Source: http://investors.dandrit.com/files/2017-02-14-10-q/f10q20170214_dandritbiotech.html
Timestamp: 2017-08-20 09:54:19
Document Index: 490394369

Matched Legal Cases: ['arty 127', 'arty 1', 'arty 30', 'arty 120', 'arty 103', 'arty 88']

DanDrit Biotech USA, Inc. (Form: 10-Q, Received: 02/14/2017 18:28:04)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,533,290 shares of common stock, par value $0.0001 per share (including 185,053 shares of common stock reserved for issuance to the Non-Consenting Shareholders (as defined below) and deemed issued and outstanding for accounting purposes), outstanding as of February 14, 2017.
Consolidated Balance Sheets as of December 31, 2016 (Unaudited) and June 30, 2016 2
Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended December 31, 2016 and 2015 3
Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Six Months Ended December 31, 2016 and 2015 4
Consolidated Statements of Cash Flows (Unaudited) for the Three and Six Months Ended December 31, 2016 and 2015 5
The results for the period ended December 31, 2016 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed with the Securities and Exchange Commission on September 28, 2016.
Cash $ 117,605 $ 23,368
Other Receivables 154,830 695,418
Prepaid Expenses 9,166 13,693
Total Current Assets 281,601 732,479
Definite Life Intangible Assets 121,885 135,743
Deferred stock offering costs 25,000 -
Deposits 2,479 2,609
Total Other Assets 149,364 138,352
TOTAL ASSETS $ 430,965 $ 870,831
Notes Payable - Related Party $ 103,196 $ 102,882
Accounts Payable 936,746 1,087,758
Accounts Payable - Related Party 127,947 97,357
Accrued Expenses 237,607 220,232
Total Current Liabilities 1,405,496 1,508,229
Convertible Notes Payable, Current Portion (Net of discounts of $19,705 and $0, respectively) 220,895 -
Convertible Notes Payable – Related Party, (Net of discounts of $31,574 and $0, respectively) 88,726 -
Total Long Term Liabilities 309,621 -
Total Liabilities 1,715,117 1,508,229
STOCKHOLDER’S EQUITY(Deficit):
Common stock, par value $0.0001, 100,000,000 shares authorized, 9,533,290, and 9,533,290 issued and outstanding at December 31, 2016 and June 30, 2016, respectively 953 953
Additional paid-in capital 25,784,522 25,098,050
Accumulated Deficit (28,012,479 ) (26,300,694 )
Other comprehensive income, net 942,852 564,293
Total Stockholder’s Equity (Deficit) (1,284,152 ) (637,398 )
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $ 430,965 870,831
Revenues $ - $ 42,525 $ - $ 42,525
Cost of Goods Sold - 5,244 - 5,244
Gross profit (Loss) - 37,281 - 37,281
General and Administrative Expenses 348,597 321,629 553,548 526,480
Non-cash compensation expenses - - 626,487
Research and Development Expenses 13,787 277,648 30,891 379,407
Depreciation and Amortization 3,622 15,991 7,371 19,928
Consulting Expenses 182,779 16,953 182,779 47,801
Total Operating Expense 548,785 632,221 1,401,076 973,616
(LOSS) FROM OPERATIONS (548,785 ) (594,940 ) (1,401,076 ) (936,335 )
Interest (expense) (2,196 ) 1 (3,213 ) 1
Interest (expense) – Related Party (3,737 ) (592 ) (7,201 ) (1,184 )
(Loss) on Currency Transactions (376,701 ) (166,348 ) (353,617 ) (198,576 )
Interest and Other Income - - - -
Total Other Income (Expense) (382,634 ) (166,939 ) (364,031 ) (199,759 )
(Loss) Before Income Taxes (931,419 ) (761,879 ) (1,765,107 ) (1,136,094 )
Income Tax Expense (Benefit) (12,815 ) (340,103 ) (53,322 ) (364,016 )
NET (LOSS) $ (918,604 ) $ (421,776 ) $ (1,711,785 ) $ (772,078 )
BASIC AND DILUTED LOSS PER SHARE $ (0.10 ) $ (0.04 ) $ (0.18 ) $ (0.08 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED 9,533,290 9,533,290 9,533,290 9,533,290
Net Loss $ (918,604 ) $ (421,776 ) $ (1,711,785 ) $ (772,078 )
Currency Translation, Net of Taxes 404,211 146,232 378,623 136,416
Other Comprehensive Loss $ (514,393 ) $ (275,544 ) $ (1,333,162 ) $ (635,662 )
NET (LOSS) $ (1,711,785 ) $ (772,078 )
Depreciation and Amortization 7,371 19,928
Non-cash compensation 626,487 -
Accrued Interest on Notes Payable - Related Party 1,184 1,184
Accretion of discount on notes payable 8,706 -
(Increase) Decrease in Other Receivables 540,588 (149,592 )
(Increase) Decrease in Prepaid Expenses/Deposits 4,657 (79,722 )
Increase (Decrease) in Accounts Payable (176,012 ) 13,563
Increase (Decrease) in Accounts Payable – Related Party 30,590 (269,138 )
Increase (Decrease) in Accrued Expenses 17,375 152,984
Total Adjustments 1,060,946 (310,793 )
NET CASH USED IN OPERATING ACTIVITIES (650,839 ) (1,082,871 )
Net (Increase) Decrease in Cash Held in Escrow - 1,052,989
NET CASH USED BY INVESTING ACTIVITIES - 1,052,989
Proceeds from Notes Payable – Related Party 120,300 -
Proceeds from Notes Payables 240,600 -
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 360,900 -
Gain (Loss) on Currency Translation 384,176 139,997
NET INCREASE (DECREASE) IN CASH 94,237 110,115
CASH, BEGINNING OF PERIOD 23,368 421,145
CASH, END OF PERIOD $ 117,605 $ 531,260
Discount for imputed interest on non-interest bearing Convertible Notes Payable $ 14,401 $ -
Amortization of discount on convertible notes payable 8,706
Compensation for the issuance of stock options to the Board 626,487 -
The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 2016 and 2015 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2016 audited financial statements. The results of operations for the periods ended December 31, 2016 and 2015 are not necessarily indicative of the operating results for the full year.
