White River Energy Corp. - Quarter Report: 2019 September (Form 10-Q)

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Note 1 – Nature of the Business

The terms "we," "us," "our," "registrant," and the "Company" refer to Mount Tam Biotechnologies, Inc., a Nevada corporation, and, where applicable, Mount Tam Biotechnologies, Inc., a Delaware corporation and our wholly-owned subsidiary ("Mount Tam"). The Company is an early-stage life sciences and technology company pursuing the development of bio-pharmaceuticals to treat autoimmune diseases. The Company intends to optimize and bring to market a portfolio of products focused on improving the health and wellbeing of individuals afflicted with autoimmune diseases. The Company is headquartered in the San Francisco Bay Area, and may go to market both vertically and horizontally by product/technology specialties and provide our customers with treatment options.

On August 13, 2015, Mount Tam entered into a Share Exchange and Conversion Agreement (the "Exchange Agreement") with the Company and certain other persons party thereto. Immediately following the effective time of the Exchange Agreement, Mount Tam's stockholders (as of immediately prior to the transactions contemplated by the Exchange Agreement (such transactions, the "Share Exchange")) owned approximately 57.14% of the Company's outstanding common stock and the Company's stockholders (as of immediately prior to the Share Exchange) owned approximately 42.86% of the Company's outstanding common stock. Additionally, following the Share Exchange, the business conducted by Mount Tam became the primary the business conducted by the Company.

As a result of the Share Exchange, Mount Tam became a wholly-owned subsidiary of the Company. However, the former stockholders of Mount Tam acquired a majority of the outstanding shares of the Company's common stock.  In connection with the Share Exchange, a former shareholder of the Company agreed to surrender all of his shares of the Company's common stock in exchange for $30,000, and all of the issued and outstanding shares of Epicurean Cigars, Inc., which at the time was a wholly-owned subsidiary of the Company which had a nominal remaining net liability. The shares were returned to the Company, and the $30,000 due to the shareholder has been accrued as of December 31, 2015.

Effective on August 31, 2015, the Company changed its name from TabacaleraYsidron, Inc. to Mount TAM Biotechnologies, Inc.  The name change was effected through a parent/subsidiary short-form merger of Mount TAM Biotechnologies, Inc., our wholly-owned Nevada subsidiary which we formed solely for the purpose of the name change, with and into the Company, with the Company as the surviving corporation.  With the exception of the name change, there were no changes to the Company's Articles of Incorporation or Bylaws. There will be no mandatory exchange of stock certificates. The Company's trading symbol on the OTC Markets (OTC Pink) marketplace was changed to "MNTM" from "TQBY".

Mount Tam Biotechnologies, Inc., the Company's wholly-owned legal subsidiary, was the "accounting acquirer," and for accounting purposes, the TYI was deemed as having been "acquired" in the Merger.  The board of directors and officers that managed and operated Mount Tam immediately prior to the effective time of the Merger became the Company's board of directors and officers.

To meet its business objectives, Mount Tam formed a strategic partnership with the Buck Institute for Research on Aging ("Buck Institute"), an independent research facility focused on understanding the connection between aging and chronic disease. As part of the partnership, Mount Tam signed an exclusive worldwide licensing and collaboration agreement with the Buck Institute that includes many of the Buck Institute's intangible research and development assets in the area of autoimmune disorders. The initial focus of Mount Tam's research and development efforts will be a pre-clinical stage compound for the treatment and diagnosis of systemic lupus erythematosus, a common form of lupus. Mount Tam has not produced any revenues from the intangible research and development assets it acquired from Buck Institute and it has not commenced its planned principal operations.

The production and marketing of the Company's products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration under the Food, Drug and Cosmetic Act. In addition, the Company's success will depend in part on its ability to obtain and maintain patents, exploit its product license rights, maintain trade secrets, and operate

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without infringing on the proprietary rights of others, both in the United States and other countries.

The following reflects the Company's current, post-merger corporate structure (State of Incorporation):

Mount Tam Biotechnologies, Inc., formerly TabacaleraYsidron, Inc. (Nevada) 

Mount Tam Biotechnologies, Inc. (Delaware)  - Sold October 2018.

Mount Tam Therapeutics, Inc. (Delaware) – Formed October 2018.

MTB Merger Sub, Inc. (Delaware) – Formed September 23, 2019.

The Company is a publicly-traded biotechnology company dedicated to speeding the delivery of new treatment options to patients affected by autoimmune diseases through the development and application of highly specialized drug targeting platforms and formulation expertise. The Company focuses on underserved patient populations where it can have the greatest potential impact. Mount Tam's clinical division advances clinical-stage product candidates towards marketing approval and commercialization.

The Company is subject to a number of risks, including: the need to raise capital through equity and/or debt financings; the uncertainty whether the Company's research and development efforts will result in successful commercial products; competition from larger organizations; reliance on licensing proprietary technology of others; dependence on key personnel; uncertain patent protection; and dependence on corporate partners and collaborators.  See the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K.

History

The Company was established in November 2011 under the name TabacaleraYsidron. Mount Tam was incorporated on August 13, 2014 (date of inception). On August 13, 2014, Mount Tam issued 9,000,000 shares of common stock, $0.0001 par value, for $900.

On August 13, 2015, Mount Tam and the Company entered into the Exchange Agreement as described above.

The Share Exchange was treated as a reverse acquisition of the Company, a public shell company at the time, by Mount Tam for financial accounting and reporting purposes. As such, Mount Tam was treated as the acquirer for accounting and financial reporting purposes while the Company is treated as the acquired entity for accounting and financial reporting purposes. As a result of the Share Exchange, $50,048 account payable and $17,500 note payable of the Company was brought forward at their book values and no goodwill has been recognized. Prior to the Share Exchange, the Company was a non-operating public shell company with nominal operations and nominal assets.

On October 18, 2018, the “Company” and Mount Tam, its wholly-owned subsidiary, entered into a stock purchase agreement (the “SPA”) with ARJ Consulting, LLC, a New York limited liability company (the “Buyer”), pursuant to which the Company sold 100% of the capital stock in and of Mount Tam Delaware subsidiary to the Buyer (the “Sale Transaction”). Prior to the Sale Transaction, the Company caused Mount Tam to transfer certain assets, including the Buck Institute License Agreement, that Mount Tam was holding to another wholly-owned subsidiary of the Company, Mount Tam Therapeutics, Inc., a newly formed Delaware corporation. At the time of the Sale Transaction Mount Tam possessed certain Net Operating Losses and tax credits. Pursuant to the terms of the SPA, the Buyer purchased Mount Tam for a purchase price of $410,000.

Note 2 – Summary of Significant Accounting Policies

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2018 are applied consistently in these interim condensed consolidated condensed financial statements.

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Basis of Presentation

The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States. All intercompany accounts have been eliminated.

The accompanying unaudited condensed consolidated financial statements as of September 30, 2019 have been prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position as of September 30, 2019, the Company’s results of operation, stockholders’ deficit and the cash flows for the three and nine months ended September 30, 2019. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Form 10-K filed on April 15, 2019. The December 31, 2018 condensed consolidated balance sheet data was derived from the audited financial statements included in the Form 10-K filed on April 15, 2019. The financial statements and notes are representations of the Company's management ("Management") and its board of directors (the "Board of Directors"), who are responsible for their integrity and objectivity.

Results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019 or any other future period.

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amount on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and it does not believe it is exposed to any significant credit risk. As of September 30, 2019 and December 31, 2018 the Company had cash and cash equivalents of $9,094 and $57,641, respectively.  Cash balances held in financial institution are below the federally insured limits.

Research and Development costs

The Company follows Accounting Standards Codification Subtopic (“ASC”) 730-10, “Research and Development,” in which research and development costs are charged to the statement of operations as incurred. During the three months ended September 30, 2019 and 2018 the Company incurred $55,650 and $(103,959), respectively of expenses related to research and development costs. During the nine months ended September 30, 2019 and 2018 the Company incurred $164,522 and $407,498, respectively of expenses related to research and development costs.

Net Earnings (Loss) Per Common Share

The Company computes earnings per share under ASC 260-10, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by

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Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities include the following as of September 30, 2019 and December 31, 2018:

Fair Value Measurements

The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure.

ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.

Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Unobservable inputs for the asset or liability.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

For the nine months ended September 30, 2019 the Company has determined that there we no assets or liabilities measured at fair value on a recurring basis.

