until the Company can achieve profitability and positive cash flows, if ever.
On August 13, 2015, upon the closing of the Share Exchange (as discussed further in Note 1, Business, and Note 6, Issuance of Common Stock), Mount Tam's stockholders exchanged each share of Mount Tam's common stock into 2.67 shares of the Company's common stock. Therefore, all shares of common stock are reported in these consolidated financial statements on a post-Share Exchange basis.
Management plans to seek additional debt and/or equity financingaccounts for the Company through private or public offerings or through a business combination or strategic partnership, but it cannot assure that such financing or transaction will be available on acceptable terms, or at all. The uncertainty of this situation raises substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the failure to continue as a going concern.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amount on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and it does not believe it is exposed to any significant credit risk. As of December 31, 2016 and 2015 the Company had cash and cash equivalents of $375,499 and $5,447, respectively.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments including cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities and note payable approximate fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
taxes under ASC Topic 740: Income Taxes
The Company utilizes FASB ASC 740, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for
both the expected
future tax consequencesimpact of
events that have been included indifferences between the financial statements
or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the tax basis of assets and liabilities, and
their financial reporting amounts based onfor the expected future tax benefit to be derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carryforward for tax purposes totaling ($9,001,296) at December 31, 2019.On December 22, 2017, the U.S. government enacted comprehensive tax lawslegislation commonly referred to as the Tax Cuts and statutoryJobs Act (the “Tax Act”), which makes broad and complex changes to the U.S. tax ratescode. Certain of these changes may be applicable to the periods in whichCompany, including but not limited to, reducing the differences are expectedU.S. federal corporate tax rate from 35 percent to affect taxable income. A valuation allowance is recorded when it is "more likely-than-not" that21 percent, creating a deferrednew limitation on deductible interest expense, eliminating the corporate alternative minimum tax asset will not be realized.
The Company generated a deferred tax asset through(“AMT”), modifying the rules related to uses and limitations of net operating loss
carry-forward. However,carryforwards generated in tax years ending after December 31, 2017, and changing the rules pertaining to the taxation of profits earned abroad (IRC Sec. 965. Changes in tax rates and tax laws are accounted for in the period of enactment. The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018.Pursuant to Internal Revenue Code Sections 382 and 383, the utilization of net operating losses and other tax attributes may be substantially limited or eliminated due to cumulative changes in ownership greater than 50% that may have occurred during an applicable testing periods. Management has not performed a Section 382/383 analysis to determine the possible limitation on its net operating losses in 2018.
Management has placed a full valuation allowance of 100% has been established due to the uncertainty of the Company's realization of the net operating loss carry forward prior toon its expiration.
We utilize the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statements and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded whenNet Deferred Tax Assets since it is more likely than not that
some of the
deferred tax assetsNet Deferred Tax Asset will not be
realized. In determiningutilized.The table below summarizes the need for valuation allowances we consider projected future taxable incomedifferences between the tax benefit computed at the statutory federal tax rate and the availability of tax planning strategies. If in the future we determine that we would not be able to realize our recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.
We assess ourCompany’s net income tax positionsbenefit from April 2, 2018 (Inception) to December 31, 2018 and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is greater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that bas full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained no tax benefit bas been recognized in the consolidated financia1 statements.
Research and Development costs
The Company follows Accounting Standards Codification Subtopic ("ASC") 730-10, "Research and Development," in which research and development costs are charged to the statement of operations as incurred. During the year ended December 31,
2016 and 20152019:| | | 2019 | | | 2018 | |
| Net operating loss carryover | | $ | 5,292,936 | | | $ | 3,708,360 | |
| Fixed Assets | | | (839,807 | ) | | | (314,114 | ) |
| Share-based compensation | | | (470,000 | ) | | | (750,000 | ) |
| Depreciation expense | | | (483,183 | ) | | | (339,270 | ) |
| Valuation allowance | | | (3,499,946 | ) | | | (2,304,976 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
| | | | | | | | | |
| Tax benefit computed at expected statutory rate | | $ | (1,111,517 | ) | | $ | (778,756 | ) |
| State income taxes | | | - | | | | - | |
| Permanent differences: | | | | | | | | |
| Depletion | | | 176,359 | | | | 65,964 | |
| Temporary differences: | | | | | | | | |
| Share-based compensation | | | 98,700 | | | | 157,500 | |
| Depreciation expense | | | 101,468 | | | | 71,247 | |
| Valuation Allowance | | | 734,990 | | | | 484,045 | |
| Net income tax benefit | | $ | - | | | $ | - | |
| | | | | | | | | |
| Federal statutory rate (benefit) | | | (21 | )% | | | (21 | )% |
| Permanent differences | | | 3 | % | | | 1 | % |
| Change in valuation allowance | | | 18 | % | | | 20 | % |
| Effective Tax Rate | | | (0 | )% | | | (0 | )% |
NOTE 13: SUBSEQUENT EVENTS
On February 27, 2020, the Company incurred $329,397 and $455,950, respectively of expenses related to research and development costs.
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under ASC 260-10, "Earnings Per Share". Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number ofissued 50,000 shares of common stock outstanding (the denominator) duringfor services rendered to the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the "treasury stock" method), unless their effect on net loss per share is anti-dilutive. There were no potentially dilutive shares for the year ended December 31, 2016.
The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:
| | December
31, 2016
| | | December
31, 2015
| |
Options to purchase common stock | | 6,465,000 | | | | - | |
Convertible notes | | | 2,647,933 | | | | - | |
Potential equivalent shares excluded | | | 9,112,933 | | | | - | |
Accounts Payable
Accounts payable and accrued expenses include the following as of December 31, 2016 and 2015:
| | | December
31, 2016 | | | December
31, 2015 | |
| Accounts payable | | $ | 335,249 | | | $ | 277,719 | |
| Accounts payable to related parties | | | 9,308 | | | | 253,884 | |
| Accrued legal fees | | | 145,279 | | | | 65,383 | |
| Accrued interest | | | 19,897 | | | | - | |
| Accrued salary | | | 92,996 | | | | 56,970 | |
| Other current liabilities | | | - | | | | 6,289 | |
| Total accounts payable and accrued expenses | | $ | 602,729 | | | $ | 660,245 | |
Fair Value Measurements
The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair valuesame recipient as the
price that would be received from selling an asset or paidDecember 30, 2019 issuance.On March 27, 2020, Banner Midstream entered into a Membership Interest Purchase Agreement (the “MIPA”) with Shamrock Upstream Energy LLC (“Shamrock”) as a closing condition of a Stock Purchase Agreement (the “SPA”) with Banner Energy to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value,sell the Company considersinto Ecoark. The SPA was completed on March 27, 2020 immediately after the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
For the year ended December 31, 2016, the Company has determined that there we no assets or liabilities measured at fair value on a recurring basis.
The Company believes the carrying amounts of Cash and cash equivalents, other current assets, accounts payable, accrued expenses salaries, wages and payroll taxes, and other accrued expenses are a reasonable approximationcompletion of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
Going Concern
The Company's financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has no significant operating history and had a cumulative net loss from inception (August 13, 2014) to December 31, 2016 of $4,533,706. The Company has a working capital deficit (current liabilities minus current assets) of $240,561 as of December 31, 2016. Since inception, the Company has been funded through debt and equity financings. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying financial statements for the period ended December 31, 2016, have been prepared assuming the Company will continue as a going concern. The Company believes its cash resources are insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and clinical trials and commercialization of its product candidates. In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management's plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business. Since its inception, the Company has funded its operations primarily through debt financings and it expects that it will continue to fund its operations through a mix of equity and debt financings. If the Company secures additional financing by issuing equity securities, its existing stockholders' ownership will be diluted. The Company also expects to pursue non-dilutive financing sources. However, obtaining such financing would require significant efforts by the Company's management team, and such financing may not be available, and if available, could take a long period of time to obtain. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. For the periods presented, comprehensive loss did not differ from net loss.
Collaborative Arrangements
The Company and its collaborative partners are active participants in the collaborative arrangements and both parties are exposed to significant risks and rewards depending on the commercial success of the activity. The Company records all expenses related to collaborative arrangements as research and development expense in the consolidated statements of operations as incurred.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Going Concern ("ASU 2014-15"). ASU 2014-15 provides GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard did not have a material impact on the Company's financial statements..
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest – Imputation of Interest: Simplifying the presentation of Debt Issuance Costs ("ASU 2015-03"). The standard requires entities to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset, and the amortization is reported as interest expense. The result of application of this guidance would be to reduce the deferred financing costs balance, with a corresponding reduction to the long term liabilities to which the debt issuance costs relate in the balance sheets. The standard does not affect recognition and measurement of debt issuance costs. The Company expects to adopt ASU 2015-03 on January 1, 2016.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory: Simplifying the Measurement of Inventory ("ASU 2015-11"). The standard requires inventory within the scope of the ASU to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using LIFO or retail inventory method, and are intended to more clearly articulate the requirements for the measurement and disclosure of inventory and to simplify the accounting for inventory by eliminating the notions of replacement cost and net realizable value less a normal profit margin. The standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company does not believe the adoption of this standard will have a significant impact on the Company's financial statements.
ASC 915, "Development Stage Entities", is being superseded by FASB ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810 Consolidation ("ASU 2014-10"). The amendments made by ASU 2014-10 are effective for public companies for annual reporting periods beginning after December 15, 2014 and interim period therein. For private entities, the amendments are effective for annual reporting periods beginning after December 15, 2014, and for interim reporting periods beginning after December 15, 2015. The future adoption of ASU 2014-10 is not expected to have a material impact on the Company's financial statements.
Recent Accounting Pronouncements Issued But Not Adopted as of December 31, 2016
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on the Company's consolidated financial statements if it enters into future business combinations.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Restricted Cash (a consensus of the FASB Emerging Issue Task Force) ("ASU 2016-18"). This new standard addresses the diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within the year of adoption, with early adoption permitted. The Company does not expect that the adoption of ASU 2016-18 will have a material impact on its consolidated financial statements.
In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU 2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas of simplification apply only to nonpublic entities. For public business entities, the amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 addresses the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation allowance against the Company's net deferred tax assets.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard is not expected to have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement," which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
In April 2015, the FASB issued guidance related to a customer's accounting for fees paid in a cloud computing arrangement. This standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015, and early adoption is permitted. The Company will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a material impact on its financial position, results of operations or cash flows.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, "Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)," effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. The adoption of ASU 2014-16 will not have a significant impact on the Company's financial position or results of operations.
