Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Sep. 30, 2016 | Nov. 14, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | CEREBAIN BIOTECH CORP. | |
Entity Central Index Key | 1,453,099 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 7,210,347 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,017 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 1,582 | $ 20,245 |
Prepaid expenses | 412,332 | 475,699 |
Total current assets | 413,914 | 495,944 |
Total assets | 413,914 | 495,944 |
Current liabilities: | ||
Accounts payable | 768,643 | 685,045 |
Related party payables | 294,486 | 230,685 |
Convertible notes to stockholders, current portion | 62,500 | 62,500 |
Related party notes payable | 114,000 | 114,000 |
Total current liabilities | 1,239,629 | 1,092,230 |
Long term liabilities: | ||
Convertible notes to stockholders, net of current portion and net of debt discount of approximately $11,366 and $9,534, respectively | 2,598,646 | 2,448,478 |
Total long term liabilities | 2,598,646 | 2,448,478 |
Total liabilities | 3,838,275 | 3,540,708 |
Commitments and contingencies (Note 4) | ||
Stockholders' deficit | ||
Preferred stock ($0.001 par value: 1,000,000 shares authorized; none issued and outstanding) | ||
Common stock ($0.001 par value: 249,000,000 shares authorized; 7,206,347 and 7,116,347 shares issued and outstanding at September 30, 2016 and June 30, 2016,respectively) | 7,206 | 7,116 |
Additional paid in capital | 12,276,507 | 8,466,226 |
Accumulated deficit | (15,708,074) | (11,518,106) |
Total stockholders' deficit | (3,424,361) | (3,044,764) |
Total liabilities and stockholders' deficit | $ 413,914 | $ 495,944 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Long term liabilities: | ||
Net of debt discount Non current | $ 11,366 | $ 9,534 |
Stockholders' deficit | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized shares | 1,000,000 | 1,000,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, Authorized shares | 249,000,000 | 249,000,000 |
Common stock, Issued shares | 7,206,347 | 7,116,347 |
Common stock, outstanding shares | 7,206,347 | 7,116,347 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Operating Expenses | ||
Selling, general and administrative expenses | $ 390,095 | $ 453,491 |
Research and development costs | 69,896 | |
Patent Royalty Expense | 25,000 | |
Marketing expenses | 3,120 | 35,225 |
Total operating expenses | 488,111 | 488,716 |
Other (income) expense | ||
Accretion of debt discount | 8,168 | 14,060 |
Loss from extinguishment of debt | 3,656,179 | |
Financing costs | 16,875 | |
Interest expense | 37,509 | 35,196 |
Total other (income) expense | 3,701,856 | 66,131 |
Net operating loss | (4,189,967) | (554,847) |
Loss before income taxes | (4,189,967) | (554,847) |
Income taxes | ||
Net loss | $ (4,189,967) | $ (554,847) |
Loss per share: | ||
Basic and diluted loss per share | $ (0.59) | $ (0.11) |
Basic and diluted weighted average shares outstanding | 7,147,869 | 4,905,999 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (4,189,967) | $ (554,847) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Accretion of debt discount | 8,168 | 14,060 |
Loss from extinguishment of debt | 3,656,179 | |
Stock based compensation | 108,692 | 68,325 |
Amortization of stock based prepaid consulting compensation | 122,719 | 73,257 |
Amortization of deferred financing costs | 16,875 | |
Correction of an error | 100,000 | |
Changes in operating assets and liabilities: | ||
Prepaid expenses | (51,852) | 7,500 |
Accounts payable | 83,596 | 95,128 |
Related party payables | 63,802 | 104,426 |
Net cash used in operating activities | (198,663) | (75,276) |
Cash flows from financing activities: | ||
Proceeds from excercise of warrants | 20,000 | |
Proceeds from convertible notes | 160,000 | 75,000 |
Net cash flows provided by financing activities: | 180,000 | 75,000 |
Net change in cash and cash equivalents | (18,663) | (276) |
Cash and cash equivalents- beginning of period | 20,245 | 486 |
Cash and cash equivalents- end of period | 1,582 | 210 |
Cash paid during the period for: | ||
Interest | ||
Income tax | ||
Supplemental disclosure on non-cash investing and financing activities: | ||
Debt discount associated with convertible notes payable - beneficial conversion feature | 2,000 | |
Debt discount associated with convertible notes payable - warrant feature | 8,000 | |
Stock issued for prepaid services | 7,500 | |
Conversion of convertible notes payable into stock | $ 8,000 |
ORGANIZATION AND PRINCIPAL ACTI
ORGANIZATION AND PRINCIPAL ACTIVITIES | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES | Description of Business Cerebain Biotech Corp. (Formerly Discount Dental Materials, Inc.) (Cerebain Biotech), was incorporated on December 18, 2007 under the laws of Nevada. The Company is a smaller reporting biomedical company and through its wholly owned subsidiary, Cerebain Operating, Inc. (Formerly Cerebain Biotech Corp.), the Companys business revolves around the discovery of products for the treatment of Alzheimers disease utilizing Omentum. The Company plans to produce products that will include both a medical device solution as well as a synthetic drug solution. Cerebain Operating, Inc. was incorporated on February 22, 2010, in the State of Nevada. The accompanying (a) condensed balance sheet at June 30, 2016 has been derived from audited statements and (b) unaudited interim condensed financial statements as of September 30, 2016 and for the three-month periods ended September 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended June 30, 2016 included on Form 10-K filed with the Securities and Exchange Commission on September 27, 2016. |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 2 - BASIS OF PRESENTATION | The Company operates in one segment in accordance with accounting guidance Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of approximately $15,700,000 and $11,500,000 at September 30, 2016 and June 30, 2016, respectively, and had a net loss of approximately $4,200,000 and $555,000 for the three-month periods ended September 30, 2016 and 2015, respectively, and net cash used in operating activities of approximately $200,000 and $75,000 for the three-month periods ended September 30, 2016 and 2015, respectively, with no revenue earned since inception. These matters raise substantial doubt about our ability to continue as a going concern. While the Company is attempting to commence operations and generate revenues, the Companys cash position may not be significant enough to support the Companys daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Companys ability to further implement its business plan and generate revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | This summary of significant accounting policies of the Company is presented to assist in understanding the Companys condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Companys management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the condensed consolidated financial statements. Use of Estimates The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the condensed consolidated financial statements. The more significant estimates and assumptions by management include among others: useful lives and residual values of long-lived assets, the valuation of equity instruments and the valuation of warrants and options. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Cerebain Biotech Corp. and its wholly-owned subsidiary, Cerebain Operating, Inc. (collectively referred to as the Company). There are no material intercompany transactions. Reclassifications Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the presentation adopted in the current fiscal year, which did not have any impact to consolidated net loss or stockholders deficit amounts previously reported. Advertising Costs Advertising costs are recorded as general and administrative expenses when they are incurred. Advertising costs charged to operations were approximately $3,000 and $35,000 for the three-month periods ended September 30, 2016 and 2015, respectively. Research and Development The Company expenses the cost of research and development as incurred. Research and development costs charged to operations were approximately $70,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively, and are included in research and development costs in the accompanying condensed consolidated statements of operations. Debt The Company issues debt that may have separate warrants, conversion features, or no equity-linked attributes. Debt with warrants In accordance with Accounting Standards Codification (ASC) Topic 470-20-25, when the Company issues debt with warrants, the Company treats the warrants as a debt discount, records as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the condensed consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in our condensed consolidated balance sheets. The Company determines the value of the warrants using the Black-Scholes Option Pricing Model (Black-Scholes) using the stock price on the date of issuance, the risk free interest rate associated with the life of the debt, and the volatility of the stock. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the condensed consolidated statements of operations. The debt is treated as conventional debt. Convertible debt derivative treatment When the Company issues debt with a conversion feature, the Company must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuers own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in stockholders equity in its statement of financial position. If the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Convertible debt beneficial conversion feature If the conversion feature is not treated as a derivative, the Company assesses whether it is a beneficial conversion feature (BCF). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations. If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt. Debt Modifications and Extinguishments When the Company modifies or extinguishes debt, it does so in accordance with ASC Topic 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered substantial modifications. A substantial modification of terms shall be accounted for like an extinguishment. Based on the guidance relied upon and the analysis performed, if the Company believes the embedded conversion feature has no fair value on the date of issuance (measurement date) and the embedded conversion feature has no beneficial conversion feature, the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25 and the issuance of the convertible note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. If the Company determines the change in terms meet the criteria for substantial modification under ASC 470 it will treat the modification as extinguishment and recognize a gain or loss from debt extinguishment. Fair Value of Financial Instruments The Company applies the provisions of accounting guidance, Financial Accounting Standards Board (FASB) Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2016 and 2015, the fair value of cash, accounts payable, related party payables, and notes payable to stockholders approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates. Fair Value Measurements FASB ASC Topic 825 Financial Instruments, requires disclosure about fair value of financial instruments. The FASB ASC Topic 820, Fair Value Measurement The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below. · Level 1 observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. · Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). · Level 3 significant unobservable inputs (including the Companys own assumptions in determining the fair value of investments). The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Concentrations, Risks, and Uncertainties The Company is a startup company subject to the substantial business risks and uncertainties inherent to such an entity, including the potential risk of business failure. Basic and Diluted Earnings Per Share Basic earnings (loss) per common share is computed by dividing net earnings applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of shares that might be issued upon exercise of common stock warrants and conversion of convertible notes. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common shares equivalents, because their inclusion would be anti-dilutive. Basic earnings per share are based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments: · Warrants, · Convertible notes, · Employee stock options, and · Other equity awards, which include long-term incentive awards. The FASB ASC Topic 260, Earnings Per Share Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options, warrants, and convertible notes are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings (loss) per share are the same since the Company had net losses for all periods presented and including the additional potential common shares would have an anti-dilutive effect. Recent Accounting Pronouncements The Company has evaluated new accounting pronouncements that have been issued and are not yet effective for the Company and determined that there are no such pronouncements expected to have an impact on the Companys future financial statements. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 4 - COMMITMENTS AND CONTINGENCIES | Employment Agreements Eric Clemons On June 15, 2013, the Company entered into an employment agreement with Eric Clemons. Terms of the agreement included the following: · An annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000), which has been paid or settled in stock in full. · Bonus of $40,000 upon the delivery to the Company of a prototype medical device from Sonos Models Inc., which has been paid in full. · Cash bonus should he be responsible for the Company consolidating with or merge into another corporation or convey all or substantially all of its assets to another corporation, will receive a cash bonus calculated using a Lehman formula of 5% for the first $1,000,000, 4% for the second $1,000,000, 3% for the third $1,000,000, 2% for the fourth $1,000,000, and 1% thereafter. To date, this incentive has not earned or been paid. · Option to acquire up to 100,000 shares of our common stock at an exercise price of $5.00 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $822,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.04%; expected term of 5 years; and 0% dividend yield. As of September 30, 2016, 80,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $42,000 for the three-month periods ended September 30, 2016 and 2015. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $123,000. On October 1, 2014, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreement. Terms of the addendum include included the following: · Extension of employment until June 15, 2017. · Annual salary of One Hundred Ninety-Five Thousand Dollars ($195,000). · Option to acquire up to 100,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $112,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of September 30, 2016, 60,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $5,500 and $4,500 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $43,000. On March 1, 2015, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the addendum included a cash placement bonus equal to an amount up to 10% of the aggregate purchase price paid by each purchaser of the Companys Securities and Convertible Debt, where the purchaser of said Securities and Convertible Debt has been directly introduced to the Company by Mr. Clemons. For the three-month periods ended September 30, 2016 and 2015, a cash placement bonus was earned of approximately $15,000 and $0, respectively, which was recognized as a reduction of the proceeds from the sale of shares of common stock and debt issuances and recorded as an expense. On September 29, 2016, the Company issued Mr. Clemons an option to acquire up to 105,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $78,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of September 30, 2016, 21,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $20,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $58,000. To date, no employee or employer payroll taxes have been withheld, remitted to taxing authorities, or recognized by the Company for cash compensation paid. As a result, the Company could be liable such payroll taxes and any related penalties and interest. Wesley Tate On June 15, 2013, the Company entered into an employment agreement with Wesley Tate. Terms of the agreement included the following: · Annual salary of One Hundred Five Thousand Dollars ($105,000), which has been paid or settled in stock in full. · Bonus of $20,000 upon the delivery to the Company of a prototype medical device form Sonos Models, Inc., which has been paid in full. · Option to acquire up to 50,000 shares of our common stock at an exercise price of $5.00 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $411,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.04%; expected term of 5 years; and 0% dividend yield. As of September 30, 2016, 40,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $21,000 for the three-month periods ended September 30, 2016 and 2015. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $62,000. On April 1, 2014, the Company entered into an addendum to this agreement. The addendum had no accounting impact on the prior agreement. Terms of the addendum included 25,000 of the Companys common restricted shares representing a retention bonus as an incentive for him to remain in the employment of the Company for 12 months. The Company recognized a prepaid expense of approximately $37,500, which has been fully amortized to selling, general and administrative. On October 1, 2014, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the agreement included the following: · Extension of employment until June 15, 2017. · Annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000) · Option to acquire up to 50,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $56,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of September 30, 2016, 30,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $2,700 and $2,300 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in future years is approximately $21,000. On October 1, 2015, the Company entered into a new employment agreement. The new contract had no accounting impact on the prior agreements. Terms of the agreement included the following: · Extension of employment until October 2018. · Annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000) · Stock grant of 150,000 of the Companys common restricted shares for services provided to the Company. The Company recognized selling, general and administrative expense of approximately $40,000 for the year ended June, 2016. On September 29, 2016, the Company issued Mr. Tate an option to acquire up to 105,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $78,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of September 30, 2016, 21,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $20,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $58,000. To date, no employee or employer payroll taxes have been withheld, remitted to taxing authorities, or recognized by the Company for cash compensation paid. As a result, the Company could be liable such payroll taxes and any related penalties and interest. Commitments In September 2012, the Company entered into an agreement with Sonos Models, Inc. (Sonos) to build up to three medical device prototypes to be used for testing. In April 2014, the Company entered into an addendum to the agreement with Sonos, which included a commitment by the Company to pay Sonos up to One Million Dollars ($1,000,000) cash, excluding stock based compensation, for research and development costs. These costs will be recognized in research and development expense as costs are incurred. To date, Sonos has been issued 325,000 restricted shares of the Companys stock, 20,000 warrants to purchase the Companys stock and the Company has paid approximately $220,000, of which $65,000 has been incurred towards the Companys monetary commitment. Consulting Agreements Between December 2013 and September 2016, the Company entered into service and consulting agreements with various vendors to provide assistance to the Company in several areas including the marketing of its biomedical products upon the availability of the device, capital markets and marketing strategies, research and development, advertising services and assistance in the introduction of the Company to medical device testing organization and to facilitate access to doctors in numerous countries, including Poland, Uzbekistan and China. They were compensated an approximate aggregate 1,340,000 shares of the Companys fully vested and non-forfeitable common stock. These contracts are for twelve to twenty-four months and may be renewed or extended for any period as may be agreed by the parties. As of September 30, 2016 the Company has extended some of the contracts for additional periods. Any of the parties may terminate their respective agreement by providing thirty (30) days written notice of such termination. The Company has recognized $30,000 in accounts payable which is in arrears with one contractual obligation and is in discussions with the consultant to renegotiate the terms of the contract. As these contracts are for a period of up to twelve months to twenty-four months, the Company recorded the original approximate $2,400,000 as the value of the shares issued to prepaid expense and is amortizing the expense associated with these issuances over a twelve to twenty-four-month period. For the three-month periods ended September 30, 2016 and 2015, the Company amortized from prepaid expenses to selling, general and administrative expenses approximately $116,000 and $69,000, respectively. The unamortized prepaid expenses of these contracts are approximately $290,000 and included in prepaid expenses on the consolidated balance sheets at September 30, 2016. In January 2016, the Company entered into a consulting agreement with an individual to provide business consulting services for a period of thirty-six months. Compensation was issuance of 75,000 shares of the Companys stock (See note 7) and fully vested and non-forfeitable options to acquire up to 300,000 shares of our common