The Company believes the carrying amounts of cash and cash equivalents, other current assets, accounts payable, accrued expenses salaries, wages and payroll taxes, and other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

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Going Concern

The Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has no significant operating history and had a cumulative net loss from inception (August 13, 2014) to September 30, 2019 of $10,310,244. The Company has a working capital deficit of $2,857,783 as of September 30, 2019. These factors raises substantial doubt about the ability of the Company to continue as a going concern for a period of twelve months from the date these unaudited condensed consolidated financial statements are issued. Since inception, the Company has been funded through debt and equity financings. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The Company believes its cash resources are insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and clinical trials and commercialization of its product candidates. In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire.

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of its development activities, sell certain assets, merge with another entity, or perhaps even cease the operation of its business.  Since its inception, the Company has funded its operations primarily through debt financings and equity financings, and it expects that it will continue to fund its operations through a mix of equity and debt financings.  If the Company secures additional financing by issuing equity securities, its existing stockholders’ ownership will be diluted.  The Company also expects to pursue non-dilutive financing sources. However, obtaining such financing would require significant efforts by the Company’s management team, and such financing may not be available, and if available, could take a long period of time to obtain. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Collaborative Arrangements

The Company and its collaborative partners are active participants in the collaborative arrangements and both parties are exposed to significant risks and rewards depending on the commercial success of the activity. The Company records all expenses related to collaborative arrangements as research and development expense in the consolidated statements of operations as incurred.

Gain (Loss) on Modification/Extinguishment of Debt

In accordance with ASC 470, a modification or an exchange of debt instruments that adds a conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and must be measured and accounted for as extinguishment of the original instrument along with the recognition of a gain/loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument.  A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss. 

Recent Accounting Pronouncements

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In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which provides clarification on implementation issues associated with adopting ASU 2016-02. The implementation issues noted in ASU 2019-01 include determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, presentation on the statement of cash flows for sales-type and direct financing leases, and transition disclosures related to Topic 250, Accounting Changes and Error Corrections. Refer to the discussion of ASU 2016-02 below for the impact on our financial position, results of operations, cash flows, or presentation thereof. In February 2016, FASB issued an update 2016-02 and created Topic 842, Leases. Topic 842 effects any entity that enters into a lease arrangement with another person. The guidance in this update supersedes Topic 840. The main difference between previous GAAP and Topic 842 is the recognition of accounting policies for leases classified as operating leases under previous GAAP. The amendments in this update for public business entities that file with the Securities and Exchange Commission are effective for fiscal years beginning after Dec. 15, 2018 and the interim periods within that year with early application permitted for all entities. The Company is adopting the lease accounting model as described in Topic 842 for the fiscal year begins on January 1, 2019. The Company has no long-term operating leases and thus the adoption of ASC 842 had no impact on the condensed consolidated financial statements.

Recent Accounting Pronouncements Issued But Not Adopted as of September 30, 2019

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

Note 3 – Loans

In 2014, the Company executed an agreement with a third-party investor whereby the Company issued $53,209 in a convertible promissory note. This convertible note bears an interest rate of 8% per year and was set to mature on November 26, 2015. The Company subsequently received an advance of $50,000 from the same party. The proceeds from these loans were used for working capital purposes. During the year ended December 31, 2015, both of these loans were consolidated into a new convertible note (see Note 4).

As a result of the Share Exchange, the Company assumed an obligation to a former note holder in the amount of $17,500. The unsecured promissory note in the amount of $15,000 is to an unrelated party. Pursuant to the terms of the note, the note is interest bearing at 3.5% and is due on demand. As of September 30, 2019, the Company has accrued interest of $3,156. Another unsecured promissory note is of $2,500 to an unrelated party. Pursuant to the terms of the note, the note is non-interest bearing and is due on demand. The Company is currently assessing how to revise the terms of this note.

On February 22, 2019, the Company borrowed $21,038 from INS Group (the "Lender") through a note bearing 8.3% interest with a maturity date of December 22, 2019 for the director and officer’s insurance. Balance payable as of September 30, 2019 was $6,293.

Note 4 – Line of Credits and Convertible Notes

Line of Credit Agreements

Line of Credit Agreement with Fromar Investments, LP

On May 10, 2019 the Company and Fromar Investments, LP (“Fromar”) entered into an arrangement whereby Fromar will lend the Company up to a maximum of $1,750,000 pursuant to the terms of a Line of Credit  

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Agreement (the “Fromar LOC”) and a promissory note (the “Fromar Note”). The arrangement evidenced by the Fromar LOC and the Fromar Note is referred to herein as the “Fromar Loan”. By agreement of the parties, the Fromar Loan is effective as of May 1, 2019. The Fromar Loan is a non-revolving line of credit and amounts borrowed and then repaid may not be re-borrowed. The principal amounts advanced to the Company under the Fromar Loan bear interest at a fixed annual rate of eight percent (8.00%). The Fromar Loan had a maturity date of August 30, 2019, which was extended to October 31, 2019, at which time all amounts advanced under the Fromar Loan, together with all accrued but unpaid interest thereon, are due and payable.  On November 1, 2019, an amendment to the Line of Credit Agreement extended the maturity date to November 15, 2019, and increased the principal amount to $1,810,000.

The Fromar Loan is secured by that certain Security Agreement dated effective May 1, 2019 between the Company and Fromar (the “Fromar Security Agreement”) pursuant to which the Company and Fromar agreed that all amounts, liabilities and obligations owed by the Company to Fromar are secured by a security interest in all assets of the Company on the terms and conditions set forth in the Fromar Security Agreement (the “Fromar Security Interest”).  The Fromar Security Interest is subject to certain permitted security interests, specifically including the CC3I Security Interest (as defined below). 

By way of background, on or about June 14, 2016, the Company and 0851229 BC Ltd. (“BC”), an affiliate of Fromar, entered into that certain Amended and Restated Secured Convertible Promissory Note, which has been amended or otherwise modified on several different occasions (the “BC Note”) and a related security agreement securing the Company’s obligations under the BC Note, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on June 15, 2016. Further, on or about April 6, 2018, the Company and Fromar entered into that certain Convertible Promissory Note which has been amended or modified on several different occasions (the “2018 Fromar Note”) and a related security agreement securing the Company’s obligations under the 2018 Fromar Note, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on April 12, 2018. Further, on or about March 4, 2019, the Company and Fromar entered into that certain Promissory Note in the principal amount of $80,000 (the “2019 Fromar Note”). The BC Note, the 2018 Fromar Note and the 2019 Fromar Note shall be referred to collectively herein as the “Prior Fromar Notes”. These Prior Fromar Notes, as consolidated into the new Line of Credit Agreement, will have bear interest at a fixed annual rate of 8%, as of May 1, 2019. The Company is required to use the amounts advanced under the Fromar Loan to pay off the Prior Fromar Notes, as well as for general business purposes.  By virtue of the payment in full of the Prior Fromar Notes with funds advanced under the Fromar Loan, the Prior Fromar Notes and their related security agreements have been terminated effective as of May 1, 2019 with no early termination penalties incurred by the Company as a result. 

As of September 30, 2019, the Company had principal outstanding on this Line of Credit of $1,699,348 and accrued interest expense of $56,014. Interest expenses of $33,184 and $74,644 for the three and nine months ended September 30, 2019, respectively. 

Line of Credit Agreement with Climate Change Investigation, Innovation and Investment Company, LLC

Also on May 10, 2019, the Company and Climate Change Investigation, Innovation and Investment Company, LLC, a California limited liability company (“CC3I”) entered into an arrangement whereby CC3I will lend the Company up to a maximum of $350,000 pursuant to the terms of a Line of Credit Agreement (the “CC3I LOC”) and a promissory note (the “CC3I Note”). The arrangement evidenced by the CC3I LOC and the CC3I Note is referred to herein as the “CC3I Loan”. By agreement of the parties, the CC3I Loan is effective as of May 1, 2019. The CC3I Loan is a non-revolving line of credit and amounts borrowed and then repaid may not be re-borrowed. The principal amounts advanced to the Company under the CC3I Loan bear interest at a fixed annual rate of eight percent (8.00%). The CC3I Loan had a maturity date of August 30, 2019, which was extended to October 31, 2019, at which time all amounts advanced under the CC3I Loan, together with all accrued but unpaid interest thereon, are due and payable. On November 1, 2019, an amendment to the Line of Credit extended the maturity date to November 15, 2019, and increased the principal amount to $390,000. The Manager of CC3I, James Farrell, is a director and shareholder of the Company.  Pursuant to the requirements of the Nevada Revised Statutes, the disinterested members of the Company’s board of directors approved the transaction with CC3I.