In November 2014, the FASB issued ASU 2014-16, "Derivatives and Hedging (Topic 815)." Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-16 will not have a significant impact on the Company's financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This standard provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for annual reporting periods ending after December 15, 2016, and early adoption is permitted. The Company expects to adopt this guidance on January 1, 2017. The Company is currently evaluating the potential impact, if any, the adoption of ASU 2014-15 will have on footnote disclosures, however, the Company does not expect the adoption of this guidance to have any impact on its financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date. As a result, we expect to adopt this guidance on January 1, 2018. The Company has not yet determined its approach to adoption or the impact the adoption of this guidance will have on its financial position, results of operations or cash flows, if any.
In the second quarter of 2014, the FASB issued guidance applicable to revenue recognition that will be effective for the Company for the year ending December 31, 2018. The new guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance applies a more principles-based approach to recognizing revenue. The Company expects to adopt this new guidance in the first quarter of 2018 using the modified retrospective method. The adoption may have a material effect on the Company's financial statements. The Company's revenues are derived primarily from license and collaboration agreements. The consideration the Company is eligible to receive under these agreements includes upfront payments, research and development funding, milestone payments, and royalties. Each collaboration agreement is unique and will need to be assessed separately under the five-step process under the new standard. The new guidance differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments. Under the current accounting policy, the Company recognizes milestone revenue using the milestone method specified in ASC 605-28, which generally results in the recognition of the milestone payment as revenue in the period that the milestone is achieved. However, under the new accounting standard, it is possible to start to recognize milestone revenue before the milestone is achieved, subject to management's assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
Note 3 - Income Taxes
Deferred tax assets (liabilities) are comprised of the following at December 31:
| | | 2016 | | | 2015 | |
| | | | | | | |
| Net operating loss | | $ | 1,268,187 | | | $ | 717,737 | |
| Stock compensation | | | 228,141 | | | | 210,199 | |
| Change in fair value | | | 218,343 | | | | - | |
| Debt discount | | | 34,843 | | | | - | |
| Accrued interest | | | 40,734 | | | | 307 | |
| Start up expense | | | 7,972 | | | | 8,436 | |
| | | | | | | | | |
| Total | | | 1,798,220 | | | | 936,679 | |
| | | | | | | | | |
| Less valuation allowance | | | (1,798,220 | ) | | | (936,679 | ) |
| | | | | | | | | |
| Net deferred taxes | | $ | - | | | $ | - | |
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2016 and 2015, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2016, net operating loss carryforwards were approximately $3.1 million for federal and state tax purposes that expire at various dates from 2034
Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the "change in ownership" provisions of the Internal Revenue Code Sections 382 and 383. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.
The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2016 and 2015) to income taxes as follows:
| | | 2016 | | | 2015 | |
| | | | | | | |
| Tax benefit computed at 34% | | $ | (741,000 | ) | | $ | (712,000 | ) |
| State taxes, net of federal effect | | | (126,427 | ) | | | (121,483 | ) |
| Other | | | 5,885 | | | | 513,804 | |
| Valuation allowance | | | 861,542 | | | | 319,679 | |
| | | | | | | | | |
| Income tax expense | | $ | - | | | $ | - | |
ASC 740 clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold, measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Under ASC 740, we are required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. There were no unrecognized tax benefits recorded as of December 31, 2016, and 2015. Furthermore, substantially all of the Company's tax years, from 2014, remain open to federal and state tax examinations.
Note 4 – Loans
In 2014, the Company executed an agreement with a third-party investor whereby the Company issued $53,209 in a convertible promissory note. This convertible note bears an interest rate of 8% per year and was set to mature on November 26, 2015. The Company subsequently received an advance of $50,000 from the same party. The proceeds from these loans were used for working capital purposes. During the year ended December 31, 2015, both of these loans were consolidated into a new convertible note (see Note 5).
As a result of the Share Exchange, the Company assumed an obligation to a former note holder in the amount of $17,500. The unsecured promissory note in the amount of $15,000 is to an unrelated party.MIPA. Pursuant to the terms of the
MIPA, the members of Shamrock exchanged their membership interests for a $1,800,000 seller note
the note is interest bearing at 3.5%payable and
isa $1,200,000 short-term due
on demand. As of December 31, 2016,to seller liability.On March 27, 2020 WR Holdings Corp. (“WR Holdings”) entered into a Stock Purchase Agreement (“SPA 1”) with Banner Midstream as a closing condition with a Stock Purchase Agreement (“SPA 2”) with Banner Energy to sell the Company has accrued interestinto Ecoark. SPA 2 was completed on March 27, 2020 immediately after the completion of $1,744. Another unsecured promissory note is of $2,500 to an unrelated party.SPA 1. Pursuant to the terms of SPA 1, the stockholders of WR Holdings exchanged their shares for a $4,000,000 seller note payable and a $1,000,000 short-term due to seller liability. The proceeds from the $1,000,000 short-term due to seller liability were used to return capital to the members of SPV 1 and allow the dissolution of that entity.
On March 16, 2020, and March 19, 2020, the Company amended its senior secured convertible note is non-interest bearingpayable to adjust for change of control clauses and is due on demand.a technical default related to the pending sale to Ecoark. The principal balance was subsequently increased to $2,222,222 and the interest rate and late fee penalty rates were adjusted to 18% respectively, and paid in full in May 2020.
On March 27, 2020, Banner Midstream and its subsidiaries were acquired by Ecoark for 8,945,205 shares of Ecoark common stock, and Ecoark assumed all of the debt of the Company. After the sale of Banner Midstream, the only remaining assets of the Company is currently assessing how to revisecash and the terms of this note.
Note 5 – Convertible Notes
On January 2, 2015,shares that the Company
issued a convertible promissory notereceived from Ecoark in the
principal amounttransaction which as of
$400,000September 30, 2020 total 1,000,000 shares.On April 14, 2020, after Banner Midstream and its subsidiaries were acquired by Ecoark, Banner Midstream amended its interest only loan with Alliance Bank to a third party investor, which included $53,209 in principal amount for a previously issued note (see Note 4) at a conversion price of $0.50. Such note bears anand interest rate of 1% per year and matures on September 2, 2015. On August 13, 2015, this note was fully converted into 800,000 shares of common stock.
On March 19, 2015, the Company issued a convertible promissory note in the principal amount of $600,000 at a conversion price of $0.50. This note bears an interest rate of 1% per year and matures on December 31, 2015. On August 13, 2015, this note was fully converted into 1,200,000 shares of common stock.
In connection with the above convertible note, the Company accrued $60,000 for finance fees to be amortized over the life of the note. As of December 31, 2015, $60,000 of the finance fees was expensed.
On November 9, 2015, the Company borrowed $66,004 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interestpayment amortizing loan with a maturity date of
March 18, 2017. The LenderApril 14, 2025. Interest rate is
deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015,4.95% and monthly payments $23,371 starting May 14, 2020 until maturity.On July 28, 2020, the Company had principal outstanding in the promissory note of $66,004 and accrued interest of $282. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $16,501. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $1,733.
On November 15, 2015, the Company borrowed $25,000 from the Lender through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015, the Company had principal outstanding in the promissory note of $25,000 and accrued interest of $86. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $6,250. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $541.
On December 17, 2015, the Company borrowed $50,000 from the Lender through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. As of December 31, 2015, the Company had principal outstanding in the promissory note of $50,000 and accrued interest of $57. Terms of the convertible note include the right to convert the note at the next financing with gross proceeds to the Company of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing. The fair value of the beneficial conversion feature of the note was determined to be $12,500. The value of beneficial conversion feature was amortized over the life of the note. For the year ended December 31, 2015, the Company amortized the debt discount of $383.
During the year ended December 31, 2015, the Company in total borrowed $141,004 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock.
During the year ended December 31, 2016, the Company borrowed $477,000 from 0851229 BC Ltd. (the "Lender") through a convertible note bearing 3% interest with a maturity date of March 18, 2017. The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock.
The initial fair value of the beneficial conversion feature of the note on the date of issuance was determined to be $154,501. Out of this amount, $119,250 pertains to the notes issued during the twelve months ended December 31, 2016. The value of beneficial conversion feature is being amortized over the life of the loan. For the twelve months ended December 31, 2016, the Company amortized the debt discount of $87,478, respectively. The unamortized debt discount as of December 31, 2016 and 2015 is $64,365 and $32,593 respectively.
On March 23, 2016, all of the previous loans provided by the Lender were consolidated into the Secured Note (defined below) which amends, restates and modifies the terms of the previous loans to the terms set forth in the Secured Note and contains other terms and conditions as described in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 31, 2016.
On June 13, 2016, the Company and the Lender entered into an amended agreement regarding the aggregate principal amount of indebtedness and maturity date, which may be outstanding pursuant to that certain Secured Convertible Promissory Note issued by the Lender to the Company effective as of November 9, 2015 (the "Secured Note"). On June 13, 2016 the Secured Note was amended, as described in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2016.
The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. The Lender and the Company agreed that the aggregate principal amount of all outstanding loans made under the Secured Note shall not exceed $5,000,000 at any time, and the maturity was extended to March 18, 2018. Terms of the Secured Note include the obligation to convert the loan at a financing with gross proceeds to the Company (if such financing is led by an institutional investor or contains commercially reasonable terms and conditions for an early stage biopharmaceutical company) of at least $2,000,000 at a conversion price equal to 80% of the price per share in the financing.
As of December 31, 2015 the Company had principal outstanding on this Secured Note of $141,004 and accrued interest of $426.
As of December 31, 2016, the Company had principal outstanding on this Secured Note of $618,004 and accrued interest of $13,723. Total interest expenses for the twelve months ended December 31, 2016 was $13,297.
Note 6 – Capital Stock
Share Exchange
Pursuant to the Exchange Agreement, upon consummation of the Share Exchange, each share of Mount Tam's capital stock issued and outstanding immediately prior to the Share Exchange was exchanged for 2.67 shares of the Company's common stock, par value $0.0001 per share. As a condition to the closing of the Share Exchange, the former shareholder described in Note 1 agreed to cancel 28,533,125 certain83,807 shares of common stock as part of the Company and the then-current Company stockholders retained an aggregate of 16,000,625 shares of common stock. As a result of the Share Exchange, the Company issued a total of 26,000,000 shares of common stock to the shareholders and existing note holders of Mount Tam.
Common Stock
The Company has authority to issue up to 100,000,000 shares, par value $0.0001 per share. As of December 31, 2016, there were 47,846,984 shares of the Company's common stock issued and outstanding.