stock, at an exercise price of $0.33 per share. Fair Market Value of these options totaled approximately $83,500, and is to be recognized ratably over the service period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 210%; risk-free interest rate of 1.07%; expected term of 3 years; and 0% dividend yield. For the three-month periods ended September 30, 2016 and 2015, the Company amortized from prepaid expenses to selling, general and administrative expenses approximately $7,000 and $0, respectively. The unamortized prepaid expense of this contract is approximately $70,000 and included in prepaid expenses on the consolidated balance sheets at September 30, 2016. As of September 30, 2016, future maturities of prepaid expenses on value of shares issued for consulting are as follows: Fiscal year ended June 30, 2017 $ 272,413 2018 62,832 2019 25,235 Total $ 360,480 Legal On July 21, 2016, the Company was sued in the United States District Court for the Eastern District of Pennsylvania ( Miriam Weber Miller v. Cerebain Biotech Corp. and Eric Clemons While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which it might involve in the future are not expected to have a material adverse effect on the Companys financial position, results of operations, or cash flows. The Company has accrued $150,000 in Accounts Payable for consulting compensation, but no accrual has been made for additional legal contingencies in the consolidated financial statements as of September 30, 2016 as it is too early in the process to determine the outcome or potential loss. |
PATENT RIGHTS
PATENT RIGHTS | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 5 - PATENT RIGHTS | On June 10, 2010, the Company entered into a Patent License Agreement under which the Company acquired the exclusive rights to certain intellectual property related to using Omentum for treating dementia conditions. Under the agreement the Company has paid rights fees of $50,000 to Dr. Saini, and the Company issued Dr. Saini 825,000 shares of our common stock, valued at $6,600 (based on the fair market value on the date of grant) restricted in accordance with Rule 144. In addition, Dr. Saini will have the option to participate in the sale of equity by the Company in the future, up to ten percent (10%) of the money raised, in exchange for the applicable number of his shares. To date, Dr. Saini has not participated in any sales of equity. In addition, the Patent License agreement provides for a royalty payment of six (6) percent of the value of the net sales, as defined, generated from the sale of licensed products. The agreement also provides for yearly minimum royalty payments of $50,000 for the fourth (June 2014), fifth (June 2015), and sixth (June 2016) anniversary of the date of the agreement, and a yearly minimum royalty payment of $100,000 for each year thereafter during the term of the agreement. The Company has accrued the minimum patent royalty expense associated with the patent rights in accounts payable and is currently in arrears and in discussions to renegotiate the terms of the agreement. The term of the agreement shall continue until the patent in the intellectual property expires, unless terminated sooner under the provisions of the agreement, as defined. The patent will have an estimated useful life of 20 years based on the term of the patent. Amortization of the patent will begin when the patent is issued by the United States Patent and Trademark Office and put in use. Legal fees pertaining to the patent are recorded as general and administrative expenses when they are incurred. Legal fees charged to operations were approximately $600 and $200 for the three-month periods ended September 30, 2016 and 2015, respectively. The Company recognized a patent royalty expense of approximately $25,000 for the three-month periods ended September 30, 2016 compared to $112,500 for the three-month periods ended September 30, 2015. The accrued payable of $175,000 pertaining to the patent royalty expense at September 30, 2016 is included in related party payables. |
NOTES PAYABLE
NOTES PAYABLE | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 6 - NOTES PAYABLE | Short Term Notes Payable Short Term Notes Payable September 30, 2016 June 30, 2016 Short term notes payable (A) $ 114,000 $ 114,000 Net total $ 114,000 $ 114,000 Related Party Notes Payable (A) In 2012, the Company issued a note payable to a related party. The note was scheduled to mature on December 31, 2013 and accrued interest at seven and one-half (7.5) percent per annum. In February 2016, the noteholder provided the Company with an additional $1,000. As of September 30, 2016, the outstanding balance was $114,000. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note. Convertible Notes to Stockholders Convertible Notes Payable September 30, 2016 June 30, 2016 Convertible notes payable (A) $ 127,400 $ 125,400 Convertible note payable (B) 260,000 260,000 Convertible notes payable (C) 2,285,112 2,135,112 Subtotal 2,672,512 2,520,512 Debt discount (11,366 ) (9,534 ) Net total $ 2,661,146 $ 2,510,978 Convertible Notes Payable (A) Between September 2013 and September 2016, the Company entered into various unsecured convertible promissory notes with non-affiliate stockholders for principal amounts of approximately $7,500 to $30,000, totaling approximately $127,000. Under the terms of these notes, maturity dates range from June 2015 and July 2019, interest rates range from 7.5% to 8.0% per annum, and are convertible into shares of our common stock at rates that range from $0.20 and $5.00 per share, but only if such conversion would not cause the noteholders to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. In addition, the Company granted to certain noteholders a cashless option to purchase one (1) share of the Companys common stock, $.001 par value, at the exercise price of $0.50 to $1.25 per share, for each share the noteholders are entitled pursuant to the promissory notes. The options are fully vested and shall expire from one to three years from date of execution. For the period ended September 30, 2016, the Company is in default approximately $48,000 on various notes. As a result, these notes are included in the current portion of convertible notes payable, and the Company is in discussions with the noteholders to restructure the terms of the notes. The Company determined that some of the notes had a beneficial conversion feature of approximately $28,000. The Company recognized an accretion of debt discount expense of approximately $8,000 and $14,000 for the three-month periods ended September 30, 2016 and 2015, respectively. The accretion of debt discount expense to be recognized in future years is approximately $11,000. During the three-month periods ended September 30, 2016, convertible notes of approximately $8,000 have been converted to 40,000 shares of the Companys common stock. During the three-month periods ended September 30, 2016, the Company issued 40,000 shares of our common stock, pursuant to warrant agreements that were exercised, in exchange for $20,000, (See Note 8). Unsecured, Amended and Consolidated Convertible Note Payable (B) December 2014 Convertible Note In December 2014, the Company entered into an unsecured convertible promissory note with a non-affiliate stockholder for a principal amount of $200,000. The note payable matures in December 2016, accrued interest at 7.5% per annum, and convertible into shares of our common stock at a