Business and Basis of Presentation — DanDrit Biotech USA, Inc. (“DanDrit USA”, the “Company”, “we”, “us”, “our”) was originally incorporated in the state of Delaware on January 18, 2011 as a vehicle to pursue a business combination through the acquisition of, or merger with, an operating business.
DanDrit BioTech A/S, a Danish Corporation was incorporated on April 1, 2001 (“DanDrit Denmark”) and is treated as a wholly owned subsidiary of the Company. On February 12, 2014, pursuant to the terms and conditions of a Share Exchange Agreement (the "Share Exchange Agreement"), DanDrit USA (the “Parent”) acquired approximately 100% of the issued and outstanding capital stock of DanDrit BioTech A/S, a Danish corporation (“DanDrit Denmark”) and as a result became the parent of DanDrit Denmark (the “Share Exchange”). Prior to the Share Exchange there were 5,000,000 shares of the common stock, par value $0.0001 per share (the “Common Stock”) of DanDrit Denmark’s parent company (the “Parent”) outstanding. The Parent and a shareholder agreed to cancel 4,400,000 shares of its common stock and issued 1,440,000 shares of common stock for legal and consulting services related to the Share Exchange and a future financing. At the time of the Share Exchange, the outstanding shares of the common stock of DanDrit Denmark were exchanged for 1.498842 shares of Parent’s common stock, for a total of 6,000,000 shares of common stock (including 185,053 shares of common stock reserved for issuance in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark to the Non-Consenting Shareholders, deemed issued and outstanding for accounting purposes). Following the closing of the Share Exchange, DanDrit Biotech USA, Inc., the wholly owned subsidiary of the Company, merged with and into the Company, thereby changing the Company’s name to “DanDrit Biotech USA, Inc.” DanDrit Denmark engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological products for the human treatment of cancer using the dendritic cell technology.
Fiscal Year End - In June 2015, DanDrit’s board of directors approved a change to DanDrit’s fiscal year end from December 31 to June 30.
Reverse Acquisition — On February 12, 2014, pursuant to the Share Exchange Agreement (the "Share Exchange Agreement"), DanDrit USA completed the acquisition of 100% of the issued and outstanding capital stock of DanDrit Denmark (the “Share Exchange”) and as a result became DanDrit Denmark’s parent company (the “Parent”). Prior to the Share Exchange there were 5,000,000 shares of the common stock, par value $.0001 per share (the “Common Stock”) of Parent outstanding. Parent and an existing shareholder agreed to cancel 4,400,000 shares of its Common Stock and issued 1,440,000 shares of Common Stock for legal and consulting services related to the Share Exchange and a future public offering. At the time of the Share Exchange each outstanding share of common stock of DanDrit Denmark was exchanged for 1.498842 shares of Parent’s Common Stock, for a total of 6,000,000 shares, resulting in 8,040,000 shares of the Parent’s Common Stock outstanding immediately following the Share Exchange, including 185,053 shares of Common Stock reserved for issuance in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark to the DanDrit Denmark shareholders who have not consented to the Share Exchange (the “Non-Consenting Shareholders”), and deemed issued and outstanding for accounting purposes.
Consolidation — For the three and six months ended December 31, 2016 and 2015, the consolidated financial statements include the accounts and operations of DanDrit Denmark, and the accounts and operations of DanDrit USA. All material inter-company transactions and accounts have been eliminated in the consolidation.
Functional Currency / Foreign currency translation — The functional currency of DanDrit USA is the U.S. Dollar. The functional currency of DanDrit Denmark is the Danish Kroner (“DKK”). The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the periods ending December 31, 2016 and 2015. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.
Cash and Cash Equivalents — The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 2016 and 2015 the Company had balances held in financial institutions in Denmark of $117,605 and $23,368, respectively.