Mount Tam has anseparation agreement with The Buck Institute as further detailed in Note 7 to maintainan employee. There was a certain common stock equity interest in340 share difference that was adjusted for bringing the Company. As of December 31, 2016 and 2015 the Company owed to the Buck Institute 192,983 and 1,009,016 shares respectively, as a result of the Share Exchange and subsequent issuances of common stock. In 2016, the 192,983 shares were treated as issued for services and valued at $57,895. Out of the 1,009,016total outstanding shares to be issued in 2015, 957,928 shares were treated7,000,000 as a component of the recapitalization of the Company, while the balance of 51,088 shares were treated as issued for service and valued at $42,403.
During the year ended DecemberSeptember 30, 2020.On July 31, 2016, the Company issued 1,009,016 shares of common stock to The Buck Institute for stock to be issued which were accounted in prior period.
During the year ended December 31, 2016, the Company reached a settlement agreement with The Buck Institute to waive of $274,247 of balance payable by the Company, which was credited to additional paid in capital.
On August 3, 2016 the Company entered into a Placement Agent Agreement with Colorado Financial Services Corporation ("CFSC") for a best efforts private placement of its common stock to investors (the "Offering"). The term of the engagement is 12 months. Either party may terminate the engagement earlier upon 10 days prior written notice. In connection with this engagement, the Company shall pay CFSC a cash fee of ten percent (7.5%) of gross proceeds from sales of Securities placed by CFSC in the Offering and two and half percent (2.5%) of gross proceeds of investors introduced by Company. As additional compensation for services, the Company will, upon consummation of the Offering (ie $5,000,000), issue to CFSC warrants to purchase a number of shares of common stock of the Company equal to 500,000 shares at an exercise price of $0.50 per share. The warrants will have a term of 3 years from the date of issuance and have such other terms and conditions as shall be mutually agreed upon, including a cashless exercise feature.
On August 5, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 2,000,000 shares of the Company's common stock for an aggregate purchase price of $1,000,000. The Company incurred $25,000 as cash fee expenses towards the placement agent. In November 2016 the Company lowered the offering price of the common shares being offered in a private placement to $0.30 per share to attract additional investors. The Company has agreed to issue 1,333,333 additional shares to the investor who invested $1,000,000 on August 5, 2016, which adjust its purchase price to $0.30 per share. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
In connection with the above sales of shares the Company paid a cash fees of 2.5% ie $25,000 since it was not directly introduced by the placement agent. Also the offering of $5,000,000 was not completed hence the Company is not liable to issue any warrants
On November 2, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 166,666 shares of the Company's common stock for an aggregate purchase price of $50,000. The Company incurred $3,750 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
On December 10, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 166,666 shares of the Company's common stock for an aggregate purchase price of $50,000. The Company incurred $3,750 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
In connection with the above sales of shares the Company paid a cash fees of 7.5% ie $7,500 since the offering of $5,000,000 was not completed hence the Company is not liable to issue any warrants.
On September 19, 2015 the Company sold an additional 200,000 shares of common stock at a price of $0.50 to an accredited investor for cash of $100,000. As of December 31, 2015, these shares have been issued. The issuance was exempt from registration pursuant to Regulation D under the Securities Act of 1933, as amended.
The Company has agreement with third party for consulting service provided. As of December 31, 2015 the Company issued 890,675 shares of common stock valued at $445,338. The fair value of the shares issued was based on the price the Company sold common shares to third-party investors.
The Company has an agreement with the third party for consulting service provided. As of December 31, 2015 the Company issued 80,000 shares of its common stock valued at $40,000.
Stock Options
The Company's2020, Mr. Jay Puchir notified our Board of Directors approved(the “Board”) that he was resigning as the adoptionChairman of the Mount Tam 2016 Stock-Based Compensation Plan (the "2016 Plan") on May 12, 2016. A majority of the stockholders approved the 2016 Plan by written consent on June 27, 2016. A copy of the 2016 Plan is included as Exhibit A to the Company's Information Statement filed with the SEC on July 11, 2016.
On May 2, 2016, the Company granted options to purchase up to 6,330,000 shares of Common Stock under the Plan in the aggregate, with an exercise price of $0.59 per share. Options will vest as per below table
Name | Number of Stock Options | Vesting Schedule |
Richard Marshak (CEO) | 4,200,000 | Options Vesting over 4 years, 25% (1,050,000 options) per year |
Tim Powers (CSO) | 1,120,000 | Options Vesting over 3 years. 33.33% (373,333 options) per year |
Jim Stapleton (CFO) | 750,000 | Options vesting over 4 years, 25% (187,500 options) per year |
Brian Kennedy (Chairman) | 250,000 | Options vesting over 4 years, 25% (62,500) per year |
Juniper Pennypacker (consultant - assistant to Brian Kennedy) | 10,000 | Options vesting over 4 years, 25% (2,500 options) per year |
On October 2, 2016, the Company granted options to purchase up to 135,000 shares of Common Stock under the Plan in the aggregate, with an exercise price of $0.40 per share. Options will vest as per below table
Name | Number of Stock Options | Vesting Schedule |
Bryan Cox (consultant) | 100,000 | Options Vesting over 4 years, 25% (25,000 options) per year |
Jim Stolzenbach (consultant) | 35,000 | Options vesting over 4 years, 25% (8,750) per year |
Stock-based compensation expense related to vested options was $648,188 for the twelve months ended December 31, 2016. The Company determined the value of share-based compensation using the Black-Scholes fair value option-pricing model using the following weighted average assumptions for options granted during the year ended December 31, 2016.
| | Date of Grant | |
Expected term (years) | | | 10 | |
Expected volatility | | | 131%-153 | % |
Risk-free interest rate | | | 1.26%-1.32 | % |
Dividend yield | | | 0 | % |
As summary of option activity under the 2016 Plan as of December 31, 2016,Board and changes during the period then ended is presented below:
| Options | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2015 | | | - | | | $ | - | | | | - | | | $ | - | |
| Granted | | | 6,465,000 | | | | 0.59 | | | | 9.35 | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited or expired | | | - | | | | - | | | | - | | | | - | |
| Outstanding at December 31, 2016 | | | 6,465,000 | | | $ | 0.59 | | | | 9.35 | | | $ | - | |
| Exercisable at December 31, 2016 | | | - | | | $ | - | | | | - | | | $ | - | |
As of December 31, 2016, there was $3,065,529 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years.
Note 7 – Commitments & Contingencies
From time to time Mount Tam may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company's financial position or results of operations.
On August 17, 2014, the Company entered into an agreement with Buck Institute for licenses of certain patents held by Buck Institute (the "License Agreement"). In connection with this agreement, Mount Tam agreed to pay Buck Institute for research and development activities. Mount Tam will pay Buck Institute in eight equal installments of $75,000 each for conducting research and development. In March 2015, the payment terms were revised so that Mount Tam still pays the Research Funding amount in eight (8) equal installments of seventy-five thousand dollars ($75,000) each and the installments shall be payable as follows: the first, second and third installments (together $225,000) shall all be payable by April 1, 2015, and each subsequent installment shall be payable three (3) months after the date on which the prior installments was payable, with the fourth installment payable July 1, 2015, three (3) months after the first three payments were made, and the final installments payable fifteen (15) months after the first through third installments were made.
In addition, the Company issued to Buck Institute that number of shares equal to 5% of the Company's total outstanding shares. Buck Institute's equity interest in the Company will not be reduced below 5% of the total aggregate shares of Common Stock until such time that the Company has raised and received a total of $5,000,000 of investment in equity, debt, grants, contributions, or donations. As of December 31, 2016, the Company has issued 2,209,016 shares of the Company's Common Stock to Buck Institute and committed to issue 192,983 shares of the Company Common stock as additional shares. Additionally, the Company agreed to pay one-time milestone payments upon the first occurrence of the corresponding milestone events as set forth in the table below.
| Milestone Event | | Milestone
Payment | |
| Filing of an IND | | $ | 50,000 | |
| Completion of the first Phase I Clinical Trial of a Licensed Product | | $ | 250,000 | |
| Completion of the first Phase II Clinical Trial of a Licensed Product | | $ | 500,000 | |
| Completion of the first Phase III Clinical Trial of a Licensed Product | | $ | 1,000,000 | |
As of December 31, 2016 none of the milestone events had yet been achieved.
Mount Tam also agreed to pay Buck Institute non-refundable and non-creditable royalties in the amount of 2% of the annual aggregate net sales. For each licensed product for which Mount Tam grants worldwide sublicense rights to a third party, Mount Tam agreed to pay Buck Institute 20% of all sub-license revenues. Please see discussion in Item 1, Business, Intellectual Property and Licenses, for further discussion of recent communication with the Buck Institute regarding our agreement with them.
Within 30 days after the date on which the Company raises and receives a total of $1,000,000 of investment in equity, debt, grants, contributions, or donations, the Company shall reimburse Buck Institute for 100% of the patent expenses for the Product Patents and 50% of the patent expenses for the Program Patents, incurred by Buck Institute as defined in the Licensing Agreement. Per amended agreement dated March 2015, the Company shall reimburse Buck Institute for 100% of the patent expenses for the Product Patents and 50% of the Patent Expenses for the Program Patents, incurred by Buck Institute incurred on or before April 1, 2015.
During the second quarter of 2016 the Company entered into negotiations with the Buck Institute to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease. On July 18, 2016, the Company entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") between the Company and The Buck Institute.
By way of background, and as previously disclosed in the Company's public filings, the Company previously entered into a Research Collaboration and License Agreement (the "Buck Institute License Agreement") with the Buck Institute, which establishes a joint research effort led by Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. The Company agreed to provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the terms of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. (Additional information about the Buck Institute License Agreement, together with prior amendments thereto, may be found in the Company's public filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2015.)
Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.
Additionally, pursuant to the Amendment, the parties agreed to settle past research funding amounts owed by the Company to The Buck Institute. The Company agreed to pay $40,000 within ten days of the execution of the Amendment, and The Buck Institute agreed that once this amount is paid, the Company will be deemed to be in full compliance with the terms of the License Agreement, including its payment obligations. On July 19, 2016, the Company made the $40,000 payment to The Buck Institute. In addition to the $40,000 payment, on June 13, 2016, the Company paid to The Buck Institute $11,706 in connection with costs incurred to further the Company's intellectual property position under the License Agreement. Pursuant to the above amendment The Buck Institute waived $274,247 of payable by the Company.
Moreover, the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders.)
On January 2, 2015, the Company entered into an employment agreement with its former Vice President, Research and Development. The employment agreement requires annual base salary payments of $150,000 per year. In addition, the Company has agreed to grant this executive stock options to purchase up to 360,000 shares of common stock. On August 10, 2015, this employee's employment agreement was amended as a result of his appointment to become the Company's Chief Executive Officer, and to change the number of expected to be granted options to 1,160,000 shares of the Company's Common Stock. As of December 31, 2016 these options were issued.