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The CC3I Loan is secured by that certain Security Agreement dated effective May 1, 2019 between the Company and CC3I (the “CC3I Security Agreement”) pursuant to which the Company and CC3I agreed that all amounts, liabilities and obligations owed by the Company to CC3I are secured by a security interest in all assets of the Company on the terms and conditions set forth in the CC3I Security Agreement (the “CC3I Security Interest”).  The CC3I Security Interest is subject to certain permitted security interests, specifically including the Fromar Security Interest.

By way of background, on or about September 20, 2018, the Company and CC3I entered into that certain Convertible Promissory Note (the “2018 CC3I Note”) and a related security agreement securing the Company’s obligations under the 2018 CC3I Note, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on September 26, 2018. Further, on or about March 4, 2019, the Company and CC3I entered into that certain Convertible Promissory Note (the “2019 CC3I Note”) and a related security agreement securing the Company’s obligations under the 2019 CC3I Note, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on March 7, 2019. The 2018 CC3I Note and the 2019 CC3I Note shall be referred to collectively herein as the “Prior CC3I Notes”. The Company is required to use the amounts advanced under the CC3I Loan to pay off the Prior CC3I Notes, as well as for general business purposes.  By virtue of the payment in full of the Prior CC3I Notes with funds advanced under the CC3I Loan, the Prior CC3I Notes and their related security agreements have been terminated effective May 1, 2019 with no early termination penalties incurred by the Company as a result.

As of September 30, 2019, the Company had principal outstanding on this Line of Credit of $225,418 and accrued interest expense of $5,776. Interest expenses of $3,864 and $8,861 for the three and nine months ended September 30, 2019, respectively.

Intercreditor Agreement

In addition to the foregoing, on May 10, 2019 the Company entered into an Intercreditor Agreement with Fromar and CC3I (collectively, the “Creditors”), with an effective date of May 1, 2019 (the “2019 Intercreditor Agreement”), whereby the Fromar Security Interest and the CC3I Security Interest shall each rank pari passu with each other. Further, the Creditors each agreed to jointly exercise their respective rights under their respective security interests, and to jointly share in the amount realized from exercising such rights under their respective security interests in proportion to the amount of their respective debt with respect to which a default has occurred to the total debt of each of the Creditors with respect to which a default has occurred.

By way of background, the Company previously entered into an intercreditor agreement with Fromar, BC and CC3I with an effective date of September 18, 2018, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on September 26, 2018 (the “2018 Intercreditor Agreement”) which was subsequently amended to account for the addition of the 2019 CC3I Note. Effective May 1, 2019, the 2018 Intercreditor Agreement was terminated by agreement of the parties thereto with no early termination penalties incurred by the Company as a result.

Convertible Notes

0851229 BC Ltd.

The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock.

The initial fair value of the beneficial conversion feature of the note on the date of issuance was determined to be $8,750 and $18,750 for the year ended December 31, 2018 and 2017. The value of beneficial conversion

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feature is being amortized over the life of the loan. The unamortized debt discount as of December 31, 2018 and 2017 is $0 and $16,595 respectively. For the three ended September 30, 2019 and 2018 the Company amortized the debt discount of $0 and $0 respectively. For the nine months ended September 30, 2019 and 2018 the Company amortized the debt discount of $0 and $25,345 respectively.

Pursuant to the terms of the amended note dated June 14, 2016, if the Company issues capital stock or any security convertible into or exercisable for its capital stock in a transaction, the primary purpose of which is to raise capital (a “Financing”), lender may convert all or any portion of the outstanding principal amount and accrued and unpaid interest into the same securities issued by the Company in the Financing (the “Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Financing Securities paid by the other investors in the Financing. If the Company consummates a Qualified Financing (as hereinafter defined) then the outstanding principal amount and all accrued and unpaid interest shall automatically convert into the same securities issued to investors in the Qualified Financing (the “Qualified Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Qualified Financing Securities paid by the other investors in the Qualified Financing. A “Qualified Financing” means a Financing which results in gross proceeds to the Company, in one or a series of related transactions, of at least $2,000,000 (including the aggregate amount of indebtedness converted into equity securities in such Financing), in which either (i) the investor leading negotiations with the Company is a bona fide institutional investor or (ii) the investor leading negotiations with the Company is not a bona fide institutional investor but the Financing includes commercially reasonable customary terms and conditions for an equity financing of an early-stage biopharmaceutical company.

The Lender is deemed a related party as a result of owning more than 10% of the Company's common stock. The Lender and the Company agreed that the aggregate principal amount of all outstanding loans made under the Secured Note shall not exceed $5,000,000 at any time. The maturity date for all the above note were extended till June 30, 2019.

As of December 31, 2018, the Company had principal outstanding on this Secured Note of $728,004 and accrued interest of $57,754.

As of April 30, 2019, the Company had principal outstanding on this Secured Note of $728,004 and accrued interest of $61,586.  The total outstanding principal and interest was converted into a Line of Credit agreement on May 10, 2019, effective as of May 1, 2019, as disclosed above.

Since the fair value of the old debt was less than 10% of the present value of the remaining cash flows under the modified debt and amendment was not considered as substantive, the transaction was treated as a debt modification and reissuance of new debt instruments pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).

Fromar Investments, LP

On April 6, 2018, the Company, and Fromar Investments, LP (“Fromar”) entered into an arrangement whereby Fromar would lend the Company $500,000 pursuant to the terms of a convertible promissory note (the “Fromar Note”).  The Fromar Note bears interest at a rate of 8.0% per annum and had a maturity date of September 30, 2018 which was extended to June 30, 2019. On May 10, 2019, the Company and the Lender entered into a Line of Credit Agreement – as disclosed above, which consolidated all debt instruments from Fromar, into a new Line of Credit.

By agreement of the parties, the effective date of the Fromar Note is March 5, 2018, and funds are disbursed under the Fromar Note pursuant to a schedule thereto.  As of May 9, 2018, the Company had received the additional $250,000, and had Company had principal outstanding on the Fromar Note of $500,000. Pursuant to the terms and conditions of this note, specifically upon receipt of $500,000, the Company is required to issue Fromar 1,000,000 shares of its common stock. On April 27, 2018 the Company issued Fromar 1,000,000 shares of its common stock. On July 27, 2018 the Company issued Fromar an additional 1,000,000 shares of its common stock pursuant to the terms and conditions of the Fromar Note. With respect to the Convertible Notes, Mount Tam applied ASC 470, “Debt with Conversion and Other Options”, pursuant to which Mount Tam recognized and measured the Beneficial Conversion Feature (“BCF”) in the Convertible Notes at the commitment date by allocating a portion of

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the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature is calculated on the commitment date using the effective conversion price. The discount resulting from the BCF is amortized over the life of the Convertible Notes and is contained in financial expenses (income), net in the Company’s statements of consolidated comprehensive loss unless converted earlier.

The Company and Fromar also entered into a Security Agreement (the “Fromar Security Agreement”) pursuant to which the Company and Fromar agreed that all amounts, liabilities and obligations owed by the Company to Fromar (including, but not limited to, all amounts owed under the Fromar Note) are secured by a second priority security interest in all assets of the Company on the terms and conditions set forth in the Fromar Security Agreement.

Pursuant to the terms of the Fromar Note, if the Company issues capital stock or any security convertible into or exercisable for its capital stock in a transaction, the primary purpose of which is to raise capital (a “Financing”), Fromar may convert all or any portion of the outstanding principal amount and accrued and unpaid interest into the same securities issued by the Company in the Financing (the “Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Financing Securities paid by the other investors in the Financing. If the Company consummates a Qualified Financing (as hereinafter defined) then the outstanding principal amount and all accrued and unpaid interest shall automatically convert into the same securities issued to investors in the Qualified Financing (the “Qualified Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Qualified Financing Securities paid by the other investors in the Qualified Financing. A “Qualified Financing” means a Financing which results in gross proceeds to the Company, in one or a series of related transactions, of at least $2,000,000 (including the aggregate amount of indebtedness converted into equity securities in such Financing), in which either (i) the investor leading negotiations with the Company is a bona fide institutional investor or (ii) the investor leading negotiations with the Company is not a bona fide institutional investor but the Financing includes commercially reasonable customary terms and conditions for an equity financing of an early-stage biopharmaceutical company.