Revenue Recognition and Sales — The Company’s sales of its MelCancerVac® (“MCV”) colorectal cancer vaccine have been limited to a compassionate use basis in Singapore after stage IIA trials and is not approved for current sale for any other use or location. The Company's accounts for revenue recognition in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), and FASB ASC 605 Revenue Recognition. The Company recognizes revenue when rights and risk of ownership have passed to the customer, when there is persuasive evidence of an arrangement, product has been shipped or delivered to the customer, the price and terms are finalized, and collections of resulting receivable is reasonably assured. Products are primarily shipped FOB shipping point at which time title passes to the customer.
Research and Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of our MAGE –A dendrite cell cancer therapy. Research and development costs were included in operating expenses for the three and six months ended December 31, 2016, totaled $13,787 and $30,891, and for the three and six months ended December 2015 $277,648 and $379,407, respectively.
Loss Per Share — The Company calculates earnings /(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential shares of common stock included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised.
In 2015, the FASB issued an amended standard requiring that we classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current. The amended standard is effective for us beginning March 2017; early adoption is permitted and we are evaluating whether we will early adopt. The amended standard may be adopted on either a prospective or retrospective basis. We do not expect that the adoption of this standard will have a significant impact on our financial position or results of operations.
Reclassification — The financial statement for the period ended December 31, 2015 and June 30, 2016 have been reclassified to conform to the headings and classifications used in the December 31, 2016 financial statements.
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred significant losses, has not yet been successful in establishing profitable operations and has short-term obligations in excess of anticipated cash. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management plans to mitigate this doubt by raising additional funds through debt and/or equity offerings. The Company is attempting to raise $15,000,000 or more through a private placement offering and close the acquisition of OncoSynergy, Inc. (“OncoSynergy”). The closing of the private placement is contingent on the closing of the acquisition of the assets of OncoSynergy. The closing of the private placement is contingent on the closing of the acquisition of the assets of OncoSynergy pursuant to that certain Asset Purchase Agreement by and between the Company and OncoSynergy entered into in April 2016. The Purchase Agreement expired by its terms on December 31, 2016 and the Company and OncoSynergy continue to work together to determine the timing of the proposed acquisition. There is no assurance that the Company will be successful in raising additional funds through the debt or equity or achieving profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Property and equipment consisted of the following at December 31, 2016 and June 30, 2016:
Lab equipment and instruments 4-6 $ 155,778 $ 163,959
Computer equipment 4-6 53,353 56,155
209,131 220,114
Less Accumulated Depreciation (209,131 ) (220,114 )
Depreciation expense amounted to $0 and $0 for the three and six month period ended December 31, 2016 and $0 and $0 for the three and six month periods ended December 31, 2015, respectively.
At December 31, 2016 and June 30, 2016, definite-life intangible assets, net of accumulated amortization, consist of patents on the Company’s products and processes of $121,885 and $135,743, respectively. The patents are recorded at cost and amortized over twenty years from the date of application. Amortization expense for the three and six months ended December 31, 2016 amounted to $3,622 and $7,371, respectively. For the three and six months ended December 31, 2015 amortization expense amounted to $15,991 and $19,928, respectively, including $12,048 in losses on abandoned assets. Expected future amortization expense for the years ended are as follows:
Year ending June 30 ,
2017 $ 6,971
2018 14,056
2019 14,056
2020 14,095
2021 14,056
Thereafter 58,651
Notes payable to related parties consists of the following as of December 31, 2016 and June 30, 2016:
Note Payable ML Group 16,544 17,414
6% Promissory Note payable to NLBDIT 2010 Enterprises, LLC 48,417 47,233
Total Notes Payable – Related Party 103,196 102,882
Less Current Maturities (103,196 ) (102,882 )
The following represents the future maturities of long-term debt as of December 31, 2016:
2017 103,196
As of December 31, 2016, the outstanding balance of $38,235 for professional fees paid by a related party and amounts advanced to the Parent are reported as loan payable - related party. The $38,235 loan payable was acquired in the reverse acquisition. The amount is unsecured, non-interest bearing and has no stipulated repayment terms.
A 6% Promissory Note payable (the “Note”) to NLBDIT 2010 Enterprises, LLC, an entity controlled by a shareholder of the Company, was acquired by the Company in the reverse acquisition, payable on February 12, 2014 upon the completion date of the Share Exchange. As of December 31, 2016, the outstanding balance on the Note, including accrued interest, was $48,417. During the three and six months ended December 31, 2016, the Company recorded related party interest on the Note of $592, and $1,184, respectively and during the three and six months ended December 31, 2015, $592, and $1,184, respectively.
Convertible Notes payable to related parties consist of the following as of December 31, 2016 and June 30, 2016:
Less Discount (31,574 ) -
Total Convertible Notes Payable – Related Party 88,726 $ -
Less Current Maturities - -
Net Convertible Note Payables – Related Party Long Term $ 88,726 -
2018 120,300
On August 24, 2016, the Company entered into a non-interest bearing convertible note for $60,150, with a shareholder of the Company. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the Company’s stock was trading at $2.05 on August 24, 2016, the Company bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $15,038. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $2,639. The interest is being amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $2,707 and 5,234, respectively, was recorded for the amortization of the discount.