On January 2, 2015, the Company entered into a license and service agreement with Buck Institute. In connection with the agreement, the Company agreed to pay Buck Institute an annual fee of $24,500 to procure access to certain office space in the facility in order to conduct research and facilitate its research and development program. The agreement was amended in September 2015 to reduce an annual fee to $9,500. This agreement was terminated in February 2017. In 2016 The Buck billed the Company $9,875 for office space fees plus a $2,000 administration fee, for a total of $11,875 for office space and administration services. For the fiscal year ended December 31, 2016, the Company paid $13,199 to the Buck for office space, which includes $2,125 of expense from 2015.
On August 13, 2015, the Company has assumed the employment agreement that Dr. Powers, the previous CEO, had with Mount Tam. Effective February 8, 2016 Dr. Timothy Powers resigned as Chief Executive Officer of Mount Tam Biotechnologies, Inc. (the "Company"). There were no disagreements between Dr. Powers and the Company on any matter relating toCompany. On July 31, 2020, the Company's operations, policies or practices that resulted in his resignation. Dr. Powers will remain a member of the Company's Board of Directors.
In May 2016appointed Mr. Powers became the Company's Chief Scientific Officer.
On March 29, 2016, the Company and Dr. Richard Marshak entered into an Amended and Restated Employment Agreement (the "Marshak Employment Agreement"), which amends and restates the terms of the Employment Agreement dated as of March 22, 2016 by and between the Company and Dr. Marshak, and pursuant to which Dr. Marshak (i) continued his positionHorgan, 36, as the Chief Executive Officer, of the Company and (ii) is entitled to be appointed to the Company's Board of Directors promptly thereafter. The initial term of Dr. Marshak's employment expires on March 22, 2019as our sole director and thereafter, the Marshak Employment Agreement may be renewed for additional one year terms upon the mutual agreement of the parties, subject in each case to the termination provisions described therein.
The Company will pay Dr. Marshak an aggregate base annual salary of $300,000, payable on a bi-weekly or semi-monthly basis. In addition, Dr. Marshak shall (i) be entitled to three (3) weeks of paid time off, (ii) have the right to participate in the Company's general employee benefit plan(s), (iii) have the right to participate in an executive bonus plan and receive other bonus payments as determined by the Company's Board of Directors and (iv) be entitled to be reimbursed for reasonable business expenses. Subject to the approval of the Board of Directors and the approval of certain other actions, Dr. Marshak received an option to purchase 4,200,000 shares of Common Stock which shall vest and be governed by the terms of the Plan and an award agreement to be entered into by and between the Company and Dr. Marshak. Upon the occurrence of a change of control transaction or the termination of Dr. Marshak's employment by the Company without cause or by Dr. Marshak for good reason, all unvested options or shares of restricted Common Stock shall immediately vest and either be exercisable or no longer subject to any restrictions, as applicable. In addition to other standard and customary payments receivable in connection with the termination of Dr. Marshak's employment, he shall be entitled to receive a severance payment equal to his base salary per month for the lesser of the number of months remaining in the current term of his employment or 18 months.
The Marshak Employment Agreement also prohibits Dr. Marshak from competing with the Company during the term of the Marshak Employment Agreement (with certain limited exceptions) and from soliciting or making known employees of the Company for a period of two (2) years following termination of the Marshak Employment Agreement. The foregoing is qualified in its entirety by reference to the terms of the Marshak Employment Agreement, which is filed as Exhibit 10.4 to our Form 8-K filed with the SEC on March 31, 2016.
On May 2, 2016, the Company entered into an employment agreement with its current Chief Financial Officer, James Stapleton (the "Stapleton Employment Agreement"). The Stapleton Employment Agreement requires annual base salary payments of $175,000 per year. Further, Mr. Stapleton is entitled to a one-time bonus of $40,000 payable upon the Company's achievement of certain financial targets. In addition, the Company granted Mr. Stapleton an option to purchase up to 750,000 shares of Common Stock. The foregoing is qualified in its entirety by reference to the terms of the Stapleton Employment Agreement, which is filed as Exhibit 10.1 to our Form 8-K filed with the SEC on April 26, 2016.
On August 3, 2016 the Company entered into a Placement Agent Agreement with Colorado Financial Services Corporation ("CFSC") for a best efforts private placement of it's common stock to investors. The term of the engagement is 12 months. Either party may terminate the engagement earlier upon 10 days prior written notice. In connection with this engagement, the Company shall pay CFSC a cash fee of ten percent (7.5%) of gross proceeds from sales of Securities placed by CFSC in the Offering and two and half percent (2.5%) of gross proceeds of investors introduced by Company. As additional compensation for services, the Company will, upon consummation of the Offering (ie $5,000,000), issue to CFSC warrants to purchase a number of shares of common stock of the Company equal to 500,000 shares at an exercise price of $0.50 per share. The warrants will have a term of 3 years from the date of issuance and have such other terms and conditions as shall be mutually agreed upon, including a cashless exercise feature.
On February 10, 2017, the Company entered into an office lease agreement for office space in Novato, CA, for a term of six months, effective March 1, 2017, with a monthly lease payment of $818.40.
Note 8 – Related Party Transactions
In November 2014, we entered into a consulting agreement with a services firm, Wells Compliance Group, that is owned by our former interim Chief Financial Officer. As compensation for its services, Wells Compliance Group is to be paid $3,500 per month. As of December 31, 2016 and 2015 our accounts payable to the Wells Compliance Group was $0 and $15,110, respectively. During the year ended December 31, 2016 and 2015, the Company expensed $21,500 and $31,500, respectively, for the services provided by Wells Compliance Group. As of May, 2, 2016, Wells Compliance and the Company terminated the consulting agreement.
Pursuant to our agreements with the Buck Institute and with our Chairman of the Board,
Brian Kennedy (Professor and Principal Investigator at the Buck Institute), the Buck Institute is deemed a related party. Please see Note 7, Commitments and Contingencies, for discussioneffective August 1, 2020. Mr. Puchir was appointed Chief Accounting Officer of
our liabilities and obligations with the Buck Institute. As December 31, 2016 and 2015, the Company expensed $103,524 and $592,470 respectively, for the services provided by Buck Institute, respectively. AsEcoark as of
December 31, 2016 the Company owed to the Buck Institute 192,983 shares, as a result of the Share Exchange transaction and subsequent issuances of common stock. The 192,983 shares to be issued were treated as issued for service and valued at $57,895. As of December 31, 2016 and 2015 our accounts payable balance to Buck Institute was $9,308 and $253,884, respectively.March 27, 2020.In the year 2016, Buck Institute billed the Company for office space and administration services (Note 7).
See Note 5 for a description of the loans the Company received from 0851229 BC Ltd deemed a related party as a result of owning more than 10% of the Company's common stock.
In December 2015, we entered into an agreement with Lemon Fair Consulting, which is owned by our Chief Executive Officer, Dr. Richard Marshak. The agreement terminated when Dr. Marshak became our CEO on March 29, 2016. During the twelve months ended December 31, 2016, the Company paid $34,390 for the services provided by Lemon Fair Consulting during the first quarter of 2016. As December 31, 2016 our accounts payable to the Lemon Fair Consulting was $0.
Note 9 – Subsequent Events
Private Placement
On February 27, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 833,334 shares of the Company's common stock for an aggregate purchase price of $250,000. On February 28, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. On March 3, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. The Company incurred $7,500 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from these investments for research and development activities, general corporate and working capital purposes.
On February 10, 2017, the Company entered into an office lease agreement for office space in Novato, CA, for a term of six months, effective March 1, 2017, with a monthly lease payment of $818.40.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.Not applicable.
ITEM 9A. Controls and Procedures.
CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and Procedures.
We are required to maintain "disclosure“disclosure controls and procedures"procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, Mr. Richard Horgan, who is presently serving as our Chief Executive Officer and our Chief Financial Officer havehas concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our Securities and Exchange CommissionSEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
Management'sManagement’s Report on Internal Control over Financial Reporting..
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:
| | ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| | |
| | ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | |
| | ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of theits inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, management usedbased on the criteriaparameters set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reportingabove and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of December 31, 2016,2019, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses.
We have identified the following factors that have led management to determine that material weaknesses exist in our internal control over financial reporting as of December 31, 2016:
weaknesses:| | 1.● | We doThe Company does not have sufficient segregation of duties within accounting functions due to only having one employee and its limited nature and resources. |
| | |
| ● | The Company does not have an independent board of directors or audit committee. |
| | |
| ● | The Company does not have written documentation of our internal control policies and procedures. Written documentation |
| | |
| ● | All of key internal controls overthe Company’s financial reporting is carried out by a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.financial consultant. |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
These factors represent materialWe plan to rectify these weaknesses inby implementing an independent board of directors, establishing written policies and procedures for our internal controls over financial reporting. Although we believe the possibilitycontrol of errors in our financial statements is remote, and expect to continue to use a third party accountant to address shortfalls in staffing and to assist us with accounting and financial reporting, responsibilities in an effort to mitigate the lack of segregation of duties, untiland hiring additional accounting personnel at such time as we expand our staff with qualified personnel, we expect to continue to report material weaknesses in our internal control over financial reporting.
complete a reverse merger.Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information.OTHER INFORMATION.
None.
Unregistered Sales of Equity Securities
As part of the offering of our common stock which commenced in August 2016, the Company accepted the following additional subscriptions:
On December 10, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 166,666 shares of the Company's common stock for an aggregate purchase price of $50,000. The Company incurred $3,750 as cash fee expenses towards the placement agent. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
On February 27, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 833,334 shares of the Company's common stock for an aggregate purchase price of $250,000. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
On February 28, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
On March 3, 2017, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 83,333 shares of the Company's common stock for an aggregate purchase price of $25,000. The Company intends to use the proceeds from these investments for research and development activities, general corporate and working capital purposes.
The aforementioned securities were sold in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.
Our reliance on Regulation D under the Securities Act of 1933 was based in part upon written representations made by the investor that: (a) such party is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act of 1933, (b) the party agrees not to sell or otherwise transfer the securities unless they are registered under the Securities Act of 1933 and any applicable state securities laws, or an exemption from such registration is available, (c) the party has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in the Company, (d) the party had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering or issuance and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the party has no need for liquidity in its investment and could afford the complete loss of such investment. In any instant in which we relied upon Rule 506 of Regulation D promulgated under the Securities Act of 1933, management made the determination, based upon written representations, that the investor was an "accredited investor" as defined in Rule 501 of Regulation D. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.
Our reliance upon Section 4(a)(2) of the Securities Act of 1933 was based in part upon the following factors: (a) the issuance of the securities was in connection with an isolated private transaction which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the securities took place directly between the offeree and the placement agent or the Company, as applicable.