conversion rates of $1.00 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. The Company determined that the note had a beneficial conversion feature of approximately $90,000. December 2015 Convertible Note In December 2015, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of $260,000. In exchange, the Company extinguished a $10,000 short term note payable, the $200,000 convertible note payable issued in December 2014, and received cash of $50,000. The amended and consolidated note payable matures in October 2019, accrues interest at 7.5% per annum, and convertible into shares of our common stock at a conversion rates of $0.20 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. In addition, the Company granted to the noteholder a cashless warrant to purchase one (1) share of the Companys common stock, $.001 par value, at the exercise price of $0.50 per share, for each share the noteholder is entitled pursuant to the promissory note. The options are fully vested and shall expire three years from date of execution. The Company determined the estimated relative fair value discount of the warrants was approximately $128,000 which was valued using the Black-Scholes option pricing model with the following inputs: volatility of 240%; risk-free interest rate of 1.05%; expected term of 3 years; and 0% dividend yield. The Company determined that the note had a beneficial conversion feature of approximately $141,000. In connection with the $260,000 convertible note, the Company recognized a loss from extinguishment of debt of approximately $269,000 for the year ended June 30, 2016. In connection with the $200,000 convertible note, the Company recognized a loss from extinguishment of debt of approximately $50,000 for the year ended June 30, 2016. Unsecured, Amended and Consolidated Convertible Notes Payable (C) June 2015 Convertible Note In June 2015, the Company entered into an unsecured convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $1,475,000. The note matured on June 9, 2017 and accrued interest at 7.5% per annum and is convertible into shares of our common stock at a conversion rate of $1.00 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. December 2015 Convertible Note In December 2015, the Company entered into an unsecured $112,000 promissory note with a stockholder. The note matured on March 31, 2016 and accrued no interest. In addition, the Company issued to the noteholder 125,000 shares of the Companys common stock. In connection with the issuance of the 125,000 shares of stock in December 2015, the Company recorded the approximate $39,000 value of the shares issued, included in loss on extinguishment. The Company used a recent sale of stock to determine the fair market value of the transaction. February 2016 Convertible Note In February 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $2,100,000. In exchange, the Company modified the $1,475,000 convertible note payable issued in June 2015, the $112,000 note payable issued in December 2015, accounts payable related to accrued interest of approximately $293,000, and received cash of $200,000. The amended and consolidated note payable matures February 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.50 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. In connection with the $2,100,000 convertible note payable, the Company determined the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. April 2016 Convertible Note In April 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $2,130,000. In exchange, the Company modified the $2,080,112 convertible promissory note payable issued in February 2016 and received cash of $55,000. The amended and consolidated convertible note payable matures in February 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.50 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. In connection with the $2,130,000 convertible note payable, the Company determined the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. August 2016 Convertible Note In August 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $2,285,000. In exchange, the Company extinguished the $2,135,112 convertible promissory note payable issued in April 2016 and received cash of $150,000. The amended and consolidated convertible note payable matures in August 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.40 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. In connection with the $2,285,000 convertible note, the Company determined the embedded conversion feature does meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered an extinguishment that would require the recognition of a gain or loss. The Company recognized a loss from extinguishment of debt of approximately $3.7 million for the three-month periods ended September 30, 2016 compared to $0 for the three-month periods ended September 30, 2015. The Company recognized interest expense on all notes payable to stockholders of approximately $38,000 and $35,000 for the three-month periods ended September 30, 2016 and 2015, respectively. Accrued interest on all notes payable to stockholders at September 30, 2016 and 2015 totaled approximately $140,000 and $299,000, respectively, and is included in accounts payables. As of September 30, 2016, future maturities of convertible notes payable are as follows: Fiscal year ended June 30, 2017 $ 176,500 2018 52,500 2019 2,547,512 2020 10,000 Total outstanding notes 2,786,512 Debt Discount (11,366 ) Net Convertible Notes Payable $ 2,775,146 |
STOCK TRANSACTIONS
STOCK TRANSACTIONS | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 7 - STOCK TRANSACTIONS | For the three-month periods ended September 30, 2016, the Company entered into various stock purchase agreements with a third party between July and September of 2016, under which the Company issued 40,000 shares of its common stock, in exchange for $20,000. The aggregate value of these shares was $20,000 as the exercise price was $0.50 per share. The stock purchase agreements include piggyback registration rights. For the three-month periods ended September 30, 2016, the Company issued 40,000 shares of its common stock to an individual for conversion of notes payable. The aggregate value of these shares was approximately $8,000 as the conversion price was $0.20 per share. |
OPTIONS AND WARRANTS
OPTIONS AND WARRANTS | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 8 - OPTIONS AND WARRANTS | Options For the three-month periods ended September 30, 2016, the Company had 910,000 options outstanding at an average exercise price of $1.45, with 652,000 options exercisable. For the three-month periods ended September 30, 2016 and 2015, the Company recognized an expense of approximately $115,000 and $90,000, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $435,000. On September 29, 2016, the Company issued Eric Clemons and Wesley Tate options to acquire up to a total of 210,000 Shares of our Common Stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $156,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of September 30, 2016, 42,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $40,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $116,000. Warrants For the three-month period ended September 30, 2016, the Company had approximately 1,477,000 warrants outstanding at an average exercise price of $0.58. The Company recognized the issuance of approximately 50,000 warrants, offset by the exercise of 40,000 warrants and the expiration of 10,000 warrants which is included in the approximate 1,477,000 warrants outstanding for the three-month period ended September 30, 2016. For the three-month period ended September 30, 2016 and 2015, the Company recognized an accretion of debt discount related to warrants expense of approximately $700 and $0, respectively. The approximate expense expected to be recognized in future years is $7,300. In July 2016, the Company entered into a $10,000 unsecured convertible promissory note with a non-affiliate stockholder. In association with this note, the Company granted to noteholder a cashless warrant to purchase one (1) share of the Companys common stock, $.001 par value, at the exercise price of $0.50 per share, for each share the holder is entitled pursuant to the promissory note, totaling 50,000 shares. Relative value of the warrants totaled approximately $8,000, and is to be recognized ratably over the note period in interest expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 211%; risk-free interest rate of 0.81%; expected term of 3 years; and 0% dividend yield. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 9 - RELATED PARTY TRANSACTIONS | On September 29, 2016, the Company issued Eric Clemons and Wesley Tate options to acquire up to a total of 210,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $156,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of September 30, 2016, 42,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $40,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $116,000. On March 1, 2015, the Company entered into an addendum to the employment agreement related to Mr. Clemons. The addendum had no accounting impact on the prior agreements. Terms of the addendum included a cash placement bonus equal to an amount up to 10% of the aggregate purchase price paid by each purchaser of the Companys Securities and Convertible Debt, where the purchaser of said Securities and Convertible Debt has been directly introduced to the Company by Mr. Clemons. For the three-month periods ended September 30, 2016 and 2015, a cash placement bonus was earned of approximately $15,000 and $0, respectively, which was recognized as a reduction of the proceeds from the sale of shares of common stock and debt issuances and recorded as an expense. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 10 - EARNINGS PER SHARE | FASB ASC Topic 260, Earnings Per Share The total number of potential additional dilutive options and warrants outstanding was approximately 2,390,000 and 430,000 for the three-month periods ended September 30, 2016 and 2015, respectively. In addition, the convertible notes convert at an exercise price of between $0.20 and $5.00 per share of common stock representing approximately 7.2 million shares. The options, warrants and shares underlying the convertible note were considered for the dilutive calculation but in periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. The following table sets forth the computation of basic and diluted net income per share: For The Three Months ended September 30, 2016 2015 Net loss attributable to the common stockholders $ (4,189,967 ) $ (554,847 ) Basic weighted average outstanding shares of common stock 7,147,869 4,905,999 Dilutive effect of options and warrants - - Diluted weighted average common stock and common stock equivalents 7,147,869 4,905,999 Earnings (loss) per share: Basic and diluted $ (0.59 ) $ (0.11 ) |
INCOME TAXES
INCOME TAXES | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
NOTE 11- INCOME TAXES | The provision (benefit) for income taxes for the periods ended September 30, 2016 and June 30, 2016, assumes a 34% effective tax rate for federal income taxes and 1.5% for state income taxes: September 30, 2016 June 30, 2016 Current tax provision: Federal Taxable income - federal $ 34.0 % $ 34.0 % State Taxable income - state $ 1.5 % $ 1.5 % Total current tax provision $ 35.5 % $ 35.5 % Deferred tax provision: Federal and State Total deferred tax provision $ - $ - The Company had deferred income tax assets as of September 30, 2016 and June 30, 2016 are as follows: September 30, 2016 June 30, 2016 Loss carryforwards $ 15,700,000 $ 11,500,000 Less valuation allowance (15,700,000 ) (11,500,000 ) Total net deferred tax assets $ - $ - The Company provided a valuation allowance equal to the deferred income tax assets for the periods ended September 30 and June 30, 2016 respectively, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards. At September 30, 2016, the Company had approximately $15,700,000 in Federal and State tax loss carryforwards that can be utilized in future periods to reduce taxable income, and begin to expire in 2030. Pursuant to Internal Revenue Code Section 382, the future utilization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. The Company did not identify any material uncertain tax positions on tax returns that will be filed. The Company has not filed any of its income tax returns. The fiscal years ended June 30, 2010 thru 2016 are open for examination. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 12 - SUBSEQUENT EVENTS | In October 2016, convertible notes of approximately $400 have been converted to 2,000 shares of the Companys common stock. During the same period, the Company issued 2,000 shares of our common stock, pursuant to warrant agreements that were exercised, in exchange for $1,000. |
SUMMARY OF SIGNIFICANT ACCOUN18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Sep. 30, 2016 | |
Summary Of Significant Accounting Policies Policies | |
Use of Estimates | The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the condensed consolidated financial statements. The more significant estimates and assumptions by management include among others: useful lives and residual values of long-lived assets, the valuation of equity instruments and the valuation of warrants and options. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. |
Principles of Consolidation | The accompanying condensed consolidated financial statements include the accounts of Cerebain Biotech Corp. and its wholly-owned subsidiary, Cerebain Operating, Inc. (collectively referred to as the Company). There are no material intercompany transactions. |
Reclassifications | Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the presentation adopted in the current fiscal year, which did not have any impact to consolidated net loss or stockholders deficit amounts previously reported. |
Advertising Costs | Advertising costs are recorded as general and administrative expenses when they are incurred. Advertising costs charged to operations were approximately $3,000 and $35,000 for the three-month periods ended September 30, 2016 and 2015, respectively. |
Research and Development | The Company expenses the cost of research and development as incurred. Research and development costs charged to operations were approximately $70,000 and $0 for the three-month periods ended September 30, 2016 and 2015, respectively, and are included in research and development costs in the accompanying condensed consolidated statements of operations. |
Debt | The Company issues debt that may have separate warrants, conversion features, or no equity-linked attributes. |
