Notes To Interim Financial Statements
(Unaudited)
1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2016, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015 audited financial statements. The results of operations for the period ended September 30, 2016 are not necessarily indicative of the operating results for the full year.
2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. 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 becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
3 SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Companys management believes that these recent pronouncements will not have a material effect on the Companys financial statements.
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ACCUREXA INC.
Notes To Interim Financial Statements
(Unaudited)
Cash and Cash Equivalents
Cash equivalents comprise of certain highly liquid instruments with a maturity of three months or less when purchased.
Marketable Securities
All marketable securities are classified as available-for-sale since these instruments are readily marketable. These securities are carried at fair value, which is based on readily available market information.
4 PREPAID ASSETS
On January 12, 2015, the Company and the Lim Development Group (Consultant) entered into a consulting agreement (Agreement) under which the Consultant provides scientific advisory to the Company in the development, partnering and commercialization of the Microinjection Brain Catheter (a.k.a. BranchPoint device) that the Company exclusively licensed from the University of California San Francisco (UCSF) on September 16, 2014. As consideration for provided services, the Company issued a promissory note (Note) in the amount of $200,000 at an interest rate of 5.00% per annum to the Consultant. The principal amount of the Note is amortized on a straight-line basis over the 24-month term of the Agreement.
On February 18, 2015, the Company entered into a consulting agreement (Agreement) with the Capital Communications Group (Consultant) under which the Consultant assists the Company in its efforts to gain greater recognition and awareness among relevant investors in the public capital markets on a non-exclusive basis. In connection with the Agreement, the Company issued a four-year Warrant (Warrant) to the Consultant under which the Consultant is entitled to purchase from the Company up to 200,000 shares of the Companys Common Stock (Warrant Shares) at an exercise price of $0.50 per Share (Exercise Price). The Warrant is exercisable, in whole or in part, during the term commencing on the issuance date of the Warrant on February 18, 2015 and ending on February 18, 2019 (the Exercise Period). The 200,000 Warrant Shares are valued at $527,500 based on the Black-Scholes formula and are amortized on a straight-line basis over the 24-month term of the Agreement.
On August 11, 2015 (Effective Date), the Company entered into an exclusive license agreement (ACL License) with Accelerating Combination Therapies LLC (ACL) in regards to the exclusive licensing of the issued U.S. Patent No. 8,895,597 B2
Combination of Local Temozolomide with Local BCNU
(Patent Rights). Under the ACL License, the Company is required to pay ACL a license issue fee of 1,000,000 shares of the Companys common stock to be issued within 6 months after the Effective Date. The 1,000,000 shares of common stock are valued at $1.13 per share, equal to the publicly traded share price on the Effective Date, are capitalized in the amount of $1,130,000, and amortized over an expected patent life of 15 years.
5 FIXED ASSETS
The Company has purchased equipment to support the development of its prototype device which are capitalized in the amount of $134,113 as fixed assets on the Companys balance sheet. The equipment is amortized on a straight-line basis over 5 years.
9
ACCUREXA INC.
Notes To Interim Financial Statements
(Unaudited)
6 - CONVERTIBLE NOTES
On July 25, 2013, the Company entered into a secured convertible note (Note) under which the Company received $350,000 from the convertible note holder (Holder) and is obligated to pay to the Holder the full principal amount after 36 months from the date of the Note, plus an interest at the rate of 10.0% per year payable at the end of each year from the date of the Note. The Note was extended for 12 months on July 25, 2016. The Holder has the right to convert the Note, in whole or in part, into shares of common stock of the Company (Common Stock) at a fixed rate of $0.50 per share (the Conversion Price) at any time. The Company may prepay the Note in whole or in part at any time for cash on 15 business days prior written notice, subject to the right of the Holder to convert into shares of Common Stock of the Company prior to any prepayment. The Note agreement was filed on August 14, 2013 as an exhibit to Form 10-Q for the three months ended June 30, 2013.
On July 15, 2014, the Company entered into a secured convertible note (Note) under which the Company received $20,000 from the convertible note holder (Holder) and is obligated to pay to the Holder the full principal amount after 36 months from the date of the Note. The Holder has the right to convert the Note, in whole or in part, into shares of common stock of the Company (Common Stock) at a "Variable Conversion Price" of 50% multiplied by the Market Price (representing a discount rate of 50%). Market Price means the average of the Closing Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Company may prepay the Note in whole or in part at any time for cash on 15 business days prior written notice, subject to the right of the Holder to convert into shares of Common Stock of the Company prior to any prepayment. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $20,000. The aggregate beneficial conversion feature was accreted and charged to interest expense in the amount of $8,060 as of September 30, 2015, and will be amortized until July 15, 2017.