Part III
ITEM 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe following table sets forth the names and agesrepresents our Board of the current directors and executive officers:
Directors (the “Board”):| Name | | Age | | Positions HeldPosition |
Brian KennedyRichard Horgan | | 5036 | | Chairman of the Board |
Director Biography
Richard Horgan has served as the Company’s Chief Executive Officer, and sole director since August 1, 2020. Mr. Horgan served as Managing Member of 989 Consulting, where he advised private and public companies on operational processes and procedures and marketing initiatives from June 2018 through July 2020. From May 2017 through July 2020, Mr. Horgan served as Vice President of Operations at SOVRN, where he oversaw general business matters including sales, finance, production and licensing. From January 2015 through May 2017, Mr. Horgan served as Director of Apparel Operations at The Berrics, a skateboarding equipment company.
Executive Officers
Richard MarshakName | | 58Age | | Position |
| Richard Horgan | | 36 | | Chief Executive Officer Director |
See “Director Biography” above for Mr. Richard Horgan’s biography.
With only one director, the Board’s role is limited to those matters required by law to be approved by the Board. Accordingly, the general oversight role is inapplicable.
Director Independence
We do not currently have any independent directors. We evaluate independence by the standards for director independence established by Marketplace Rule 5605(a)(2) of the Nasdaq Stock Market, Inc.
| | 51 | | Director |
Chester Aldridge | | 43 | | Director |
James P. Stapleton | | 53 | | Chief Financial Officer, Treasurer and Secretary |
Biographical Information
The followingBoard Leadership Structure
We have chosen to combine the Chief Executive Officer and Board Chairman positions. We believe that this Board leadership structure is the most appropriate for the Company at this time. Because we are a brief accountsmall company, it is more efficient to have the leadership of the education and business experience of the incoming directors and executive officers during at least the past five years, indicating the person's principal occupation during the period, and the name and principal business of the organization by which he or she was employed.
Dr. Brian Kennedy is the chairman of the board of the Company. Dr. Kennedy was CEO of the Buck Institute from July 2010 until December 2016, when he resigned as CEO. Currently, Dr. Kennedy is a Professor and Principal Investigator at the Buck Institute. He serves as a public advocate for interventional strategies to promote healthy aging, including in a recent nationally broadcasted radio debate available online at the Intelligence Squared Foundation website. He is also co-Editor-in-Chief of Aging Cell and serves as a consultant for other biotech, pharmaceutical, and health-related companies. Dr. Brian Kennedy is internationally recognized for his researchBoard in the basic biology of aging and is a visionary committed to translating research discoveries into new ways of delaying, detecting, preventing and treating age-related conditions. He has published more than 150 manuscripts in prestigious journals including Science and Nature and has been quoted in The Wall Street Journal, The New York Times and The Boston Globe, among more than 20 other publications. Dr. Kennedy earned his Ph.D. from the Massachusetts Institute of Technology and is well known for work during his graduate studies with Leonard Guarente PhD, which led to the discovery that Sirtuins (SIR2) modulate aging.
Richard Marshak is the Company's chief executive officer and director. In December 2015, the Company engaged Dr. Marshak as a consultant, the terms of which are set forth in a consulting agreement with the Company. Dr. Marshak's consulting agreement with the Company has expired by its terms and is no longer in effect. From 2013 to 2015, Dr. Marshak servedsame hands as the Founding PrincipalChief Executive Officer. The challenges faced by us at this stage – developing and President of LF Consulting, aimplementing our business consulting firm that provides consulting servicesplan and evaluating prospective business opportunities to a range of development-stage life science companies,commence operations – are most efficiently dealt with a focus on guiding prioritization of development pathways and optimizing commercialization planningby one person who is familiar with both the operational aspects as well as overallthe strategic planning. From 1999 to 2013, Dr. Marshak occupied roles of increasing responsibility at Abbott Laboratories' Pharmaceutical Products Group and at AbbVie, spanning product marketing across a broad range of therapeutic areas, business development, General Manager - Pain Care, General Manager - Alliance Management and Senior Director - Strategic Pricing. From early to middle 2011, Dr. Marshak occupied the position of General Manager - Alliance Management at Abbott Laboratories, and from mid-2011 to 2013, Dr. Marshak occupied the position of Senior Director - Strategic Pricing at Abbott Laboratories/AbbVie. On January 1, 2013, Abbott Laboratories separated its research-based pharmaceuticals business, which became AbbVie, a new independent biopharmaceutical company. Abbott Laboratories specializes in diversified products including medical devices, diagnostic equipment and nutrition products and AbbVie is a research-based pharmaceutical manufacturer. The Company is not affiliated with LF Consulting, AbbVie or Abbott Laboratories.
Dr. Timothy Powers is a director of the Company. He has been engaged in all aspects of
drug discovery and development for more than 20 years at both small and large biotechnology and pharmaceutical companies. Dr. Powers held the positionour business.Code of Scientific Director of Medicinal Chemistry at Amgen where he provided scientific and executive leadership to the teams that were responsible for the discovery and development of Amgen's first b-secretase small molecule clinical candidate for Alzheimer's disease. Prior to joining Amgen, he was Director of Medicinal Chemistry at Atlantos Pharmaceuticals, overseeing all aspects of the company's discovery research activities which led to the clinical development of the company's two flagship programs in the areas of type-II diabetes and osteoarthritis. Dr. Powers has authored over 50 publications and scientific presentations and is an inventor on over 40 issued United States patents and patent applications in the areas of drug discovery and process manufacturing spanning therapeutic disease areas of inflammation, neuroscience, oncology and metabolic diseases. He holds a B.S. degree in chemistry from the University of California, Davis, and received his Ph.D. in organic chemistry from the University of Chicago.
Effective February 8, 2016 Dr. Timothy Powers resigned as Chief Executive Officer of the Company. There were no disagreements between Dr. Powers and the Company on any matter relating to the Company's operations, policies or practices that resulted in his resignation. Dr. Powers will remain a member of the Company's Board of Directors. Effective May 1, 2016, Dr. Powers was appointed the Chief Scientific Officer.
Chester AldridgeEthics is Mount Tam's Co-Founder and a director of the Company. Mr. Aldridge is also the Chairman and CEO of US Equity Holdings. Through US Equity Holdings, Mr. Aldridge incubates, finances and manages numerous ventures in the fields of entertainment, internet, clean energy (solar and biofuels) and biotechnology (life science pharmaceuticals). Mr. Aldridge also co-founded and is Chairman of Equity Solar since September 2009, which has secured the exclusive license to patented solar photovoltaic technology. Equity Solar's technology is used within the solar cell manufacturing line. The technology was co-developed by NASA and the United States Department of Defense. Mr. Aldridge is a Life Member of the Stanford Business School Alumni Association and serves as an Ambassador of the Buck Advisory Council, a committee led by a diverse group of individuals from around the world in the areas of government, business, pharmaceuticals, and law, among other fields.
James P. Stapleton is the Company's chief financial officer. Mr. Stapleton joined Mount Tam Biotechnologies in May 2016. Mr. Stapleton brings over 25 years of financial and operating experience, achieving his first CFO position at a public company in 1987. Currently, Mr. Stapleton is a director, and Audit Committee chair for Summer Energy Holdings (OTCQB SUME). From August 2012 to May 2014 Mr. Stapleton was the CFO of Ozone International, LLC, which provides ozone equipment and solutions to food processors. From February 2012 to June 2012, Mr. Stapleton was the CFO for Jones Soda (OTC BB JSDA). From 2007 to 2011, Mr. Stapleton was a consultant and advisor to a variety of companies. From May 2005 through July 2007, Mr. Stapleton was the Chief Financial Officer of Bionovo (OTC BB BNVI). From January 2003 through April 2005, Mr. Stapleton was the Chief Financial Officer of Auxilio (NYSE AUXO). . Mr. Stapleton graduated from the University of California at Irvine (UCI) with a MBA in 1995, and from the University of Washington with a BA in Economics in 1985.
Family Relationships
There are no family relationships between or among any of the current directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Board of Directors
Our Board of Directors (the "Board") is comprised of four members. All directors serve in this capacity until their terms expire or until their successors are duly elected and qualified. The registrant's bylaws provide that the authorized number of directors shall be one or more, as fixed from time to time by resolution of the Board; provided, however, that the number of directors shall not be reduced so as to shorten the tenure of any director at the time in office.
Board Committees; Director Independence; Insider Participation
Our Board has not establishedadopted a separate standing audit committee withinCode of Ethics due to the meaningCompany’s size and low number of Section 3(a)(58)(A)officers and employees. As of the Exchange Act or separate standing nominating or compensation committees, or committees performing similar functions, nor has it adopted charters for any such committee. Due to the present and prior sizedate of this Report, our Board,sole director is also our Board believes that it is not necessary to have separate standing audit, nominating or compensation committees at this time because the functions of each such committee are adequately performed by our full Board. However, it is anticipated that our Board will form separate standing audit, nominating and compensation committees, with the audit committee including an audit committee financial expertChief Executive Officer and the audit and compensation committees consisting solelysole employee of independent directors, if and when our Board determines that the establishment of such committees is advisable as we seek to further develop our business and operations and potentially expand the size of our Board.
We have not adopted a code of ethics that apply to any of our principal executive officers. We have not adopted a code of ethics due to our size and rely upon our Board to determine whether any actions or omissions constitute unethical behavior.
Our Board is currently comprised of Brian Kennedy, Richard Marshak, Chester Aldridge and Timothy Powers, none of whom is an independent director. We look to our directors to guide us through our next phase as a public company and to continue and manage our growth. Our directors bring leadership experience from a variety of corporate, technology and professional backgrounds which we require to continue to grow and to add shareholder value.
No interlocking relationship exists between the Board and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
Company.Delinquent Section 16 Compliance
16(a) ReportsThe Company does not have a class of equity securities registered pursuant to Section 12 of the Exchange Act; therefore, this itemItem is not applicable.
ITEM 11. Executive Compensation. EXECUTIVE COMPENSATION.The following table sets forth allinformation is related to the compensation paid, in respect of our principal executive officer and principal financial officerdistributed or accrued by us for the yearsfiscal year ended December 31, 20162018 (the “2018 Fiscal Year”) and 2015. Nothe fiscal year ended December 31, 2019 (the “2019 Fiscal Year”) to our Chief Executive Officer (principal executive officer) during the last fiscal year and the three other officermost highly compensated executive officers serving as of the Company or Mount Tam received compensation in excessend of $100,000 for the last two completed fiscal years.