On July 19, 2016, the Company entered into a non-interest bearing convertible note for $60,150, with a shareholder of the Company. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $2,555. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $437 and 783, respectively, was recorded for the amortization of the discount.
Convertible Notes payable consist of the following as of December 31, 2016 and June 30, 2016:
Non-Interest Bearing Notes Payable Equine Invest Aps $ 240,600 $ -
Less Discounts (19,705 ) -
Total Convertible Notes Payable 220,895
Net Convertible Note Payables – Long Term $ 220,895 $ -
2018 240,600
On August 24, 2016, the Company entered into a non-interest bearing convertible note for $90,225. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the Company’s common stock was trading at $2.05 on August 24, 2016 the Company bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $2,256. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $3,577. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $1,062 and 1,487, respectively, was recorded for the amortization of the discount.
On September 21, 2016 the Company entered into a non-interest bearing convertible note for $150,375. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $5,630. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $1,095 and 1,202, respectively, was recorded for the amortization of the discount.
Operating Leases — The Company leases laboratory and production space under operating lease agreements which can be cancelled with 3-months notice. The lease calls for monthly payments of DKK 6,300 (approximately $929 at December 31, 2016).
On March 25, 2015, the Company entered into an agreement for use of virtual office space at a rate of $375/month on a month-to-month basis, which can be terminated by either party on one month’s notice.
Lease expense charged to operations was $3,912 and $7,872 for the three and six months ended December 31, 2016, respectively and $3,900 and $7,840 for the three and six months ended December 31, 2015, respectively.
As of December 31, 2016, the Company had net operating loss carry-forwards of approximately $10,786,786 at an estimated effective tax rate of 22% or approximately $2,373,093 for Danish tax purposes which do not expire and net operating loss carry-forwards of approximately $1,220,612 at an estimated effective tax rate of 34% or approximately $418,008 for U.S. Federal Tax purposes which expire through 2034, a portion of which shall be limited due to the change in control of the Parent.
The Company files U.S. and Danish income tax returns, and they are generally no longer subject to tax examinations for years prior to 2012 and 2008, respectively.
The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at December 31, 2016 and June 30, 2016:
Excess of Tax over book depreciation Fixed assets $ 6,238 $ 7,660
Excess of Tax over book depreciation Patents (1,786 ) 870
Net Operating Loss Carry forward 2,788,101 2,558,080
Valuation Allowance (2,792,553 ) (2,566,610 )
A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows at December 31, 2016 and 2015:
Computed Tax at Expected Statutory Rate $ (600,136 ) $ (386,272 )
Non-US Income Taxed at Different Rates 104,907 133,372
Non-Deductible expenses 215,965 2,460
Valuation allowance 225,942 (113,576 )
Income Tax Expense $ (53,322 ) $ (364,016 )
The components of income tax expense (benefit) from continuing operations for the six months ended December 31, 2016 and 2015 consisted of the following:
Danish Income Tax $ (53,322 ) $ (364,016 )
Total Current Tax Expense (53,322 ) (364,016 )
Excess of Tax over Book Depreciation Fixed Assets 1,422 6,369
Excess of Tax over Book Depreciation Patents 2,656 2,863
Net Operating Loss Carry forwards (230,020 ) (104,344 )
Change in the Valuation allowance 225,942 113,576
The following data shows the amounts used in computing loss per share and the effect on income and the weighted average number of shares of potential dilutive common stock for the three and six month periods ended December 31, 2016, and 2015:
Weighted average number of common shares used in basic earnings per share 9,533,290 9,533,290 9,533,290 9,533,290
Weighted average number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share 9,533,290 9,533,290 9,533,290 9,533,290
At December 31, 2016, the Company had convertible notes payable totaling $360,900 convertible into 180,450 shares of common stock and 900,000 options to purchase common stock at $2.00 per share that were not included in the calculation of weighted average shares of common stock and potential dilutive common shares as their effect is anti-dilutive.
At December 31, 2015, the Company had no common stock equivalents.
Common Stock — The Company has 100,000,000 authorized shares of Common stock $0.0001. As of December 31, 2016 and June 30, 2016 there were 9,533,290 shares issued and outstanding.
Common Stock Offering – On September 15, 2016, the Company filed a Form D disclosing that the Company is seeking to raise up to $16,500,000 additional equity capital though a private placement offering exempt under Rule 506(b).
Share Exchange Agreement / Reverse Acquisition - On February 12, 2014, in accordance with the terms and conditions of a Share Exchange Agreement (the "Share Exchange Agreement"), we completed the acquisition of approximately 100% of the issued and outstanding capital stock of DanDrit Denmark (the “Share Exchange”) and as a result became DanDrit Denmark’s parent company (the “Parent”). In connection with the Share Exchange, each outstanding share of common stock of DanDrit Denmark was exchanged for 1.498842 shares of DanDrit USA’s common stock, par value $.0001 per share (the “Common Stock”) for an aggregate of 6,000,000 shares, including 185,053 shares of Common Stock reserved for issuance, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark, to the DanDrit Denmark shareholders who did not consent to the Share Exchange and deemed issued and outstanding for accounting purposes. In addition, in connection with the Share Exchange (1) the sole shareholder prior to the Share Exchange agreed to cancel 4,400,000 shares of outstanding Common Stock owned by it and (2) the board of directors and executive management of DanDrit Denmark was appointed to serve as the Board of Directors and executive management of DanDrit USA effective upon the resignation of the sole officer and director of DanDrit USA prior to the closing of the Share Exchange.