Effective upon a complete funding of the entire principal amount of $500,000, the Company agreed to issue to Fromar 1,000,000 shares of its common stock.  The Company agreed to issue to Fromar an additional 1,000,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Fromar Note, but on or before July 1, 2018, or (ii) received a binding term sheet or other similar binding agreement pertaining to a licensing transaction with a company that operates in the pharmaceutical and/or biotech industries that will provide for at least $500,000 in upfront payments to the Company on or before July 1, 2018, as well as milestones and royalties for TAM-01, TAM-03, or for any follow-on compounds of the Company (a “Licensing Transaction”) on or before July 1, 2018.  The Company agreed to issue to Fromar an additional 3,000,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Fromar Note, but on or before September 30, 2018, or (ii) received a binding term sheet or other similar binding agreement for a Licensing Transaction on or before September 30, 2018. As of December 31, 2018, the binding term clause requiring issuance of additional shares was waived by the note holder. The Company is not under obligation to issue any additional shares under this clause. On April 27, 2018 the Company issued 1,000,000 shares to the note holders as discussed above which were valued at $90,000 and was expensed out during the year ended December 31, 2018 as an amortization expense.  On July 27, 2018 the Company issued an additional 1,000,000 shares to the note holders as discussed above which were valued at $31,400 and was expensed out during the year ended December 31, 2018 as an amortization expense. In total, the debt discount on the convertible note was $246,400.  

For the nine months ended September 30, 2019 and 2018 the Company amortized the debt discount of $0 and $246,400 respectively.

For the three months ended September 30, 2019 and 2018 the Company amortized the debt discount of $0 and $87,255 respectively.

The foregoing descriptions of the Fromar Note and the Fromar Security Agreement do not purport to be complete and are qualified in their entirety by the terms and conditions of the agreements themselves. Copies of the

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Fromar Note and the Fromar Security Agreement are attached as Exhibits 10.1 and 10.2, respectively, to a Current Report on Form 8-K, filed with the Commission on April 12, 2018.

The Fromar Note and the securities of the Company into which the Fromar Note is convertible were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws. Fromar has represented to the Company that it is an accredited investor. No person received any underwriting discount or commission in connection with the issuance of the securities described herein.

Amendments to Existing Notes, New Promissory Note

On March 31, 2019, the Company entered into an amendment (the “First Note Amendment”) to that certain Convertible Promissory Note with Fromar Investments, LP originally dated March 5, 2018 and subsequently amended on September 24, 2018, on November 14, 2018, and again on December 31, 2018 (the “March 2018 Note”), whereby the maturity date of the March 2018 Note was extended to June 30, 2019. All other provisions of the March 2018 Note, as amended and as disclosed on the Company’s Current Report on Form 8-K filed with the Commission on April 12, 2018, remain in full force and effect.  

Also on March 31, 2019, the Company entered into an amendment (the “Second Note Amendment”) to that certain Amended and Restated Convertible Promissory Note with 0851229 BC, Ltd. originally dated June 13, 2016 and subsequently amended on March 5, 2018, and on September 24, 2018, and on November 14, 2018, and again on December 31, 2018 (the “June 2016 Note”), whereby the maturity date of the June 2016 Note was extended to June 30, 2019. All other provisions of the June 2016 Note, as amended and as disclosed on the Company’s Current Report on Form 8-K filed with the Commission on June 15, 2016, remain in full force and effect. 

As of December 31, 2018, the Company had principal outstanding on the Fromar Note of $500,000 and accrued interest of $30,055.

As of April 30, 2019, the Company had principal outstanding on the Fromar Note of $580,000 and accrued interest of $44,757.  The total outstanding principal and interest was converted into a Line of Credit agreement on May 10, 2019, effective as of May 1, 2019.

Since the fair value of the old debt was less than 10% of the present value of the remaining cash flows under the modified debt and amendment was not considered as substantive, the transaction was treated as a debt modification and reissuance of new debt instruments pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).

 Climate Change Investigation, Innovation and Investment Company, LLC (“CC3I”).

On September 20, 2018, the Company and CC3I entered into an arrangement whereby CC3I agreed to lend the Company $100,000 pursuant to the terms of a convertible promissory note (the “CC3I Note”).  The CC3I Note bears interest at a rate of 8.0% per annum and has a maturity date of May 18, 2019.  By agreement of the parties, the CC3I Note has an effective date of September 18, 2018 and bears interest from such date. The Manager of CC3I, James Farrell, is a director and shareholder of the Company.  Pursuant to the requirements of the Nevada Revised Statutes, the disinterested members of the Company’s board of directors approved the transaction with CC3I.  

The Company and CC3I also entered into a Security Agreement (the “CC3I Security Agreement”) pursuant to which the Company and CC3I agreed that all amounts, liabilities and obligations owed by the Company to CC3I (including, but not limited to, all amounts owed under the CC3I Note) are secured by security interest in all assets of the Company on the terms and conditions set forth in the CC3I Security Agreement.   The security interest granted to CC3I is subject to certain permitted security interests, specifically those interests previously granted to (i)

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0851229 BC Ltd. pursuant to an amended and restated security agreement dated as of June 14, 2016 (included as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on June 15, 2016) (the “BC Security Interest”) and (ii) Fromar Investments, LP pursuant to a security agreement dated as of March 5, 2018 (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 12, 2018) (the “Fromar Security Interest”).

Pursuant to the terms of the CC3I Note, if the Company issues capital stock or any security convertible into or exercisable for its capital stock in a transaction, the primary purpose of which is to raise capital (a “Financing”), CC3I may convert all or any portion of the outstanding principal amount and accrued and unpaid interest into the same securities issued by the Company in the Financing (the “Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Financing Securities paid by the other investors in the Financing. If the Company consummates a Qualified Financing (as hereinafter defined) then the outstanding principal amount and all accrued and unpaid interest shall automatically convert into the same securities issued to investors in the Qualified Financing (the “Qualified Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Qualified Financing Securities paid by the other investors in the Qualified Financing. A “Qualified Financing” means a Financing which results in gross proceeds to the Company, in one or a series of related transactions, of at least $2,000,000 (including the aggregate amount of indebtedness converted into equity securities in such Financing), in which either (i) the investor leading negotiations with the Company is a bona fide institutional investor or (ii) the investor leading negotiations with the Company is not a bona fide institutional investor but the Financing includes commercially reasonable customary terms and conditions for an equity financing of an early-stage biopharmaceutical company. 

Effective upon a complete funding of the entire principal amount of $100,000, the Company agreed to issue to CC3I 200,000 shares of its common stock, which were valued at the time of the Note at a fair market value of $5,400.  The Company agreed to issue to CC3I an additional 200,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Note, but on or before January 1, 2019, or (ii) received a binding term sheet or other similar binding agreement pertaining to a licensing transaction with a company that operates in the pharmaceutical and/or biotech industries that will provide for at least $500,000 in upfront payments to the Company on or before January 1, 2019, as well as milestones and royalties for TAM-01, TAM-3, or for any follow-on compounds of the Company (a “Licensing Transaction”) on or before January 1, 2019.  The Company agreed to issue to CC3I an additional 600,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Note, but on or before April 30, 2019, or (ii) received a binding term sheet or other similar binding agreement for a Licensing Transaction on or before April 30, 2019. As of December 31, 2018, the binding term clause requiring to issue additional shares was waived by the note holder. The Company is not under obligation to issue any additional shares under this clause.

On March 4, 2019, the Company and CC3I entered into an arrangement whereby CC3I will lend the Company $40,000 pursuant to the terms of a convertible promissory note (the “Note”).  The Note bears interest at a rate of 8.0% per annum and has a maturity date of August 31, 2019.  The Manager of CC3I, James Farrell, is a director and shareholder of the Company.  Pursuant to the requirements of the Nevada Revised Statutes, the disinterested members of the Company’s board of directors approved the transaction with CC3I.  