EXECUTIVE COMPENSATION
| Position | Year | | Salary
($) | | | Bonus
($) | | | Stock
Awards
($) | | | Option
Awards
($) | | | Non-equity
Incentive
Plan
Compensation
($) | | | All Other
Compensation
($) | | | Total
($) | |
| Timothy Powers (1)(2) | 2016 | | | 57,395 | | | | - | | | | - | | | | 647,672 | | | | - | | | | 13,079 | | | | 718,146 | |
| | 2015 | | | 115,125 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 115,125 | |
| Richard Marshak (3) | 2016 | | | 216,154 | | | | - | | | | - | | | | 2,428,771 | | | | - | | | | - | | | | 2,644,925 | |
| | 2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| James P. Stapleton(4) | 2016 | | | 90,865 | | | | - | | | | - | | | | 433,709 | | | | - | | | | - | | | | 524,574 | |
| | 2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| (1) | Appointed CEO on August 13, 2015, resigned on February 8, 2016. Currently Chief Scientific Officer. |
| (2) | Mr. Powers is reimbursed for his medical insurance expenses. |
| (3) | Appointed on March 29, 2016. |
| (4) | Appointed on May 2, 2016. |
year whose compensation exceeded $100,000 (the “Named Executive Officers”).| Summary Compensation Table |
| Name and Principal Positions (a) | | Year (b) | | Salary $ (c) | | | Option Awards $ (2) (f) | | | Total $ (j) | |
| | | | | | | | | | | | |
| Jay Puchir (1) | | 2019 | | $ | 180,000 | | | | | | | | 180,000 | |
| | | 2018 | | | | | | | — | | | | | |
| Richard Marshak (2) | | 2019 | | $ | 184,615.36 | | | | | | | $ | 184,615.36 | |
| | | 2018 | | $ | 265,706 | | | $ | 642,027 | | | | 907,733 | |
| James S. Stapleton (3) | | 2019 | | $ | 107,692.16 | | | | | | | $ | 107,692.16 | |
| | | 2018 | | $ | 158,227 | | | $ | 118,603 | | | | 276,830 | |
(1) Mr. Puchir is the Company’s former Chairman and Chief Executive Officer. His salary was reduced to $0 effective March 27, 2020, and he resigned effective August 1, 2020.
(2) Mr. Marshak is the Company’s former director, and Chief Executive Officer. He resigned effective November 12, 2019.
(3) Mr. Stapleton is the Company’s former Treasurer, Secretary and Chief Financial Officer. He resigned effective November 12, 2019.
Named Executive Officer Employment Agreements
The dollar amountsCompany has entered into Employment Agreements with Richard Horgan. Set forth below is the description of the option awards for the name executive officers above are the vested grant date fair valuematerial terms of the option awards. Please refer to Note 6 to our audited financial statements, included in this Report, for further information about our calculation of those amounts, which we based onEmployment Agreements.
Richard Horgan. The Employment Agreement with Mr. Horgan effective August 1, 2020 provides that he will serve as the reported closing market price of our common stock on the date we granted the options. Mr. Marshak's and Mr. Stapleton's options vest 25% twelve months after the grant date, 25% twenty-four months after the grant date, 25% thirty-six months after the grant date, and the remainder forty-eight months after the grant date. Mr. Powers options vest 33% twelve months after the grant date, 33% twenty-four months after the grant date, and 34% thirty-six months after the grant date.
Employment Agreements
On August 13, 2015, the Company has assumed the employment agreement that Dr. Powers, the previous CEO, had with Mount Tam. Effective February 8, 2016 Dr. Timothy Powers resigned as Chief Executive Officer of the Company. There were no disagreements between Dr. PowersCompany for a period of four years. Pursuant to his Employment Agreement, Mr. Horgan receives an annual base salary of $120,000 and the Company on any matter relatingis eligible to receive discretionary cash or equity bonuses for his services to the Company's operations, policies or practices that resulted in his resignation. Dr. Powers remains a member of the Company's Board of Directors.
In May 2016 Mr. Powers became the Company's Chief Scientific Officer.
Company.Richard Marshak. On March 29, 2016, the Company and Dr. Richard Marshak entered into an Amended and Restated Employment Agreement (the "Marshak“Marshak Employment Agreement"Agreement”), which amendsamended and restatesrestated the terms of the Employment Agreement dated as of March 22, 2016 by and between the Company and Dr. Marshak, and pursuant to which Dr. Marshak (i) continued his position as the Chief Executive Officer of the Company and (ii) iswas entitled to be appointed to the Company'sCompany’s Board of Directors promptly thereafter. The initial term of Dr. Marshak'sMarshak’s employment expiresexpired on March 22, 2019 and thereafter,2019.
Under the Marshak Employment Agreement, may be renewed for additional one year terms upon the mutual agreement of the parties, subject in each case to the termination provisions described therein.
The Company will pay Dr. Marshak was entitled to an aggregate annual base annual salary of $300,000, payable on a bi-weekly or semi-monthly basis. In addition, Dr. Marshak shall (i) be entitled to three (3) weeks of paid time off, (ii) have the right to participate in the Company's general employee benefit plan(s), (iii) have the right to participate in an executive bonus plan and receive other bonus payments as determined by the Company's Board of Directors and (iv) be entitled to be reimbursed for reasonable business expenses. Subject to the approval of the Board of Directors and the approval of certain other actions, Dr. Marshak is expected to receive an option to purchase 4,200,000 shares of Common Stock which shall vest and be governed by the terms of the Plan and an award agreement to be entered into by and between the Company and Dr. Marshak. Upon the occurrence of a change of control transaction or the termination of Dr. Marshak's employment by the Company without cause or by Dr. Marshak for good reason, all unvested options or shares of restricted Common Stock shall immediately vest and either be exercisable or no longer subject to any restrictions, as applicable. In addition to other standard and customary payments receivable in connection with the termination of Dr. Marshak's employment, he shall be entitled to receive a severance payment equal to his base salary per month for the lesser of the number of months remaining in the current term of his employment or 18 months.
The Marshak Employment Agreement also
prohibitsprohibited Dr. Marshak from competing with the Company during the term of the Marshak Employment Agreement (with certain limited exceptions) and
prohibits him from soliciting or making known employees of the Company for a period of two (2) years following termination of the Marshak Employment Agreement.
The foregoing is qualified in its entirety by reference to the terms of theMr. Marshak Employment Agreement, which is filed as Exhibit 10.4 to our Form 8-K filed with the SEC on March 31, 2016.
resigned effective November 12, 2019.James S. Stapleton. On April 21, 2016, the Company and James Stapleton entered into an Employment Agreement (the "Stapleton“Stapleton Employment Agreement"Agreement”), pursuant to which Mr. Stapleton iswas employed as the Chief Financial Officer of the Company, effective on May 2, 2016. The Stapleton Employment Agreement requiresentitled Mr. Stapleton to an annual base salary payments of $175,000 per year. Further, pursuant to the Stapleton Employment Agreement, Mr. Stapleton iswas entitled to a one-time bonus of $40,000 payable upon the Company'sCompany’s achievement of certain financial targets. In addition, the Company granted Mr. Stapleton an option to purchase up to 750,000 shares of Common Stock. The foregoing is qualified in its entirety by referencethe Company’s common stock.
Mr. Stapleton resigned effective November 12, 2019.
Jay Puchir. Jay Puchir was entitled to an annual salary of $180,000. He resigned from his position as the terms of the Stapleton Employment Agreement, which is filed as Exhibit 10.1 to our Form 8-K filed with the SEC on April 26, 2016.
Potential Payments Upon Company’s Chief Executive Officer effective August 1, 2020.Termination or Change-in-Control
ProvisionsOther than any employment agreements described in this Annual Report on Form 10-K, as of the date of this Report we currently havehad no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a named executive officer, or a change in control of the Company or a change in the named executive officer'sofficer’s responsibilities, with respect to each named executive officer.
Director Compensation
Outstanding Awards at Fiscal Year End 2019
Listed below is information with respect to unexercised options that have not vested, and equity incentive plan awards for each Named Executive Officer outstanding as of December 31, 2019. The vesting of all unvested options is subject to continued employment on each applicable vesting date.
| | | Options Awards | |
| Name (a) | | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | | | Number of Securities Underlying Unexercised Options (#) Unexercisabe (c) | | | Option Exercise Price ($) (e) | | | Option Expiration Date (f) | |
| Richard Marshak | | 18,553 | | | 18,552 | (1) | | $1.90 | | | 12/31/2028 | |
| Jay Puchir | | | - | | | | - | | | | - | | | | - | |
| James S. Stapleton | | | 5,395 | | | | 5,394 | (1) | | $ | 1.90 | | | | 12/21/2028 | |
(1) All unvested options expired upon the Names Executive Officers resignations.
Director Compensation
We do not have any agreements or formal plan for compensating our directors for their service in their capacity as directors, although our board of directorsthe Board may, in the future, award stock options to purchase shares of common stock to our directors.
Equity Compensation Plan Information
The following chart reflects the number of securities granted and the weighted average exercise price for our compensation plans as of December 31, 2019.
| Name of Plan | | Number of securities to be issued upon exercise of outstanding options, restricted stock units, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights $ (b) | | | Number of securities remaining available for future issuance under compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity compensation plans approved by security holders | | | | | | | | | | | | |
| 2016 Stock-Based Compensation Plan | | | 60,421 | | | $ | 28.5 | | | | 44,842 | |
| Total | | | 60,421 | | | | | | | | 44,842 | |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.The following table sets forth certain information,the number of shares of the Company’s common stock beneficially owned as of March 24, 2017, with respect to the beneficial ownership of any outstanding common stockOctober 1, 2020 by (i) any holderthose persons known by the Company to be owners of more than 5%, of its common stock, (ii) each of our nameddirector, (iii) the Named Executive Officers (as disclosed in the Summary Compensation Table), and (iv) the Company’s executive officers and directors and (iii) our directors and officers as a group. Unless otherwise indicated,specified in the businessnotes to this table, the address offor each person listed is in care of the Company, 7250 Redwood Boulevard,c/o Banner Energy Services Corp., 609 W/Dickson St., Suite 300, Novato, California 94945. The percentages in the table has been calculated on the basis of treating all shares of common stock outstanding for a particular person, all shares of common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options which are exercisable within 60 days of that date.