Voting — Holders of the Company’s common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends — Holders of the Company’s common stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare out of funds legally available.
Liquidation Rights — In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts and liabilities, the holders of the Company’s common stock will be entitled to share ratably in the distribution of any of our remaining assets.
Stock Options — On September 15, 2016, Parent’s Board of Directors approved the grant of stock options to employees, officers, and directors of the Company. The Board granted 300,000 options at a strike price of $2.00 per share to each of Eric Leire, APE Invest A/S for Aldo Petersen and N.E. Nielson, in consideration of their service to the Company, for an aggregate of 900,000 options. The options were granted pursuant to written agreements with each optionee. The options vested upon grant, contain certain anti-dilution provisions and expire December 31, 2019.
The Company recognized stock based compensation expense related to the options of $626,487 and $0 for the three and six months ended December 31, 2016, respectively, and $0 and $0 for the three and six months ended December 31, 2015, respectively. At December 31, 2016 the Company had approximately $0 of unrecognized compensation cost related to non-vested options.
A summary of the status of the options outstanding at December 31, 2016 is presented below:
$ 2.00 900,000 3.00 $ 2.00 900,000 $ 2.00
Total 900,000 3.00 $ 2.00 900,000 $ 2.00
A summary of the status of the options for the six months ended December 31, 2016, and changes during the period are presented below:
Granted 900,000 2.00 3.00 -
Outstanding at end of period 900,000 $ 2.00 3.00 $ -
Vested and expected to vest 900,000 $ 2.00 3.00 $ -
Exercisable end of period 900,000 $ 2.00 3.00 $ -
At December 31, 2016, all options issued are exercisable. The total intrinsic value of options at December 31, 2016 was $0. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at December 31, 2016 (for outstanding options), less the applicable exercise price.
Clinical Trial Agreements – The Company’s subsidiary, DanDrit Biotech A/S signed a contract of collaboration with the University Hospital IRCCS “San Martino” - IST – National Institute for Cancer Research, known as the San Martino Hospital of Genoa. Dr. Alberto Sobrero, the Head of the Medical Oncology Unit at the San Martino Hospital, is principal investigator of the randomized multicenter study. The collaboration relates to a Phase III adjuvant study of DanDrit’s vaccine in patients with no evident disease (“NED”) stage IV colorectal cancer (“CRC”). The primary goal of the study is to evaluate the efficacy of DanDrit’sMelCancerVac® (“MCV”) in stage IV CRC patients rendered disease free after the completion of standard treatments in accordance with local practices.
On April 28, 2015 the Company entered into a service agreement with Fondazione Giscad per la Ricerca sui Tumori to support Dandrit in a clinical trial to be conducted in Italy.
Patient Name Use Program Agreements - On December 16, 2013, DanDrit Denmark entered into an agreement with a Dutch company (the “MCV Partner”) regarding a Patient Name Use Program (PNU) for the Company’s MCV. This program will allow DanDrit Denmark to sell MCV for a year of treatment (10 vaccines) to cancer patients through the MCV Partner. The MCV Partner offers a worldwide online platform providing access to non-registered medicines for patients with life threatening diseases. The MCV Partner is a turnkey solution and will be in charge of regulatory, recruitment, logistics, and pharmacovigilance. The Company will pay the MCV Partner a royalty on a country to country basis for 20 years on MCV sales sold under the agreement. Either party may terminate the agreement with 180 day written notice.
Employment Agreements - The Company and its Subsidiary have an employment agreement with an officer of the Company.
At December 31, 2016 and 2015, the Company had various notes payable with shareholders of the Company (See Note 5 and 6).
During the three and six months ended December 31, 2016 the Company paid $0 and $0 respectively, for medical consultancy services to JARO Holding ApS and in the same periods in 2015, $22,020 and $44,365, respectively. JARO Holding ApS is an entity owned by a director of the Company.
In July, 2015 the Company paid DKK50.000 ($7,448) to Paseco ApS, an entity owned by a shareholder of the Company, for consulting services provided in July 2015.
During the three and six months ended December 31, 2016, a law firm partially owned by the Company’s Chairman of the Board of Directors provided legal services of $36,876 and $36,876, respectively, to the Company and in the same periods in 2015, $8,193 and $29,765, respectively. At December 31, 2016 the Company had a payable to the firm in the amount of $127,947.
On July 1, 2016, the Company entered into a non-interest bearing convertible notes for $60,150, with a shareholder of the Company. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the Company’s stock was trading at $2.50 on July 1, 2016, the Company bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $15,038. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $2,639. The interest is being amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $2,707 and 5,234, respectively, was recorded for the amortization of the discount.