The Note is secured by that certain Security Agreement dated September 20, 2018 between the Company and the CC3I (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 26, 2018) (the “Security Agreement”) pursuant to which the Company and CC3I agreed that all amounts, liabilities and obligations owed by the Company to CC3I are secured by a security interest in all assets of the Company on the terms and conditions set forth in the Security Agreement.  The security interest granted to CC3I is subject to certain permitted security interests, specifically those interests previously granted to (i) 0851229 BC, Ltd. (“BC”) pursuant to an amended and restated security agreement dated as of June 14, 2016 (included as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on June 15, 2016) (the “BC Security Interest”) and (ii) Fromar Investments, LP (“Fromar”) pursuant to a security agreement dated as of March 5, 2018 (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 12, 2018) (the “Fromar Security Interest”).

Pursuant to the terms of the Note, if the Company issues capital stock or any security convertible into or exercisable for its capital stock in a transaction, the primary purpose of which is to raise capital (a “Financing”), CC3I may convert all or any portion of the outstanding principal amount and accrued and unpaid interest into the

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same securities issued by the Company in the Financing (the “Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Financing Securities paid by the other investors in the Financing. If the Company consummates a Qualified Financing (as hereinafter defined) then the outstanding principal amount and all accrued and unpaid interest shall automatically convert into the same securities issued to investors in the Qualified Financing (the “Qualified Financing Securities”) at a conversion price equal to eighty percent (80%) of the price per Qualified Financing Securities paid by the other investors in the Qualified Financing. A “Qualified Financing” means a Financing which results in gross proceeds to the Company, in one or a series of related transactions, of at least $2,000,000 (including the aggregate amount of indebtedness converted into equity securities in such Financing), in which either (i) the investor leading negotiations with the Company is a bona fide institutional investor or (ii) the investor leading negotiations with the Company is not a bona fide institutional investor but the Financing includes commercially reasonable customary terms and conditions for an equity financing of an early-stage biopharmaceutical company. In April 2019, CC3I waived the conversion rights on this note.

Effective upon a complete funding of the entire principal amount of $40,000, the Company agreed to issue to CC3I 80,000 shares of its common stock, which were issued in March 2019, which were valued at a fair market value of $1,520 which was recorded as beneficial conversion feature. The Company agreed to issue to CC3I an additional 80,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Note, but on or before August 31, 2019, or (ii) received a binding term sheet or other similar binding agreement pertaining to a licensing transaction with a company that operates in the pharmaceutical and/or biotech industries that will provide for at least $40,000 in upfront payments to the Company on or before August 31, 2019, as well as milestones and royalties for TAM-01, TAM-3, or for any follow-on compounds of the Company (a “Licensing Transaction”) on or before August 31, 2019.  The Company agreed to issue to CC3I an additional 60,000 shares of its common stock in the event that the Company has not either (i) closed a Financing resulting in funding of at least $1,000,000 to the Company after the date of the Note, but on or before September 30, 2019, or (ii) received a binding term sheet or other similar binding agreement for a Licensing Transaction on or before September 30, 2019. As of March 31, 2019, the binding term clause requiring to issue additional shares was waived by the note holder. The Company is not under obligation to issue any additional shares under this clause.

As of December 31, 2018, the Company had principal outstanding on the CC3I Note of $100,000 and accrued interest of $2,236.

As of April 30, 2019, the Company had principal outstanding on this Secured Note of $140,000 and accrued interest of $5,418.  The total outstanding principal and interest was converted into a Line of Credit agreement on May 10, 2019, effective as of May 1, 2019.

Since the fair value of the old debt was less than 10% of the present value of the remaining cash flows under the modified debt and amendment was not considered as substantive, the transaction was treated as a debt modification and reissuance of new debt instruments pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).

For the nine months ended September 30, 2019 and 2018, the Company amortized the debt discount of $14,537 and $6,640, respectively.

For the three months ended September 30, 2019 and 2018, the Company amortized the debt discount of $0 and $6,640 respectively.

Amendments to Existing Loan Agreements and Notes

On August 29, 2019, Mount Tam Biotechnologies, Inc., a Nevada corporation (the “Company”) entered into an amendment (the “First Note Amendment”) to that certain Line of Credit Agreement and related Promissory Note with Fromar Investments, LP, a Delaware limited partnership (“Fromar”), dated May 10, 2019 (collectively, the “Fromar Note”), whereby the maturity date of the Fromar Note was extended to October 31, 2019. All other provisions of the Fromar Note, as disclosed on the Company’s Current Report on Form 8-K filed with the Commission on May 16, 2019, remain in full force and effect.   

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Also on August 29, 2019, the Company entered into an amendment (the “Second Note Amendment”) to that certain Line of Credit Agreement and related Promissory Note with Climate Change Investigation, Innovation and Investment Company, LLC, a California limited liability company (“CC3I”), dated May 10, 2019 (collectively, the “CC3I Note”), whereby the maturity date of the CC3I Note was extended to October 31, 2019. All other provisions of the CC3I Note, as disclosed on the Company’s Current Report on Form 8-K filed with the Commission on May 16, 2019, remain in full force and effect. 

The Company will use the time period afforded to it by virtue of the First Note Amendment and the Second Note Amendment to explore strategic options.  Each of Fromar and CC3I has represented to the Company that if it is not fully satisfied with the Company’s progress made as of October 31, 2019, each intends to exercise its respective rights under the Fromar Note and the CC3I Note, respectively, including the foreclosure of the security interests granted to each of them in connection with the Fromar Note and the CC3I Note, respectively, as described on the Company’s Current Report on Form 8-K filed with the Commission on May 16, 2019.

The foregoing descriptions of the First Note Amendment and the Second Note Amendment do not purport to be complete and are qualified in their entirety by the terms and conditions of the agreements themselves. Copies of the First Note Amendment and the Second Note Amendment are attached to this Current Report on Form 8-K as Exhibits 10.1 and 10.2, respectively, and each is incorporated herein by reference. 

Note 5 – Capital Stock

Common Stock

The Company has authority to issue up to 200,000,000 shares, par value $0.0001 per share. The Majority of shareholders approved an increase in the authorized number of shares from 100,000,000 to 200,000,000 in May 2018, and from 200,000,000 to 500,000,000 in December 2018. As of September 30, 2019, there were 55,710,702 shares of the Company's common stock issued and outstanding.

Mount Tam has an agreement with The Buck Institute as further detailed in Note 7 to maintain a certain common stock equity interest in the Company. As of September 30, 2019 and December 31, 2018 the Company owed to the Buck Institute 4,000 and 0 shares respectively, as a result of the Share Exchange and subsequent issuances of common stock. For the nine months ended September 30, 2019 the Company needs to issue 4,000 shares which were treated as issuable for services and valued at $76.

During the year ended December 31, 2018, the Company issued 110,000 shares of common stock to The Buck Institute valued at $6,120.

During the year ended December 31, 2018, the Company issued 2,200,000 shares of common stock to the convertible note holders (Fromar Investments, LP and Climate Change Investigation, Innovation and Investment Company, LLC) valued at $126,800 as beneficial conversion feature.

Note 6 – Stock Options and Warrants

Stock Options

The Company's Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the "2016 Plan") on May 12, 2016.  A majority of the stockholders approved the 2016 Plan by written consent on June 27, 2016.  A copy of the 2016 Plan is included as Exhibit A to the Company's Information Statement filed with the SEC on July 11, 2016.

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A summary of option activity under the 2016 Plan as of September 30, 2019, and changes during the period then ended is presented below:

As of September 30, 2019, there was $490,108 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.74 years. Stock-based compensation expense related to vested options was $593,022 and $734,389 for the nine months ended September 30, 2019 and 2018, respectively. The Company did not issue any stock option during the nine months ended September 30, 2019 and 2018.

Warrants

On August 10, 2017, the Company entered into a Securities Purchase Agreement with two investors to purchase from the Company 4,038,462 shares of the Company's common stock for an aggregate purchase price of $525,000. The investors received a warrant to purchase an additional 504,808 shares at an exercise price of $0.15 per share, and a warrant to purchase an additional 504,808 shares at an exercise price of $0.20 per share. Both warrants have a call provision when the Company's common stock trades for five consecutive days at a price equal or greater than 500% of the exercise price of each warrant agreement. Both warrant agreements expire August 10, 2022.

Note 7 – Commitments & Contingencies

From time to time Mount Tam may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company's financial position or results of operations.

On August 17, 2014, the Company entered into an agreement with Buck Institute for licenses of certain patents held by Buck Institute (the "License Agreement"). In connection with this agreement, Mount Tam agreed to

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pay Buck Institute for research and development activities.