102 G, Fayetteville, Arkansas.| Title of Class | | Beneficial Owner | | Amount of Beneficial Ownership (1) | | | Percent Beneficially Owned (1) | |
| | | | | | | | | |
| Named Executive Officers: | | | | | | | | | | |
| Common Stock | | Richard Horgan (2)(3) | | | - | | | | * | |
| Common Stock | | All directors and executive officers as a group (1 persons) | | | | | | | | |
| | | | | | | | | | | |
| 5% Shareholders: | | | | | | | | | | |
| Common Stock | | Third Arm LLC (3) | | | 387,063 | | | | 5.529 | % |
| Common Stock | | 3 Investment LLC (4) | | | 350,000 | | | | 5 | % |
| Common Stock | | Atikin Investments LLC (5) | | | 587,063 | | | | 8.387 | % |
| Common Stock | | Ross Carmel (6) | | | 387,063 | | | | 5.529 | % |
| Common Stock | | Peter DiChiara (7) | | | 487,063 | | | | 6.958 | % |
| Common Stock | | Tomatoshed Holdings, LLC (8) | | | 500,000 | | | | 7.143 | % |
| Name and Address of Beneficial Owner (1) | | Shares Beneficially Owned | | | Percentage
Beneficially
Owned | |
| Chester Aldridge (2) | | | 3,108,333 | | | | 6.4 | % |
| Timothy Powers | | | - | | | | 0 | % |
| Brian Kennedy | | | - | | | | 0 | % |
| David R. Wells | | | - | | | | 0 | % |
| Richard Marshak | | | - | | | | 0 | % |
| James Stapleton | | | - | | | | 0 | % |
| All directors and officers as a group (5 persons) | | | 3,108,333 | | | | 6.4 | % |
| | | | | | | | | |
| Principal Stockholders | | | | | | | | |
| Doug Froese (3) | | | 14,060,000 | | | | 28.8 | % |
* Less than 1%.
| (1) | BasedBeneficial Ownership Note. Applicable percentages are based on 48,846,9857,000,000 shares of common stock outstanding on March 24, 2017.as of October 1, 2020. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days whether upon the exercise of options, warrants or conversion of notes. Unless otherwise indicated in the footnotes to this table, the Company believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of Common Stock indicated as beneficially owned by them. This table does not include any unvested stock options except for those vesting within 60 days. |
| (2) | Horgan. Mr. AldridgeHorgan is our Chairman of the Board and Chief Executive Officer. |
| (3) | Third Arm LLC. Richard Horgan is the manager of Third Arm and deemed the beneficial owner of shares ofits common stock and has sole or shared power to vote or to direct the vote and to dispose or direct disposition of these shares, which includes: (i) 2,808,333 shares of common stock held by Mr. Aldridge, (ii) 200,000 shares of common stock held by Bobby Aldridge, and (iii) 100,000 shares of common stock held by Joe Aldridge.stock. |
| (4) | 3 Investment LLC. Address is 102 Kenswick Dr., Henderson, Texas 75654. |
| (5) | Atikin Investments LLC. Address is 5899 Preston Road #505, Frisco, Texas 75034. |
| (6) | Ross Carmel. Address is 215 Navajo Court, Morganville, New Jersey 07751. |
| (7) | Peter DiChiara. Address is 51 Croton Ave., Mt. Kisco, New York 10549. |
| (8) | Tomatoshed Holdings, LLC. Address is 4547 Lakeshore Dr., Waco, Texas 76718. |
| (3) | Mr. Froese is deemed the beneficial owner of shares of common stock and has sole or shared power to vote or to direct the vote and to dispose or direct disposition of these shares, which includes: (i) 1,500,000 shares of common stock held by Mr. Froese, (ii) 2,900,000 shares of common stock held by 0851229 BC LTD, (iii) 1,750,000 shares of common stock held by 0797288 BC LTD, (iv) 1,750,000 shares of common stock held by Fromac Developments LTD, (v) 1,700,000 shares of common stock held by Compass Point Ventures LTD, (vi) 1,600,000 shares of common stock held by 0767182 BC LTD, (vii) 1,210,000 shares of common stock held by 0742949 BC LTD, (viii) 1,000,000 shares of common stock held by IC Projects LP, and (ix) 650,000 shares of common stock held by Larry Wiebe. |
ITEM 13. Certain Relationships andCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Banner Midstream Related Party Transactions and Director Independence.
Certain Relationships and Related Transactions
Review, Approval or Ratification of Transactions with Related Persons
As we have not adopted a code of ethics, we rely on our board to reviewThe following are related party transactions between Banner Midstream Corp. (“Banner Midstream”) and certain of its directors and officers. The Company acquired Banner Midstream as its wholly-owned subsidiary in a reverse merger on an ongoing basis to prevent conflicts of interest. Our board reviews a transaction in lightNovember 18, 2019 (the “Reverse Merger”) and appointed certain of the affiliationsdirectors and officers of Banner Midstream as directors and officers of the director, officer or employee andCompany in connection with the affiliations of such person's immediate family. Transactions are presented to our board for approval before they areReverse Merger. The Company subsequently divested Banner Midstream, together with its debt obligations, on March 31, 2020.
On January 16, 2019, Banner Midstream entered into or, if this is not possible,a short-term junior secured promissory note payable with Jay Meadows, a director of Banner Midstream, for ratification after$250,000 maturing on June 15, 2019, extended to December 16, 2019, and further extended to June 30, 2020. The note accrued interest annually at 10% and has a subordinated security interest to the transaction has occurred. If our board finds that a conflict ofsenior secured convertible note payable entered into on August 24, 2018. Accrued interest exists, then it will determine the appropriate remedial action, if any. Our board approves or ratifies a transaction if it determines that the transaction is consistent with our best interests. During the fiscal year endedat December 31, 2016,2019 was $19,041.
Mr. Peter DiChiara, who was a director of the Company entered intoand Banner Midstream, advanced $234,000 in four notes ($474,492) and in advances ($157,000) to Banner Midstream. One of the following related party transactions:
Thenote amounts bears interest at 10% per annum. Accrued interest at December 31, 2019 was $39,365. Mr. DiChiara was a partner which represented both the Company
entered intoand Ecoark as of December 31, 2019. In November 2019 the
loans described in this Annual Report on Form 10-K with 0851229 BC Ltd. (the "Lender"). The Lender is deemedCompany issued 700,000 shares of its common stock to Mr. DiChiara and 300,000 shares to another partner at his law firm as payment for legal services.Mr. Jay Puchir, a related partydirector of Banner Midstream who later became the Company’s Chief Executive Officer as a result of owning more thanthe Reverse Merger, advanced $1,080,500 in four separate notes to Banner Midstream prior to the Reverse Merger. Two of these amounts are past due and these notes are due at various times through December 2020 and bear interest at 10-15% interest per annum. Accrued interest on these notes as of December 31, 2019 was $153,560.
Mr. Randy May, an officer of Banner Midstream, advanced $67,500 to Banner Midstream in two notes prior to the Reverse Merger. This amount is due July 2020 and bears interest at 10-15% interest per annum. Accrued interest on these notes as of December 31, 2019 was $14,786.
On August 1, 2020, the Company issued a Junior Secured Revolving Promissory Note to Atikin Investments LLC, an entity managed by Jay Puchir, the Company’s former Chief Executive Officer. Pursuant to this note, the Company may borrow up to an amount not to exceed $200,000 in principal outstanding at a given time. The note bears interest at a rate of 10% per annum, and matures on December 15, 2020, at which time the principal amount borrowed under the note and all accrued and unpaid interest becomes immediately due and payable. The note is subject to customary events of default, including the Company’s failure to timely tender payment when due and the Company’s institution of bankruptcy proceedings, the occurrence of which would trigger acceleration of payment of the Company's common stock. Such loans were consolidated intofull amount owing under the note and increase the interest rate to 15% per annum. Pursuant to the note, the holder was granted a Secured Note which amends, restates and modifies the termssecurity interest in all of the such prior loansCompany’s assets, including its Ecoark common stock, which security interest is subordinate only to the terms set forth inCompany’s then-outstanding secured debt. As of September 30, 2020 the Secured Note and contains other terms and conditionsamount of principal outstanding under this note was $55,000. The Company has not paid any principal or interest on the note as described in the Company's Current Report on Form 8-K filed on March 31, 2016.
Dr. Brian Kennedy, the Chairman of the
Company's Boarddate of
Directors, is also affiliated with the Buck Institute. Dr. Kennedy was CEOthis Report.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
All of the Buck Institute from July 2010 until December 2016, when he resigned as CEO. Currently, Dr. Kennedy is a Professorservices provided and Principal Investigator at the Buck Institute.
The transactions between Mount Tam and the Buck Institute as more fully described in this Annual Report on Form 10-K may be considered related party transactions.
Director Independence
We do not currently have any independent directors. We evaluate independencefees charged by the standards for director independence established by Marketplace Rule 5605(a)(2) of the NASDAQ Stock Market, Inc.
Subject to some exceptions, this standard generally provides that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director's immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director's immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director's immediate family is, or in the past three years has been, employed in a professional capacityRBSM LLP (“RBSM”) our principal accountant, were approved by our independent public accountants, or has worked for such firm in any capacity on our audit; (e)Board. The following table shows the director or a member of the director's immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director's immediate family is an executive officer of a company that makes paymentsfees paid to or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company's consolidated gross revenues.
ITEM 14. Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billedRBSM for the two most recently completed fiscal periodsyears ended December 31, 20162019 and December 31, 2015 for professional services rendered by RBSM LLP, for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
2018.| | | Year Ended December 31, | |
| | | 2019 | | | 2018 | |
| Audit Fees and Audit Related Fees (1) | | $ | 77,950 | | | $ | 72,500 | |
| Tax Fees | | | — | | | | — | |
| All Other Fees | | | — | | | | — | |
| Total | | $ | 77,950 | | | $ | 72,500 | |
| | | Year Ended December 31, 2016 | | | Year Ended December 31, 2015 | |
| Audit Fees and Audit Related Fees | | $ | 72,500 | | | $ | 20,500 | |
| Tax Fees | | | - | | | | - | |
| All Other Fees | | | - | | | | - | |
| Total | | $ | 72,500 | | | $ | 20,500 | |
| (1) | Audit fees – these fees relate to services rendered for the audits of our annual financial statements, for the review of our quarterly financial statements, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements. Audit related fees – these fees are audit related consulting relating to performance of the audit or review of the Company’s financial statements. |
In the above table, "audit fees" are fees billed by our company's external auditor for services provided in auditing our company's annual financial statements and review of financial statements included in our Form 10-Qs for the subject year. "Audit-related fees" are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit or review of our company's financial statements. "Tax fees" are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. "All other fees" are fees billed by the auditor for products and services not included in the foregoing categories.
Our Board has adopted a procedure for pre-approval of all fees charged by our independent registered accounting firm. Under the procedure, the Board approves the engagement letter with respect of audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of the Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting.
