Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Jun. 30, 2016
Notes to Financial Statements  

The Company has evaluated events and transactions that occurred from June 30, 2016 through the date of filing, for possible disclosure and recognition in the financial statements.  See discussed below material subsequent events that impact its financial statements or disclosures.


On August 12, 2016 (the "Closing Date"), the Company entered into Securities Purchase Agreements with several accredited investors (the “Investors”) providing for the sale by the Company to the Investors of 6% Convertible Promissory Notes in the aggregate amount of $1,322,500 (the "Notes") pursuant to which it received net proceeds of $1,083,050. In addition to the Notes, the Investors also received stock purchase warrants (the “Warrants”) to acquire an aggregate of 13,225,000 shares of common stock of the Company. The Warrants are exercisable for five years at an exercise price of $0.10 and contain full price protection for a period of one year from the date of issuance. On the six month anniversary, the Holder may exercise the Warrants on a cashless basis if the underlying shares of common stock are not registered for re-sale on a Form S-1 Registration Statement. The Notes bear interest at 6% per annum and mature two years from issuance. The Investors may elect to convert all or part of the Notes, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $0.075 per share. Interest on the Notes is payable in cash quarterly commencing June 30, 2017 or, subject to certain equity conditions, shares of common stock at the Company’s option the price equal to the lower of $0.75 or 90% of the lesser of the average of the VWAPs for the 20 consecutive trading days prior to the payment date or the average of the VWAPs for the 20 consecutive trading days ending on the trading day prior to the payment date. Late payments of interest are subject to a late fee. The conversion price is subject to adjustment for stock dividends and stock splits and the Investors will have participation rights to subsequent rights offering and pro rata distributions. Holders will also have anti-dilution protection. In addition, if after the original issue date of the Notes, either (i) the volume weighted average price equals or exceeds $0.50 for 10 consecutive trading days or (ii) the Company’s elects to lists a class of securities on a national securities exchange, the Company may cause the Investors to convert all or part of the then outstanding principal amount of the Notes plus, accrued but unpaid interest, liquidated damages and other amounts owed. The Company may not, without receiving the consent of the Investors holding 51% of the then outstanding Notes, incur debt senior to the Notes, create liens on its property, repay or repurchase its common stock or common stock equivalents other than the Conversion Shares and Warrant Shares or repurchases of stock of departing officers and directors under an aggregate of $100,000, repay or repurchase any indebtedness other than the payments under the Notes or currently existing regularly scheduled principal and interest payments as long as there is no event of default under the Notes, pay cash dividends or distributions on any Company equity securities or enter into any agreement with respect to any of the foregoing. The Company granted the Investors piggy back registration rights with respect to the shares of common stock underlying the Notes and the Warrants. The Investors agreed to restrict its ability to convert the Notes and exercise the Warrants and receive shares of common stock such that the number of shares of common stock held by the Investors after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The Investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act. As of the date hereof, the Company is obligated on $1,322,500 in face amount of Notes issued to the Investors. The Notes are a debt obligation arising other than in the ordinary course of business which constitute a direct financial obligation of the Company. A registered broker-dealer (member, FINRA/SIPC), acted as the placement agent for the offering and received $132,250 in fees and a common stock purchase warrant to acquire 1,763,333 shares of common stock for a period of five years at an exercise price of $0.075 per share. On August 12, 2016, the Company entered into an Employment Agreement with Carl W. Rausch pursuant to which Mr. Rausch was engaged as the Chief Executive Officer of the Company for a period of three years. Mr. Conroy Cheng resigned as an executive officer concurrent with Mr. Raush’s appointment. Mr. Change shall continue to serve on the Board. Mr. Rausch will initially be located in Hong Kong but is expected to relocate to the United States within six months. Mr. Rausch received a signing bonus of $60,000 and an annual salary of $224,000, which will be increased to $264,000 upon Mr. Rausch relocating to the United States. Further, upon the Company being listed on a national exchange, Mr. Rausch’s salary will be increased by $20,000. The Company granted Mr. Rausch a Stock Option (the "Rausch Option") to acquire an aggregate of 6,000,000 shares of common stock of the Company, exercisable for five (5) years, subject to vesting. The Rausch Option shall be earned and vested in three equal tranches of 2,000,000 upon the Company the Company raising $1,000,000 in financing, the Company raising $5,000,000 in financing and the Company entering into a significant corporate alliance for substantial marketing and selling of the Company’s product portfolio. The initial tranche shall be exercisable at $0.20 per share, the second tranche will be $0.40 per share and the third tranche shall be $0.60 per share, which such vesting is subject to Mr. Rausch’s continued employment as an executive with the Company as of the vesting date. In addition, as additional consideration for Mr. Rausch's commitment to the Company, the stock options previously granted to Mr. Rausch have been amended to provide an expiration date of August 12, 2026 and such options shall be considered fully vested. Mr. Rausch shall be entitled to certain raises and milestones subject to the achievement of certain milestones to be agreed upon. In the event the Employment Agreement is terminated prior to the expiration of the term by the Company without cause or by Mr. Rausch with good reason, the Company shall pay Mr. Rausch an amount equal to Mr. Rausch’s accrued but unpaid base salary and earned but unpaid bonus prior to the termination date, reimbursement for any reimbursable business expenses and Mr. Rausch’s salary for a period of one year. From 2008 to present, Mr. Rausch has served as an independent consultant for biopharmaceutical industrial clients, university based development facilities and contract research organizations for preclinical and clinical strategic management of investigative biological materials for registration with the European Medicines Agency and the US Food and Drug Administration. The Company has entered into a Securities Purchase Agreement with CJY Holdings Limited ("CJY") whereby CJY on September 24, 2015, October 20, 2015, November 30, 2015, March 1, 2016, March 11, 2016, May 6, 2016 and June 28, 2016 provided the Company financing and the Company issued to CJY Convertible Promissory Notes (the "CJY Notes") in the amounts of $750,000, $300,000, $150,000, $250,000, $152,000, $100,000 and $50,000, respectively. The CJY Notes bear interest of 10% and are payable three years from the date of issuance. Prior to the maturity dates of the CJY Notes, CJY may elect to convert all or part of the CJY Notes, plus accrued interest, into shares of common stock of the Company at a conversion rate of $0.05 per share. On August 12, 2016, the Company and CJY entered into a letter agreement providing that the CJY Notes will have a maturity date of August 12, 2018 and provided CJY with anti-dilution price protection.