In addition, the Company issued to Buck Institute that number of shares equal to 5% of the Company's total outstanding shares. Buck Institute's equity interest in the Company will not be reduced below 5% of the total aggregate shares of Common Stock until such time that the Company has raised and received a total of $5,000,000 of investment in equity, debt, grants, contributions, or donations. As of September 30, 2019, the Company has issued 2,754,272 shares of the Company's Common Stock to Buck Institute and committed to issue 4,000 shares of the Company Common stock as additional shares.

As of September 30, 2019 none of the milestone events had yet been achieved.

Mount Tam also agreed to pay Buck Institute non-refundable and non-creditable royalties in the amount of 2% of the annual aggregate net sales. For each licensed product for which Mount Tam grants worldwide sublicense rights to a third party, Mount Tam agreed to pay Buck Institute 20% of all sub-license revenues. Please see discussion in Item 1, Business, Intellectual Property and Licenses, for further discussion of recent communication with the Buck Institute regarding our agreement with them.

The Company reimburses reimburse The Buck  Institute for 100% of the patent expenses for the Product Patents and 50% of the patent expenses for the Program Patents, incurred by Buck Institute as defined in the Licensing Agreement..

Since 2016, The Company has a Research Collaboration and License Agreement between the Company and The Buck Institute.

Pursuant to this the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months. The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.

Moreover, the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders.)

On March 29, 2016, the Company and Dr. Richard Marshak entered into an Amended and Restated Employment Agreement (the "Marshak Employment Agreement"), which amends and restates the terms of the Employment Agreement dated as of March 22, 2016 by and between the Company and Dr. Marshak, and pursuant to which Dr. Marshak (i) continued his position as the Chief Executive Officer of the Company and (ii) is entitled to be appointed to the Company's Board of Directors promptly thereafter. The initial term of Dr. Marshak's employment expires on March 22, 2019 and thereafter, the Marshak Employment Agreement may be renewed for additional one year terms upon the mutual agreement of the parties, subject in each case to the termination provisions described therein. The Company and Dr. Marshak are negotiating an extension of the employment agreement.

The Company will pay Dr. Marshak an aggregate base annual salary of $300,000, payable on a bi-weekly or semi-monthly basis. In addition, Dr. Marshak shall (i) be entitled to three (3) weeks of paid time off, (ii) have the right to participate in the Company's general employee benefit plan(s), (iii) have the right to participate in an

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executive bonus plan and receive other bonus payments as determined by the Company's Board of Directors and (iv) be entitled to be reimbursed for reasonable business expenses. Subject to the approval of the Board of Directors and the approval of certain other actions, Dr. Marshak received an option to purchase 4,200,000 shares of Common Stock which shall vest and be governed by the terms of the Plan and an award agreement to be entered into by and between the Company and Dr. Marshak. Upon the occurrence of a change of control transaction or the termination of Dr. Marshak's employment by the Company without cause or by Dr. Marshak for good reason, all unvested options or shares of restricted Common Stock shall immediately vest and either be exercisable or no longer subject to any restrictions, as applicable. In addition to other standard and customary payments receivable in connection with the termination of Dr. Marshak's employment, he shall be entitled to receive a severance payment equal to his base salary per month for the lesser of the number of months remaining in the current term of his employment or 18 months.

The Marshak Employment Agreement also prohibits Dr. Marshak from competing with the Company during the term of the Marshak Employment Agreement (with certain limited exceptions) and from soliciting or making known employees of the Company for a period of two (2) years following termination of the Marshak Employment Agreement. 

On May 2, 2016, the Company entered into an employment agreement with its current Chief Financial Officer, James Stapleton (the "Stapleton Employment Agreement"). The Stapleton Employment Agreement requires annual base salary payments of $175,000 per year. Further, Mr. Stapleton is entitled to a one-time bonus of $40,000 payable upon the Company's achievement of certain financial targets.  In addition, the Company granted Mr. Stapleton an option to purchase up to 750,000 shares of Common Stock. 

The Company has engaged Young America Capital, LLC as the Placement Agent for a current private placement transaction and is entitled to a fee of between 2.0% and 8.0% of the offering price of the common shares sold to investors they source.  In addition, the Placement Agent will be issued a warrant granting the Placement Agent the right to purchase shares of common stock equal to 8.0% of the number of shares of common stock issued by the Company in the aforementioned offering, which is still ongoing as of the date of this report. As of March 31, 2019, no transactions have taken place

Prior to December 1, 2018, Mount Tam rented office space at 7250 Redwood Blvd, Suite 300, Novato, CA 94945. The rental agreement expired November 30, 2018.

Effective December 1, 2018, Mount Tam rents office space at 106 Main Street, Suite 4E, Burlington, VT 05401. The rental agreement expires November 30, 2019.  The Company believes that its facilities are sufficient to meet its current needs and the Company will look for suitable additional space as and when needed.

Entry into Merger Agreement; Creation of Merger Subsidiary; Closing Conditions for Merger

On September 26, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) by and among the Company, Banner Midstream Corp., a Delaware corporation (“Banner”), and MTB Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), relating to a merger (the “Merger”) between Banner and Merger Sub. The closing of the Merger is conditioned on the satisfaction of certain conditions by the various parties, as discussed in more detail below.

In anticipation of the Agreement, on September 23, 2019, the Company formed Merger Sub.

Pursuant to the Agreement, the Merger Sub will be merged with and into Banner, with Banner being the surviving entity (the “Surviving Entity”). The outstanding shares of Banner prior to the Merger will be converted into the right to receive shares of the Company, on a one-share-for-one-share basis. The shares of Merger Sub owned by the Company will be converted into shares of the Surviving Entity, pursuant to which the Surviving Entity will be a wholly owned subsidiary of the Company. The directors and officers of Banner prior to the closing of the Merger will be the directors and officers of the Surviving Entity following the closing of the Merger.

Between execution of the Agreement and the closing of the Merger (the “Closing”), the Company and Banner plan to conduct due diligence on the other parties, and the parties must satisfy certain closing conditions

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spelled out in the Agreement. For example, the Company is required to amend its Articles of Incorporation (the “Amendment”) to effectuate a reverse stock split of its outstanding shares of common stock (the “Reverse Split”), pursuant to which the existing shareholders of Mount Tam will own approximately 10% of the outstanding stock of Mount Tam following the Merger, and the shareholders of Banner will receive shares equal to 90% of the outstanding stock of Mount Tam following the Merger. Additionally, in the Amendment, the Company will change its name (the “Name Change”). Pursuant to Nevada law, the Company will need to obtain shareholder approval to approve the Amendment.  The Company will need to make certain regulatory filings and receive required regulatory approval for the Amendment, the Reverse Split, and the Name Change.

The Company will provide additional information about its closing condition obligations, any filings, the Amendment, and other information relating to the Company’s actions taken in connection with the Merger and the Agreement.

Banner is required to take certain actions, including obtaining shareholder approval from the Banner shareholders for entering into the Merger, as well as completing a financing transaction with net proceeds to Banner of at least $1,000,000.  Banner must also provide audited financial statements as required by SEC reporting requirements, together with certain pro forma financial statements relating to the Merger.

Pursuant to the Agreement, if the Merger does not close for certain listed reasons, the Company or Banner may be required to pay a termination fee of $50,000 to the other party. Under other circumstances, the parties may terminate the Agreement with no payment of a termination fee.

The Company anticipates that immediately following the closing of the Merger, the Company and its secured debt holders will finalize an agreement whereby the debt holders will take possession of the Company’s biotechnology assets and will assume certain other Company obligations in lieu of payment by the Company of the amounts due in the secured debt instruments.

The foregoing description of certain terms of the Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Agreements itself. A copy of the Agreement is attached to this Current Report on Form 8-K as Exhibit 10.1, and is incorporated herein by reference.

See Note 10 – Subsequent Events, for additional information about this transaction.