Part IV
ITEM 15. Exhibits, Financial Statement Schedules.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| (a) | Documents filed as part of the report. |
| | | |
2.1 | (1) | Share Exchange and Conversion Agreement dated August 13, 2015, by and amongFinancial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the Company and the majority stockholder of the Company on the one hand; and Mount Tam Biotechnologies, Inc., a Delaware corporation (Mount Tam) and the stockholders of Mount Tam and the noteholders of Mount Tam on the other hand, incorporated by referenceaccompanying Index to Exhibit 2.1Consolidated Financial Statements are filed herewith in response to the Company's Form 8-K filed August 19, 2015.this Item. |
| | | |
2.2 | (2) | Agreement and Plan of Merger by and betweenFinancial Statements Schedules. All schedules are omitted because they are not applicable or because the Company and Mount TAM Biotechnologies, Inc., a Nevada corporation dated August 19, 2015, incorporated by reference to Exhibit 2.1 torequired information is contained in the Company's Form 8-K filed September 1, 2015.consolidated financial statements or notes included in this report. |
| | | |
3.1 | (3) | Exhibits. See the Exhibit Index. |
| 35 | | Articles of Incorporation incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 filed November 1, 2013. |
EXHIBIT INDEX
| | | | | Incorporated by Reference | | Filed or Furnished |
| Exhibit # | | Exhibit Description | | Form | | Date | | Number | | Herewith |
| 2.1 | | Agreement and Plan of Merger+ | | 8-K | | 09/30/2019 | | 10.1 | | |
| 3.1 | | Articles of Incorporation | | S-1 | | 11/1/2013 | | 3.1 | | |
| 3.1(a) | | Certificate of Amendment to Articles of Incorporation | | 8-K | | 6/1/2018 | | 3.1 | | |
| 3.1(b) | | Certificate of Amendment to Articles of Incorporation – name change | | 8-K | | 2/18/2020 | | 3.1 | | |
| 3.2 | | Bylaws | | S-1 | | 11/1/2013 | | 3.2 | | |
| 3.3 | | Certificate of Merger | | 8-K | | 11/19/2019 | | 3.1 | | |
| 3.4 | | Certificate of Amendment Certificate to Accompany Restated Articles or Amended and Restated Articles – name change and reverse stock split | | 8-K | | 11/19/2019 | | 3.2 | | |
| 3.2(a) | | Amendment to the Bylaws | | 8-K | | 8/19/2015 | | 3.3 | | |
| 4.1 | | Mount Tam Biotechnologies, Inc. 2016 Stock-Based Compensation Plan | | DEF14C | | 7/11/2016 | | Exhibit A | | |
| 10.1 | | Third Amendment to Convertible Promissory Note, dated December 31, 2018 | | 8-K | | 1/7/2019 | | 10.1 | | |
| 10.2 | | Fourth Amendment to Amended and Restated Convertible Promissory Note, dated December 31, 2018 | | 8-K | | 1/7/2019 | | 10.2 | | |
| 10.3 | | Convertible Promissory Note, dated March 4, 2019 | | 8-K | | 3/7/2019 | | 10.1 | | |
| 10.4 | | First Amendment to Intercreditor Agreement, dated March 4, 2019 | | 8-K | | 3/7/2019 | | 10.2 | | |
| 10.5 | | Fourth Amendment to Convertible Promissory Note, dated March 31, 2019 | | 8-K | | 4/2/2019 | | 10.1 | | |
| 10.6 | | Fifth Amendment to Amended and Restated Convertible Promissory Note, dated March 31, 2019 | | 8-K | | 4/2/2019 | | 10.2 | | |
| 10.7 | | Line of Credit Agreement, dated May 10, 2019 – Fromar Investments, LP | | 8-K | | 5/16/2019 | | 10.1 | | |
| 10.8 | | Promissory Note, dated May 1, 2019 – Fromar Investments, LP | | 8-K | | 5/16/2019 | | 10.2 | | |
| 10.9 | | Security Agreement, dated May 1, 2019 – Fromar Investments, LP | | 8-K | | 5/16/2019 | | 10.3 | | |
| 10.10 | | Line of Credit Agreement, dated May 10, 2019 – Climate Change Investigation, Innovation and Investment Company, LLC | | 8-K | | 5/16/2019 | | 10.4 | | |
| 10.11 | | Promissory Note, dated May 1, 2019 – Climate Change Investigation, Innovation and Investment Company, LLC | | 8-K | | 5/16/2019 | | 10.5 | | |
| 10.12 | | Security Agreement, dated May 1, 2019 – Climate Change Investigation, Innovation and Investment Company, LLC | | 8-K | | 5/16/2019 | | 10.6 | | |
| 10.13 | | Intercreditor Agreement, dated May 1, 2019 | | 8-K | | 5/16/2019 | | 10.7 | | |
| 10.14 | | First Amendment to Line of Credit Agreement and Promissory Note, dated August 29, 2019 – Fromar Investments, LP | | 8-K | | 8/30/2019 | | 10.1 | | |
| 10.15 | | First Amendment to Line of Credit Agreement and Promissory Note, dated August 29, 2019 – Climate Change Investigation, Innovation and Investment Company, LLC | | 8-K | | 8/30/2019 | | 10.2 | | |
| 10.16 | | Agreement and Plan of Merger+ | | 8-K | | 9/30/2019 | | 10.1 | | |
| 10.17 | | Form of Purchase Agreement, dated November 2019 | | 8-K | | 12/3/2019 | | 10.1 | | |
| 10.18 | | Form of Note, dated November 2019 | | 8-K | | 12/3/2019 | | 10.2 | | |
| 10.19 | | Employment Agreement between the Company and Richard Horgan, dated August 1, 2020* | | 8-K | | 8/6/2020 | | 10.1 | | |
| 10.20 | | Stock Purchase and Sale Agreement by and between Ecoark Holdings, Inc. and Banner Energy Services Corp. | | | | | | | | Filed |
| 31.1 | | Certification of Principal Executive Officer (302) | | | | | | | | Filed |
| 31.2 | | Certification of Principal Financial Officer (302) | | | | | | | | Filed |
| 32.1 | | Certification of Principal Executive and Principal Financial Officer (906) | | | | | | | | Furnished** |
| 101.INS | | XBRL Instance Document | | | | | | | | Filed |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | Filed |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | Filed |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | Filed |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | Filed |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | Filed |
3.2* | Management contract or compensatory plan or arrangement. |
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Bylaws of the Company** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
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| + | Certain schedules, appendices and exhibits to Exhibit 3.2this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Company's Registration Statement on Form S-1 filed November 1, 2013.Securities and Exchange Commission staff upon request. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Aspen Group, Inc., at the address on the cover page of this report, Attention: Corporate Secretary.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
3.3 | 37 | | Amendment to the Bylaws of the Company incorporated by reference to Exhibit 3.3 to the Company's Form 8-K filed August 19, 2015. |
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3.4 | | Articles of Merger dated August 19, 2015, incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed September 1, 2015. |
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4.1 | | Mount Tam Biotechnologies, Inc. 2016 Stock-Based Compensation Plan, incorporated by reference to Exhibit A to our Information Statement filed on July 11, 2016. |
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10.1 | | Research Collaboration and License Agreement by and between Buck Institute for Research on Aging, a California non-profit public benefit corporation and Mount Tam Biotechnologies, Inc., a corporation organized under the laws of Delaware dated as of August 17, 2014, incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 19, 2015. |
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10.2 | | Employment Agreement by and between Mount Tam Biotechnologies, Inc., a Delaware corporation and Timothy Powers effective as of January 2, 2015, incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed August 19, 2015. |
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10.3 | | Amendment to Employment Agreement by and between Mount Tam Biotechnologies, Inc., a Delaware corporation, Timothy Powers dated August 12, 2015, incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed August 19, 2015.
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10.4 | | License and Services Agreement between the Buck Institute for Research on Aging, a California non-profit public benefit corporation and Mount Tam Biotechnologies, Inc., effective January 2, 2015, incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed August 19, 2015. |
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10.5 | | Cancellation and Transfer Agreement dated August 13, 2015 by and among the Company and Ramon Tejeda, incorporated by reference to Exhibit 10.6 to the Company's Form 8-K filed August 19, 2015. |
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10.6 | | Amended and Restated Employment Agreement of Richard Marshak, incorporated by reference to Exhibit 10.4 to our Form 8-K filed with the SEC on March 31, 2016.
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10.7 | | Employment Agreement of James Stapleton, incorporated by reference to Exhibit 10.1 to our Form 8-K filed with the SEC on April 26, 2016.
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10.8 | | Amended and Restated Secured Convertible Promissory Note, incorporated by reference to Exhibit 99.1 to our Form 8-K filed with the SEC on June 15, 2016. |
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10.9 | | Amended and Restated Security Agreement, incorporated by reference to Exhibit 99.2 to our Form 8-K filed with the SEC on June 15, 2016. |
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10.10 | | Amended Letter Agreement, incorporated by reference to Exhibit 99.3 to our Form 8-K filed with the SEC on June 15, 2016. |
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10.11 | | Amendment No. 3 to Research and Collaboration and License Agreement with Buck Institute, incorporated by reference to Exhibit 99.1 to our Form 8-K filed with the SEC on July 22, 2016. |
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21.1 | | Subsidiaries of the Company |
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31.1* | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1* | | Certification of Chief Executive Officer pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002 |
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32.2* | | Certification of Chief Financial Officer pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002 |
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101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Taxonomy Extension Schema |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | MOUNT TAM BIOTECHNOLOGIES, INC.Banner Energy Services Corp. |
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| Date: October 8, 2020 | By: | /s/ Richard Horgan |
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Dated: March 31, 2017 | By: | /s/ Richard MarshakHorgan |
| | Name: | Richard Marshak |
| Title: | Chief Executive Officer (Principal Executive Officer) |
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Dated: March 31, 2017 | By: | /s/ James P. Stapleton |
| Name: | James P. Stapleton |
| Title: | ChiefOfficer,Principal Financial Officer (Principal Financial and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | | Title(s)Title | | Date |
| | | | | |
/s/ Richard Marshak | | Chief Executive Officer and Director | | March 31, 2017 |
Richard Marshak | | (Principal Executive Officer) | | |
| | | | |
/s/ James P. Stapleton | | Chief Financial Officer | | March 31, 2017 |
James P. Stapleton | | (Principal Financial Officer) | | |
| | | | |
/s/ Brian Kennedy | | Chairman of the Board of Directors | | March 31, 2017 |
Brian Kennedy | | | | |
| | | | |
/s/ Timothy PowersHorgan | | Director | | March 31, 2017October 8, 2020 |
Timothy Powers | | | | |
| | | | |
/s/ Chester Aldridge | | Director | | March 31, 2017 |
Chester AldridgeRichard Horgan | | | | |