On July 1, 2016, the Board of DanDrit A/S entered into a financial service agreement on behalf of the Company, with APE Invest AS (an entity owned by a director of the Company) for consulting services related to the Company raising additional equity financing in the US and Danish Capital Markets. The agreement calls for monthly payment of $20,000 with a $100,000 retainer payment which was due on November 1, 2016.
On July 19, 2016, the Company entered into a non-interest bearing convertible notes for $60,150, with a shareholder of the Company. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $2,555. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $437 and 783, respectively, was recorded for the amortization of the discount.
On September 15, 2016, the Company recorded $626,487 in non-cash compensation for the grant of 900,000 stock options to employees, officers, and directors of the Company, which shall be fully vested upon grant, to purchase shares of common stock of the Company at $2.00 per share, and expire December 31, 2019. The options contain certain anti-dilution provisions.
NOTE 14 — ASSET PURCHASE AGREEMENT
During April 2016 the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) wherein the Company will acquire OncoSynergy, Inc. (“OncoSynergy”). The purchase price for the acquisition consists of (i) a number of shares of Common Stock of the Company equal to the number of shares of Series A Common Stock and Common Stock outstanding of the OncoSynergy, immediately prior to the closing of the Transaction, and (ii) derivative securities (including any option, right, warrant, call, convertible security, right to subscribe, conversion right or other agreement or commitment immediately outstanding prior to the closing, if any), of like tenor, except as to timing of exercisability and maturity, exercisable or convertible into a like number of shares of Common Stock, and having rights, preferences, terms and conditions consistent in all other respects with such outstanding derivative security. Immediately following the closing it is estimated OncoSynergy, Inc. will hold between 33% and 40% of the capital stock of the Company on a fully diluted basis, assuming the exercise or conversion in full of all outstanding derivative securities of the Dandrit BioTech USA, Inc.
On October 31, 2016, the Company and OncoSynergy entered into the First Amendment to the Asset Purchase Agreement, pursuant to which the date to close the acquisition was amended from October 31, 2016 to December 31, 2016. On November 8, 2016, the Company and OncoSynergy entered into the First Amendment to the Asset Purchase Agreement, pursuant to which certain conditions to closing the transactions described in the Purchase Agreement have been waived, including the requirements that the Company (i) obtain votes from its stockholders in order to consummate the transactions contemplated thereby, (ii) demonstrate that it satisfies the listing requirements to be uplisted to a national stock exchange, including by effecting a reverse stock split, and (iii) change its name to “OncoSynergy, Inc.” upon closing the acquisition.
The Purchase Agreement expired by its terms on December 31, 2016. The Company and OncoSynergy may extend the date by which the acquisition must close and continue to work together to determine the timing of the acquisition.
The Company’s management reviewed material events through February 14, 2017.
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of DanDrit Biotech USA, Inc. (“we”, “DanDrit USA”, “us”, “our”, the “Parent” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
We are a biopharmaceutical company developing and commercializing targeted oncology vaccines that address major medical needs to advance cancer care. We are developing a polytopic dendritic cell vaccine cancer immunotherapy, which address patient populations of cancer survivors to prevent recurrence. Our lead product candidate, MCV, is a dendritic cell vaccine that could strengthen the immune response in colorectal cancer patients. In December 2013, DanDrit Denmark entered into an agreement with a Dutch company that provides access to non-registered medicines for patients with life threatening diseases, regarding a Patient Name Use Program (PNU) for MCV. This program will allow us to sell to the Dutch company MCV for one year of treatment (10 vaccines) to cancer patients.
On February 12, 2014, pursuant to the terms and conditions of a Share Exchange Agreement (the "Share Exchange Agreement"), DanDrit USA (the “Parent”) acquired approximately 100% of the issued and outstanding capital stock of DanDrit BioTech A/S, a Danish corporation (“DanDrit Denmark”) and as a result became the parent of DanDrit Denmark (the “Share Exchange”). Prior to the Share Exchange there were 5,000,000 shares of the common stock, par value $.0001 per share (the “Common Stock”) of the Parent outstanding. The Parent and a shareholder agreed to cancel 4,400,000 shares of its common stock and issued 1,440,000 shares of common stock for legal and consulting services related to the Share Exchange and a future financing. At the time of the Share Exchange, the outstanding shares of the common stock of DanDrit Denmark were exchanged for 1.498842 shares of Parent’s common stock, for a total of 6,000,000 shares of common stock (including 185,053 shares of common stock reserved for issuance in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark to the Non-Consenting Shareholders, deemed issued and outstanding for accounting purposes). Following the closing of the Share Exchange, DanDrit Biotech USA, Inc., the wholly owned subsidiary of the Company, merged with and into the Company, thereby changing the Company’s name to “DanDrit Biotech USA, Inc.”