Note 8 – Sale of Subsidiary

On October 18, 2018, the Company and Mount Tam Biotechnologies, Inc., a Delaware corporation, its wholly-owned subsidiary (“Mount Tam Delaware”), entered into a stock purchase agreement (the “SPA”) with ARJ Consulting, LLC, a New York limited liability company (the “Buyer”), pursuant to which the Company sold 100% of the capital stock in and of Mount Tam Delaware to the Buyer (the “Sale Transaction”). Prior to the Sale Transaction, the Company caused Mount Tam Delaware to transfer certain assets, including the Buck Institute License Agreement, that Mount Tam Delaware was holding to another wholly-owned subsidiary of the Company, Mount Tam Therapeutics, Inc., a newly formed Delaware corporation. At the time of the Sale Transaction Mount Tam Delaware possessed certain Net Operating Losses and tax credits. Pursuant to the terms of the SPA, the Buyer purchased Mount Tam for a purchase price of $410,000, the Company recorded $332,801 as other income after netting of expenses for the year ended December 31, 2018.

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Note 9 – Related Party Transactions

Pursuant to our agreements with the Buck Institute and with our Chairman of the Board Brian Kennedy (Professor and Principal Investigator at the Buck Institute), the Buck Institute is deemed a related party. Please see Note 7, Commitments and Contingencies, for discussion of our liabilities and obligations with the Buck Institute. During the three months ended September 30, 2019 and 2018, the Company expensed $0 and $506, respectively, for the services provided by Buck Institute, respectively. As of September 30, 2018 the Company owed to the Buck Institute 50,000 shares, as a result of the Share Exchange transaction and subsequent issuances of common stock. As of September 30, 2019 the Company owed to the Buck Institute 4,000 shares, as a result of the $40,000 Note with CC3I.  For the nine months ended September 30, 2018, the Company committed to issue 50,000 shares. For the nine months ended September 30, 2019, the Company committed to issue 4,000 shares, which were treated as issued for service and valued at $76.   For both September 30, 2019 and December 31, 2018, our accounts payable balance to Buck Institute was $609.

In the year 2016, Buck Institute billed the Company for office space and administration services (Note 7).

See Notes 4 for descriptions of the loans the Company received from 0851229 BC Ltd and Fromar, each of which may be deemed a related party as a result of owning more than 10% of the Company's common stock.  Also see Notes 4 and 10 for descriptions of the loans from Climate Change Investigation, Innovation and Investment Company, LLC, an entity controlled by James Farrell, a director of the Company.

Note 10 – Subsequent Events

Approval of Amendment to Articles of Incorporation for Reverse Stock Split, Name Change

On September 23, 2019, the Board of Directors of the Company, approved an amendment to the Company’s Articles of Incorporation, as amended to date (the “Amendment”), to effect a reverse stock split at a ratio of not less than 1:40 and not greater than 1:150, such that every holder of common stock of the Company (the “Common Stock”) shall receive not less than one share of Common Stock for every forty shares of Common Stock and not more than one share of Common Stock for every one hundred fifty shares of Common Stock held, at a ratio to be determined by the Board of Directors prior to implementation of the reverse stock split (the “Reverse Stock Split”), and to change the name of the Company to MTB, Inc. (the “Name Change”).  The Board of Directors recommended the Amendment to the shareholders of the Company for their approval.

Between October 4 and October 14, 2019, the Company received approval by written consent from the holders of 30,665,426 shares of the Company’s Common Stock which constituted a majority of the shares of the Corporation’s common stock that were issued and outstanding on October 3, 2019, the record date for the shareholder vote, to approve and adopt the Amendment, and to authorize the Board of Directors to determine the ratio for the Reverse Stock Split, and to implement the Reverse Stock Split and the Name Change.  The shareholders also ratified the entry by the Company into an Agreement and Plan of Merger (the “Agreement”) by and among the Company, Banner Midstream Corp., a Delaware corporation (“Banner”), and MTB Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), relating to a merger (the “Merger”) between Banner and Merger Sub, which was previously reported by the Company. The shareholders also granted the Board of Directors the authority to effectuate either the Name Change or the Reverse Stock Split, or both, and to not file the Amendment if the Board of Directors determines that either the Reverse Stock Split or the Name Change or both are not in the best interests of the Company or its stockholders.

As of the date of this Current Report, the Board had not filed the Articles of Amendment, as the Company was continuing its due diligence related to the Merger described above. The Name Change and the Reverse Stock Split are conditions to the closing of the Merger, and the Company anticipates that the filing of the Amendment will occur prior to the closing of the Merger. The Company will provide additional information relating to the filing of the Amendment and the closing of the Merger in subsequent reports.

Amendment to Line of Credit Agreements

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On November 1, 2019, an amendment to the Formar Line of Credit Agreement extended the maturity date to November 15, 2019, and increased the principal amount to $1,810,000.

On November 1, 2019, an amendment to the CC3I Line of Credit Agreement extended the maturity date to November 15, 2019, and increased the principal amount to $390,000.

The following discussion and analysis of the results of operations and financial condition of Mount Tam Biotechnologies, Inc. for the three and nine months ended September 30, 2019, should be read in conjunction with the financial statements of Mount Tam Biotechnologies, Inc., and the notes to those financial statements that are included elsewhere in this Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as Mount Tam Biotechnologies plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Business sections in the form 10-K filed on April 15, 2019. Words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.

We believe that our assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company's products and services and competition. 

The Share Exchange was treated as a reverse acquisition for financial accounting and reporting purposes.  As such, Mount Tam is treated as the acquirer for accounting and financial reporting purposes while the Company was treated as the acquired entity for accounting and financial reporting purposes.  Further, as a result, the historical financial statements that will be reflected in the Company’s future financial statements filed with the SEC will be those of Mount Tam, and the Company’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of Mount. Tam.  Accordingly, for clarity and continuity, we are presenting the historical financial statements for Mount Tam for the periods presented.

Overview

We are an early stage company primarily engaged in the development of bio-pharmaceuticals to treat a range of disease areas with high unmet need. Our lead program is focused on SLE, and we intend to optimize and bring to market a portfolio of leading products focused on improving the health and well-being of millions of people who have been affected by a range of serious disease conditions. To that end, we have formed a strategic partnership with the Buck Institute, an independent research facility focused on understanding the connection between aging and chronic disease. As part of the partnership, we have signed the License Agreement that includes many of the Buck Institute's intangible research and development assets. The initial focus of our research and development efforts will be a preclinical stage compound for the treatment of SLE, a serious form of lupus.

Plan of Operations

As shown in the accompanying condensed consolidated financial statements, the Company incurred net losses of $1,332,651 for the nine months ended September 30, 2019 and has an accumulated deficit of $10,310,244 as of September 30, 2019.

Liquidity and Capital Resources

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Our principal sources of cash have been proceeds from private placements of common stock and incurrence of debt. As of September 30, 2019, the Company had working capital deficit of $2,857,783 with cash balance of $9,094. Our cash decreased by $48,547 during the nine months ended September 30, 2019. 

During the second quarter of 2016 the Company entered into negotiations with the Buck Institute to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease.  On July 18, 2016, Mount Tam Biotechnologies, Inc. (the "Company"), entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") between the Company and The Buck Institute for Research on Aging ("The Buck Institute").

Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.

Additionally, pursuant to the Amendment, the parties agreed to settle past research funding amounts owed by the Company to The Buck Institute. The Company agreed to pay $40,000 within ten days of the execution of the Amendment, and The Buck Institute agreed that once this amount is paid, the Company will be deemed to be in full compliance with the terms of the License Agreement, including its payment obligations. On July 19, 2016, the Company made the $40,000 payment to The Buck Institute.  In addition to the $40,000 payment, on June 13, 2016, the Company paid to The Buck Institute $11,706 in connection with costs incurred to further the Company's intellectual property position under the License Agreement. Pursuant to the above amendment The Buck Institute waived $274,247 of payable by the Company. In addition, the Company issued to Buck Institute 1,009,016 shares of common stock, which was the number of shares required to equal to 5% of the Company's total outstanding shares. Pursuant to the original License Agreement, and the Amendment, The Buck Institute's equity interest in the Company will not be reduced below 5% of the total aggregate shares of common stock until such time that the Company has raised and received a total of $5,000,000 of investment in equity, debt, grants, contributions, or donations. As of September 30, 2019, the Company has issued 2,644,272 shares of the Company's common stock to The Buck Institute and committed to issue 4,000 shares of the Company's common stock as additional shares.

Moreover, the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders). The foregoing is qualified in its entirety to the terms of the Amendment, a copy of which was filed as Exhibit 99.1 to our Form 8-K filed on July 21, 2016.

Negative Operating Cash Flow

We reported negative cash flow from operations for the nine months ended September 30, 2019 and 2018. It is anticipated that we will continue to report negative operating cash flow in future periods, likely until one or more of our products are placed into production and released to our customers.