Debt with warrants | In accordance with Accounting Standards Codification (ASC) Topic 470-20-25, when the Company issues debt with warrants, the Company treats the warrants as a debt discount, records as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the condensed consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in our condensed consolidated balance sheets. The Company determines the value of the warrants using the Black-Scholes Option Pricing Model (Black-Scholes) using the stock price on the date of issuance, the risk free interest rate associated with the life of the debt, and the volatility of the stock. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the condensed consolidated statements of operations. The debt is treated as conventional debt. |
Convertible debt - derivative treatment | When the Company issues debt with a conversion feature, the Company must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuers own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in stockholders equity in its statement of financial position. If the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. |
Convertible debt - beneficial conversion feature | If the conversion feature is not treated as a derivative, the Company assesses whether it is a beneficial conversion feature (BCF). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations. If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt. |
Debt Modifications and Extinguishments | When the Company modifies or extinguishes debt, it does so in accordance with ASC Topic 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered substantial modifications. A substantial modification of terms shall be accounted for like an extinguishment. Based on the guidance relied upon and the analysis performed, if the Company believes the embedded conversion feature has no fair value on the date of issuance (measurement date) and the embedded conversion feature has no beneficial conversion feature, the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25 and the issuance of the convertible note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. If the Company determines the change in terms meet the criteria for substantial modification under ASC 470 it will treat the modification as extinguishment and recognize a gain or loss from debt extinguishment. |
Fair Value of Financial Instruments | The Company applies the provisions of accounting guidance, Financial Accounting Standards Board (FASB) Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2016 and 2015, the fair value of cash, accounts payable, related party payables, and notes payable to stockholders approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates. |
Fair Value Measurements | FASB ASC Topic 825 Financial Instruments, requires disclosure about fair value of financial instruments. The FASB ASC Topic 820, Fair Value Measurement The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below. · Level 1 observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. · Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). · Level 3 significant unobservable inputs (including the Companys own assumptions in determining the fair value of investments). The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. |
Concentrations, Risks, and Uncertainties | The Company is a startup company subject to the substantial business risks and uncertainties inherent to such an entity, including the potential risk of business failure. |
Basic and Diluted Earnings Per Share | Basic earnings (loss) per common share is computed by dividing net earnings applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of shares that might be issued upon exercise of common stock warrants and conversion of convertible notes. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common shares equivalents, because their inclusion would be anti-dilutive. Basic earnings per share are based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments: · Warrants, · Convertible notes, · Employee stock options, and · Other equity awards, which include long-term incentive awards. The FASB ASC Topic 260, Earnings Per Share Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options, warrants, and convertible notes are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings (loss) per share are the same since the Company had net losses for all periods presented and including the additional potential common shares would have an anti-dilutive effect. |
Recent Accounting Pronouncements | The Company has evaluated new accounting pronouncements that have been issued and are not yet effective for the Company and determined that there are no such pronouncements expected to have an impact on the Companys future financial statements. |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Commitments And Contingencies | |
Schedule of Maturity of Prepaid Expense | As of September 30, 2016, future maturities of prepaid expenses on value of shares issued for consulting are as follows: Fiscal year ended June 30, 2017 $ 272,413 2018 62,832 2019 25,235 Total $ 360,480 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Future maturities of convertible notes payable | As of September 30, 2016, future maturities of convertible notes payable are as follows: Fiscal year ended June 30, 2017 $ 176,500 2018 52,500 2019 2,547,512 2020 10,000 Total outstanding notes 2,786,512 Debt Discount (11,366 ) Net Convertible Notes Payable $ 2,775,146 |
Short Term Note Payable [Member] | |
Summary of note payable | Short Term Notes Payable Short Term Notes Payable September 30, 2016 June 30, 2016 Short term notes payable (A) $ 114,000 $ 114,000 Net total $ 114,000 $ 114,000 |
Long Term Note Payable [Member] | |
Summary of note payable | Convertible Notes to Stockholders Convertible Notes Payable September 30, 2016 June 30, 2016 Convertible notes payable (A) $ 127,400 $ 125,400 Convertible note payable (B) 260,000 260,000 Convertible notes payable (C) 2,285,112 2,135,112 Subtotal 2,672,512 2,520,512 Debt discount (11,366 ) (9,534 ) Net total $ 2,661,146 $ 2,510,978 |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Loss per share: | |
Computation of basic and diluted net income per share | The following table sets forth the computation of basic and diluted net income per share: For The Three Months ended September 30 2016 2015 Net loss attributable to the common stockholders $ (4,189,967 ) $ (554,847 ) Basic weighted average outstanding shares of common stock 7,147,869 4,905,999 Dilutive effect of options and warrants - - Diluted weighted average common stock and common stock equivalents 7,147,869 4,905,999 Earnings (loss) per share: Basic and diluted $ (0.59 ) $ (0.11 ) |
INCOME TAXES (Table)
INCOME TAXES (Table) | 3 Months Ended |
Sep. 30, 2016 | |
Income Taxes Table | |
Summary of provision (benefit) for income taxes | The provision (benefit) for income taxes for the periods ended September 30, 2016 and June 30, 2016, assumes a 34% effective tax rate for federal income taxes and 1.5% for state income taxes: September 30, 2016 June 30, 2016 Current tax provision: Federal Taxable income - federal $ 34.0 % $ 34.0 % State Taxable income - state $ 1.5 % $ 1.5 % Total current tax provision $ 35.5 % $ 35.5 % Deferred tax provision: Federal and State Total deferred tax provision $ - $ - |
Deferred income tax assets | The Company had deferred income tax assets as of September 30, 2016 and June 30, 2016 are as follows: September 30, 2016 June 30, 2016 Loss carryforwards $ 15,700,000 $ 11,500,000 Less valuation allowance (15,700,000 ) (11,500,000 ) Total net deferred tax assets $ - $ - |
BASIS OF PRESENTATION (Details