On February 14, 2014, the Company filed a registration statement on Form S-1 (the “Registration Statement”) to register 2,400,000 shares of common stock at a purchase price of $5.00 per share in an initial public offering of up to an aggregate of $12,000,000 in gross proceeds. The Registration Statement was declared effective by the SEC on August 14, 2014 (the “Offering”). In connection with the Offering, the Company issued and sold an aggregate 1,493,290 shares of common stock for gross proceeds of $5,466,450 and total aggregate gross proceeds of $5,310,089 raised in the Offerings.
On December 31, 2014, the Company received $2,000,000 in connection with a private offering of 400,000 shares of common stock at an offering price of $5.00 per share.
On September 24, 2014, DanDrit Denmark signed a contract of collaboration with the University Hospital IRCCS “San Martino” - IST – National Institute for Cancer Research, known as the San Martino Hospital of Genoa. Dr. Alberto Sobrero, the Head of the Medical Oncology Unit at the San Martino Hospital, is principal investigator of the randomized multicenter study. The collaboration relates to a Phase III adjuvant study of DanDrit’s vaccine in patients with no evident disease stage IV colorectal cancer. The primary goal of the study is to evaluate the efficacy of DanDrit’s MelCancerVac® (“MCV”) in stage IV CRC patients rendered disease free after the completion of standard treatments in accordance with local practices.
As of December 31, 2016, the Company had $117,605 in cash and working deficit of $(1,433,516) as compared to June 30, 2016, when the Company had $23,368 in cash and working deficit of $(775,750). The increase in cash and working capital is primarily due to the Company’s efforts to secure financings through equity offering and expenses for research and development attributable to the Company engaging an entity to perform Phase III clinical trial of MelCancerVac™.
Net Cash (Used by) Operating Activities $ (650,839 ) $ (1,082,871 )
Net Cash (Used by) Investing Activities - 1,052,989
Net Cash Provided by Financing Activities 360,900 -
(Gain) Loss on Currency Translation 384,176 139,997
Net Increase (Decrease) in Cash and Cash Equivalents $ 94,237 $ 110,115
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred significant losses, has not yet been successful in establishing profitable operations and has short-term obligations in excess of anticipated cash. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management plans to mitigate this doubt by raising additional funds through debt and/or equity offerings. The Company is attempting to raise $15,000,000 or more through a private placement offering and close the acquisition of the assets of OncoSynergy, Inc. (“OncoSynergy”). The closing of the private placement is contingent on the closing of the acquisition of the assets of OncoSynergy pursuant to that certain Asset Purchase Agreement by and between the Company and OncoSynergy entered into in April 2016. The Purchase Agreement expired by its terms on December 31, 2016 and the Company and OncoSynergy continue to work together to determine the timing of the proposed acquisition. There is no assurance that the Company will be successful in raising additional funds through the debt or equity or achieving profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
A 6% Promissory Note payable (the “Note”) to NLBDIT 2010 Enterprises, LLC, an entity controlled by a shareholder of the Company, was acquired by the Company in the reverse acquisition, payable on February 12, 2014 upon the completion date of the Share Exchange. As of December 31, 2016, and 2015, the outstanding balance on the Note, including accrued interest, was $48,417 and $46,063, respectively. During the three and six months ended December 31, 2016 the Company recorded related party interest on the Note of $592 and $1,184, respectively and in the same periods in 2015, $592 and $1,184, respectively.
On July 1, 2016, the Company entered into a non-interest bearing convertible note for $60,150, with a shareholder of the Company. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the Company’s stock was trading at $2.50 on July 1, 2016, the Company bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $15,038. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $2,639. The interest is being amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $2,707 and 5,234, respectively, was recorded for the amortization of the discount.
On August 24, 2016, the Company entered into a non-interest bearing convertible note for $90,225. The note matures December 31, 2017. The note is convertible into shares of common stock at $2.00 per share. As the Company’s common stock was trading at $2.05 on July 1, 2016, the Company bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $2,256. As the note is non-interest bearing the Company imputed the interest at 3% and further recorded a discount of $3,577. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the three and six months ended December 31, 2016, interest expense of $1,062 and1,487, respectively, was recorded for the amortization of the discount.
The Company’s sole source of operations is through its wholly owned Danish subsidiary, DanDrit Biotech A/S (“DanDrit Denmark”). There can be no assurance that DanDrit Denmark will be successful in obtaining US Food and Drug Administration approval of its colorectal vaccine, MCV, nor produce sufficient revenues from MCV to sustain operations. It is management's assertion that these circumstances may hinder the Company's ability to continue as a going concern. The Company’s plan of operation for the next twelve months shall be to continue its efforts to raise capital.
The following table sets forth our revenues, expenses and net income for the three and six months ended December 31, 2016 and 2015. The financial information below is derived from our unaudited condensed consolidated financial statements.
(LOSS) FROM OPERATIONS (548,785 ) (594,940 ) (1,401,075 ) (936,335 )
Revenues from operations for the three and six months ended December 31, 2016, amounted to $0 and $0, respectively. The revenues for the three and six month periods ending December 31, 2015 amounted to $42,525 and $42,525, respectively.
Our cost of goods sold was $0 and $0 during the three and six months ended December 31, 2016, respectively, and $5,244 and $5,244 for the three and six months ended December 31, 2015, respectively and was primarily associated with the production of lysate.