Our cash balance of $9,094 may not be sufficient to fund our operations for at least the next 12 months. Additionally, if we are unable to generate sufficient revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have historically financed our operations through private equity and debt financings. Recent economic turmoil and lack of liquidity in the debt capital markets together with high volatility in prices in the equity capital markets have severely and adversely affected capital raising opportunities. We do not have any commitments for financing at this time, and financing may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity financing in amounts sufficient to fund our operations, if necessary, we will be forced to suspend or curtail our operations. In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.

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Results of Operations  

For the three months ended September 30, 2019 compared with the three months ended September 30, 2019

Revenue

We had no revenues for the three months ended September 30, 2019 and 2018. We are in the research and development stage.

Operating Expenses

We incurred operating expenses of $417,609 and $172,384 during the three months ended September 30, 2019 and 2018, respectively. Our operating expenses included research and development expenses in the amount of $55,650 and $(103,959), and general and administrative expenses in the amount of $361,959 and $276,343 for three months ended September 30, 2019 and 2018, respectively.

The increase in general and administrative expenses are the result of higher legal fees related to debt negotiations/modifications, and the transaction detailed in the Subsequent Event footnote.

The overall increase in operating expenses was due to the credit balance from 2018 (mentioned above), and higher legal fees related to debt negotiations/modifications.

Other Expense

Other expense totaled $37,419 and $109,719 during the three months ended September 30, 2019, and 2018, respectively. The decrease is due to the decrease/elimination of amortization of debt discount associated with the previous convertible loans.

Other expenses included interest expense in the amount of $37,419 and $15,825 and amortization of debt discount in the amount of $0 and $93,894 for three months ended September 30, 2019 and 2018, respectively.  The increase in interest expense is related to higher levels of debt.

Net Loss

As a result of the foregoing, during the three months ended September 30, 2019 and 2018, we recorded a net loss of $455,028 and $282,103, respectively.

For the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018.

Revenue

We had no revenues for the nine months ended September 30, 2019 and 2018. We are in the research and development stage.

Operating Expenses

We incurred operating expenses of $1,233,830 and $1,442,197 during the nine months ended September 30, 2019 and 2018, respectively. Our operating expenses included research and development expenses in the amount of $164,552 and $407,498, and general and administrative expenses in the amount of $1,069,278 and $1,034,699 for

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Other Expense

Other expense totaled $98,821 and $315,683 during the nine months ended September 30, 2019, and 2018, respectively. The decrease is due to the decrease/elimination for amortization of debt discount due with the previous convertible loans.  Other expenses included interest expense in the amount of $84,458 and $37,298, and amortization of debt discount in the amount of $14,537 and $278,385 for nine months ended September 30, 2019 and 2018, respectively.  Interest expense increased related to a higher level of debt in 2019, compared to 2018. 

Net Loss

As a result of the foregoing, during the nine months ended September 30, 2019 and 2018, we recorded a net loss of $1,332,651 and $1,757,880 respectively.

Liquidity and Capital Resources  

We had cash and equivalents of $9,094 at September 30, 2019.

Operating Activities

During the nine months ended September 30, 2019, we used $518,802 of cash in operating activities, compared to $613,667 for the nine months ended September 30, 2018. Non-cash adjustments included $593,097 and $740,509 related to options and stock based compensation, $18,257 and $15,872 in amortization of prepaid expenses and net change in accounts payable and accrued liabilities of $188,916 and $118,261 during the nine months ended September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019 and 2018, the Company amortized debt discount of $14,537 and $278,385, respectively. Stock-based compensation expense for the nine months ended September 30, 2019 was $76, as 4,000 shares are required to be issued to The Buck. Stock-based compensation expense for the nine months ended September 30, 2018 was $6,120, as 50,000 shares were required to be issued to The Buck.

Financing Activities

Financing activities provided $470,254 to us during the nine months ended September 30, 2019 compared to $620,952 for the nine months ended September 30, 2018. We received $485,000 in net proceeds from loans for the nine months ended September 30, 2019 compared to $635,000 received during the nine months ended September 30, 2018.  

Sources of Liquidity and Capital

During the nine months ended September 30, 2019, we received proceeds from loans in the amount of $485,000.  During the nine months ended September 30, 2018, we received net proceeds loans in the amount of $635,000.

We reported negative cash flow from operations for the period ended September 30, 2019 and 2018. It is anticipated that we will continue to report negative operating cash flow in future periods, likely until one or more of our products are placed into production and released to our customers.

Our cash balance of $9,094 may not be sufficient to fund our operations for at least the next 12 months. Additionally, if we are unable to generate sufficient revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have historically financed our operations through private equity and debt

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financings. Recent economic turmoil and lack of liquidity in the debt capital markets together with volatility in the equity capital markets have severely and adversely affected capital raising opportunities. We do not have any commitments for financing at this time, and financing may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity financing in amounts sufficient to fund our operations, if necessary, we will be forced to suspend or curtail our operations. In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.

To the extent we raise additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders. The incurrence of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants that would restrict our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. Economic crisis and disruptions in the U.S. and global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business. The Company cannot provide any assurances that it will be able to raise the additional capital needed to fund its operations, or if the Company is able to raise such additional capital, that any such financing will be on terms which are beneficial to the existing shareholders.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, the Company evaluates its critical accounting policies and estimates. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company’s critical accounting policies and estimates are discussed on the footnote Note 2.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As a smaller reporting company, the Company is not required to provide this disclosure.

Evaluation of Disclosure Controls and Procedures.

We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer, have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.

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Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of September 30, 2019, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses.

We have identified the following factors that have led management to determine that material weaknesses exist in our internal control over financial reporting as of September 30, 2019:

These factors represent material weaknesses in our internal controls over financial reporting. Although we believe the possibility of errors in our financial statements is remote, until such time as we expand our staff with additional qualified personnel, we expect to continue to report material weaknesses in our internal control over financial reporting.

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Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

There have not been any material updates to our legal proceedings, as disclosed in our Annual Report on Form 10-K, as filed with the SEC on April 15, 2019.

As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on April 15, 2019 (the “2016 Form 10-K”).  The Risk Factors set forth in the 2018 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q.  Any of the risks described in the 2018 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made.  These are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

As previously disclosed in the Company’s Form 8-K filed on April 12, 2018, upon full funding of the amount underlying a convertible promissory note, the Company issued one million (1,000,000) shares of its common stock to Fromar Investments, LP. The Company did not receive proceeds from such issuance other than pursuant to the convertible note, a copy of which is included as Exhibit 10.1 to the Company’s Form 8-K filed on April 12, 2018.  Also as previously disclosed in the Company’s filings, due to the fact that the Company did not achieve certain milestones in a timely manner, on or about July 19, 2018, the Company issued an additional one million (1,000,000) shares of common stock to Fromar Investments, LP.  The Company did not receive proceeds from such issuance other than pursuant to the convertible note, a copy of which is included as Exhibit 10.1 to the Company’s Form 8-K filed on April 12, 2018.  Such securities were issued to the lender in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

Also, as previously disclosed in the Company’s Form 8-K filed on September 26, 2018, upon full funding of the amount underlying a convertible promissory note, the Company issued 200,000 shares of its common stock to Climate Change Investigation, Innovation and Investment Company, LLC. The Company did not receive proceeds from such issuance other than pursuant to the convertible note, a copy of which is included as Exhibit 10.1 to the Company’s Form 8-K filed on September 26, 2018.  Such securities were issued to the lender in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act.

As previously disclosed in the Company’s Form 8-K filed on March 7, 2019, upon full funding of the amount underlying a convertible promissory note, the Company issued eighty thousand (80,000) shares of its common stock to Climate Change Investigation, Innovation and Investment Company, LLC. The Company did not receive proceeds from such issuance other than pursuant to the convertible note, a copy of which is included as Exhibit 10.1 to the Company’s Form 8-K filed on March 7, 2019. Such securities were issued to the lender in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act.

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Our reliance upon Section 4(a)(2) of the Securities Act of 1933 was based in part upon the following factors: (a) the issuance of the securities was in connection with isolated private transactions which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the securities took place directly between the offeree and the Company.

None.

Not applicable.

None.

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†Filed herewith. 

+Furnished herewith.  In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. 

* Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections. 

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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