BASIS OF PRESENTATION (Details Narrative) - USD ($) | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Basis Of Presentation Details Narrative | |||
Accumulated deficit | $ (15,708,074) | $ (11,518,106) | |
Net loss | (4,189,967) | $ (554,847) | |
Net cash used in operating activities | $ (198,663) | $ (75,276) |
SUMMARY OF SIGNIFICANT ACCOUN24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Summary Of Significant Accounting Policies Details Narrative | ||
Research and development costs | $ 69,896 | |
Advertising costs | $ 3,000 | $ 35,000 |
COMMITMENTS AND CONTINGENCIES25
COMMITMENTS AND CONTINGENCIES (Details) | Sep. 30, 2016USD ($) |
Commitments And Contingencies Details | |
2,017 | $ 272,413 |
2,018 | 62,832 |
2,019 | 25,235 |
Total | $ 360,480 |
COMMITMENTS AND CONTINGENCIES26
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Accrued payable | $ 150,000 | |
December 2013 and September 2016 [Member] | Consulting Agreements [Member] | ||
Recognized selling, general and administrative expense | 116,000 | $ 69,000 |
Prepaid expense unamortized | 290,000 | |
January 2016 [Member] | Consulting Agreements [Member] | ||
Recognized selling, general and administrative expense | 7,000 | 0 |
Prepaid expense unamortized | $ 70,000 | |
Employee Agreement with Eric Clemons [Member] | ||
Stock options to purchase vested | 80,000 | |
Recognized selling, general and administrative expense | $ 42,000 | 42,000 |
Cash placement bonus | $ 15,000 | 0 |
Employee Agreement with Eric Clemons [Member] | Omnibus Stock Grant and Option Plan [Member] | ||
Stock options to purchase vested | 60,000 | |
Recognized selling, general and administrative expense | $ 5,500 | 4,500 |
Employee Agreement with Eric Clemons [Member] | On September 29, 2016 [Member] | ||
Stock options to purchase vested | 21,000 | |
Recognized selling, general and administrative expense | $ 20,000 | 0 |
Employee Agreement with Wesley Tate [Member] | ||
Stock options to purchase vested | 40,000 | |
Recognized selling, general and administrative expense | $ 21,000 | 21,000 |
Employee Agreement with Wesley Tate [Member] | On October 1, 2014 [Member] | ||
Stock options to purchase vested | 30,000 | |
Recognized selling, general and administrative expense | $ 2,700 | 2,300 |
Employee Agreement with Wesley Tate [Member] | On September 29, 2016 [Member] | ||
Stock options to purchase vested | 21,000 | |
Recognized selling, general and administrative expense | $ 20,000 | $ 0 |
PATENT RIGHTS (Details Narrativ
PATENT RIGHTS (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Patent Rights Details Narrative | ||
Paid legal fees | $ 600 | $ 200 |
Patent royalty expense | 25,000 | $ 112,500 |
Accrued payable | $ 175,000 |
NOTES PAYABLE (Details)
NOTES PAYABLE (Details) - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Short Term Notes Payable | $ 114,000 | $ 114,000 |
Short term notes payable [Member] | ||
Short Term Notes Payable | $ 114,000 | $ 114,000 |
NOTES PAYABLE (Details 1)
NOTES PAYABLE (Details 1) - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Convertible Notes Payable | $ 2,672,512 | $ 2,520,512 |
Debt discount | (11,366) | (9,534) |
Net total | 2,661,146 | 2,510,978 |
Convertible Note Payable [Member] | ||
Convertible Notes Payable | 127,400 | 125,400 |
Convertible Note Payable One [Member] | ||
Convertible Notes Payable | 260,000 | 260,000 |
Convertible Note Payable Two [Member] | ||
Convertible Notes Payable | $ 2,285,112 | $ 2,135,112 |
NOTES PAYABLE (Details 2)
NOTES PAYABLE (Details 2) - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Fiscal year ending June 30, | ||
2,017 | $ 176,500 | |
2,018 | 52,500 | |
2,019 | 2,547,512 | |
2,020 | 10,000 | |
Total outstanding notes | 2,786,512 | |
Debt discount | (11,366) | $ (9,534) |
Net Convertible Notes Payable | $ 2,775,146 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Related party notes payable | $ 114,000 | |
Convertible notes | 8,000 | |
Interest expense | 37,509 | 35,196 |
Convertible note payable [Member] | ||
Default in Convertible Notes Payable | 48,000 | |
Accretion of debt discount expense | 8,000 | 14,000 |
Convertible notes | $ 8,000 | |
Common stock issued to Convertible notes | 40,000 | |
Exercised option agreements | $ 20,000 | |
August 2016 Convertible Note Payable [Member] | ||
Loss from extinguishment of debt | 3,700,000 | 0 |
Interest expense | 38,000 | 35,000 |
Accrued interest | $ 140,000 | $ 299,000 |
STOCK TRANSACTIONS (Details Nar
STOCK TRANSACTIONS (Details Narrative) | 3 Months Ended |
Sep. 30, 2016USD ($)shares | |
Stock Transactions Details Narrative | |
Common stock issued for purchase agreements, shares | 40,000 |
Common stock issued for purchase agreements, amount, net of related costs | $ | $ 20,000 |
Common stock shares issued for conversions | 40,000 |
OPTIONS AND WARRANTS (Details N
OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Option [Member] | ||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | 910,000 | |
Weighted-average exercise price of outstanding options, warrants and rights | $ 1.45 | |
Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) | 652,000 | |
Expense recognized | $ 115,000 | $ 90,000 |
Expected compensation | $ 116,000 | |
Vested options | 42,000 | |
Recognized selling, general and administrative expense | $ 40,000 | 0 |
Warrant [Member] | ||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | 1,477,000 | |
Weighted-average exercise price of outstanding options, warrants and rights | $ 0.58 | |
Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) | 50,000 | |
Exercised | 40,000 | |
Expired/Forfeited | 10,000 | |
Recognized expense | $ 7,300 | |
Accretion of debt discount expense | $ 700 | $ 0 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Employee Agreement with Eric Clemons [Member] | ||
Recognized selling, general and administrative expense | $ 42,000 | $ 42,000 |
Cash placement bonus | $ 15,000 | 0 |
Option [Member] | ||
Vested options | 42,000 | |
Recognized selling, general and administrative expense | $ 40,000 | $ 0 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Earnings Per Share Details | ||
Net loss attributable to the common stockholders | $ (4,189,967) | $ (554,847) |
Basic weighted average outstanding shares of common stock | 7,147,869 | 4,905,999 |
Dilutive effect of options and warrants | ||
Diluted weighted average common stock and common stock equivalents | 7,147,869 | 4,905,999 |
Earnings (loss) per share: | ||
Basic and diluted | $ (0.59) | $ (0.11) |
EARNINGS PER SHARE (Details Nar
EARNINGS PER SHARE (Details Narrative) - shares | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Earnings Per Share Details Narrative | ||
Total dilutive warrants | 2,390,000 | 430,000 |
INCOME TAXES (Details)
INCOME TAXES (Details) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Federal | ||
Taxable income - federal | 34.00% | 34.00% |
State | ||
Taxable income - state | 1.50% | 1.50% |
Total current tax provision | 35.50% | 35.50% |
Federal and State | ||
Total deferred tax provision | 0.00% | 0.00% |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | Sep. 30, 2016 | Jun. 30, 2016 |
Income Taxes Details 1 | ||
Loss carryforwards | $ 15,700,000 | $ 11,500,000 |
Less - valuation allowance | (15,700,000) | (11,500,000) |
Total net deferred tax assets |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Income Taxes Details Narrative | |||
Effective tax rate for federal income taxes | 34.00% | 34.00% | |
Taxable income - state | 1.50% | 1.50% | |
Loss carryforwards | $ 15,700,000 | $ 11,500,000 | |
Expiry year | 2,030 |