Gross profit for the three months ended December 31, 2016 was $0 compared to gross profit of $37,281 for same period in 2015. Gross profit for the six months ended December 31, 2016 was $0 compared to gross profit of $37,281 for same period in 2015. The gross profit for the three and six months ended December 31, 2015 was primarily due to the final payment on project Naimet.
Our operating expense for the three months ended December 31, 2016 totaled $548,785, representing a decrease of $83,436, or approximately 13% compared to $632,221 for the three months ended December 31, 2015. Our operating expense for the six months ended December 31, 2016 totaled $1,401,076, representing an increase of $427,460, or approximately 44% compared to $973,616 for the six months ended December 31, 2015. The largest contributor to the increase in operating expenses was the $626,487 in non-cash compensation expenses for stock options granted.
General and administrative expenses for the three months ended December 31, 2016 totaled $348,597, representing an increase of $26,968, or approximately 8% compared to $321,629 for the three months ended December 31, 2015. General and administrative expenses for the six months ended December 31, 2016 totaled $553,548, representing an increase of $27,068, or approximately 5% compared to $526,480 for the six months ended December 31, 2015. General and administrative expenses include audit and legal fees, office rental, insurance, patent fees, salaries and travel expenses.
Research and Development expenses for the three months ended December 31, 2016 totaled $13,787, representing a decrease of $263,861, or approximately 95% compared to $277,648 for the three months ended December 31, 2015. Research and Development expenses for the six months ended December 31, 2016 totaled $30,891, representing a decrease of $348,516, or approximately 92% compared to $379,407 for the six months ended December 31, 2015. The research and development expenses are primarily attributable to the Company initiating Phase III clinical trial of MelCancerVac™.
Depreciation and amortization expenses for the three and six months ended December 31, 2016 were $3,622 and $7,371, respectively. Depreciation and amortization expenses for the three and six months ended December 31, 2015 were $15,991 and $19,928, respectively and includes $12,048 on loss on abandoned assets.
Consulting expenses for the three months ended December 31, 2016 and 2015 were $182,779 and $16,953, respectively, representing an increase of $165,826 or 978%. Consulting expenses for the six months ended December 31, 2016 and 2015 were $182,779 and $47,801, respectively, representing an increase of $134,978 or 282%. The increase was primarily due to fees related to the Company raising additional equity financing in the US and Danish Capital Markets.
Other income (expense) net for the three months ended December 31, 2016 and 2015 were $(382,634) and $(166,939), respectively and $(364,031) and $(199,759) for the six months ended December 31, 2016 and 2015, respectively. Other expense is associated with interest on related party loans and Gain/(losses) on currency transactions.
Net loss for the three months ended December 31, 2016 was $(918,604) or $(0.10) per share compared to a net loss of $(421,776) or $(0.04) per share for the three months ended December 31, 2015 representing an increase of $496,828 or 118%. Net loss for the six months ended December 31, 2015 was $(1,711,785) or $(0.18) per share compared to a net loss of $(772,078) or $(0.08) per share for the six months ended December 31, 2015 representing an increase of $939,707 or 122%. The increase was primarily due to the increase in the non-cash compensation expenses and consulting expenses.
Cash used by operating activities for the six months ended December 31, 2016 was $650,839, representing a decrease of $432,032, or approximately 40% compared to cash used by operating activities of $1,082,871 for the six months ended December 31, 2015. The net cash used by operating activities was primarily due to fund raising efforts of the Company and the operations of DanDrit Denmark.
Total assets as of December 31, 2016 were $430,965 compared to $870,831 as of June 30, 2016. Total current liabilities increased to $1,715,117 as of December 31, 2016 compared to $1,508,229 as of June 30, 2016. The decreases in total assets and increase in total current liabilities were mainly due to a continued loss from operations for research and development, additional borrowing and expenditures to raise additional capital funding.
Our Chief Executive Officer (the “Certifying Officer”) is responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officer has designed such disclosure controls and procedures to ensure that material information is made known to him, particularly during the period in which this Report was prepared.
The Certifying Officer is responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”). Based upon that evaluation, the Certifying Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were not effective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms. The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system. These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.
The Certifying Officer based his conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below. In order to reduce the impact of these weaknesses to an acceptable level, the Company has contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC. However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
There have been no changes in our internal controls over financial reporting during the quarter ended December 31, 2016 that have materially affected or are reasonably likely to materially affect our internal controls.
31.1 Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016.*
(4) Filed as an exhibit to the Company’s Form 8-K filed with the SEC on April 5, 2016 and incorporated herein by reference.
Dated: February 14, 2017 By: /s/ Eric J. Leire
I, Eric J. Leire, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the six months ended December 31, 2016 of DanDrit Biotech USA, Inc. (the “registrant”);
Date: February 14, 2017 /s/ Eric J. Leire
In connection with the Quarterly Report of DanDrit Biotech USA, Inc. (the “Company”) on Form 10-Q for the six months ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
Dated: February 14, 2017 /s/ Eric J. Leire