On January 12, 2015, the Company and the Lim Development Group (Consultant) entered into a consulting agreement (Agreement) under which the Consultant provides scientific advisory to the Company in the development, partnering and commercialization of the Microinjection Brain Catheter (a.k.a. BranchPoint device) that the Company exclusively licensed from the University of California San Francisco (UCSF) on September 16, 2014. The Consultant will also serve as a member of the Companys newly formed Scientific Advisory Board. The term of the Agreement shall be two years and may be extended by mutual agreement of both parties. As consideration for provided services during the term of the Agreement, the Consultant shall receive either a project fee or an hourly rate, either of which will be determined and agreed upon by both parties prior to commencement of any work or project. Under the Agreement, the Company also issued a promissory note (Note) in the amount of $200,000 and at an interest rate of 5.00% per annum to the Consultant. Under the Note, the Consultant shall have the right, exercisable at any time at the Consultants sole discretion, to convert all or a portion of the outstanding principal amount of and all accrued interest under the Note, in whole or in part, into shares of common stock of the Company (the Shares) at a conversion price of $0.20 per share. The Shares are issuable pursuant to Regulation D under the Securities Act of 1933, as amended, are to be exempt from registration by reason of Section 4(2) of the Securities Act of 1933, as amended (the Act), and are to bear an appropriate restrictive legend. A full description of the Agreement was filed as exhibit 10.1 and of the Note was filed as exhibit 10.2 to the Form 8-K as of January 13, 2015.
10
ACCUREXA INC.
Notes To Interim Financial Statements
(Unaudited)
7 CONVERTIBLE PREFERRED STOCK
On June 22, 2015, the Company closed a private placement of 2,250 shares of the Company's convertible preferred stock for gross proceeds to the Company of $2,250,000 and net proceeds of $1,993,500. The convertible preferred stock is convertible into shares of common stock of the Company at a conversion price of $1.25 per share. The Preferred Stock has no dividend rights or liquidation preference. If dividends are declared on the Common Stock, the holders of the Preferred Stock shall be entitled to participate in such dividends on an as-converted-to-common stock basis. The Company recorded a beneficial conversion feature of $1,980,000 based on the fair value of the common stock and the conversion rate as of the date of the offering. This amount was recorded as a deemed distribution during the period of the offering.
8 - WARRANTS
In connection with the private placement of 2,250 shares of the Company's convertible preferred stock on June 22, 2015, we issued to the investors warrants to purchase up to 1,800,000 shares of common stock. The warrants have an exercise price of $1.50 per share and are exercisable for 4 years. We also issued an aggregate of 162,000 warrants that were similar to the warrants issued to investors and are exercisable at $1.50 per share for 4 years, to our placement agent and its designees.
The following is a summary of the status of all of the Companys stock warrants as of September 30, 2016 and changes during the periods ended on that date:
|
|
|
|
|
Number
of Warrants
|
|
Weighted-Average
Exercise Price
|
Outstanding at January 1, 2016
|
2,162,000
|
|
$ 1.41
|
Granted
|
-
|
|
$ 0.00
|
Exercised
|
-
|
|
$ 0.00
|
Cancelled
|
-
|
|
$ 0.00
|
Outstanding at September 30, 2016
|
2,162,000
|
|
$ 1.41
|
Warrants exercisable at September 30, 2016
|
2,162,000
|
|
$ 1.41
|
9 - FORM S-1 REGISTRATION STATEMENT
On July 6, 2015, the Company filed a Form S-1 registration statement that relates to the offer and resale of up to 3,762,000 shares of the Companys common stock, par value $0.0001 per share, by the selling stockholders (Selling Stockholders) listed in the Form S-1 registration statement (Selling Stockholders), issuable to such stockholders upon the conversion of shares of the Companys preferred stock or exercise of an aggregate of 1,800,000 warrants which the Company sold to investors in a private placement, or exercise of an aggregate of 162,000 warrants which the Company issued to its placement agent. In that private placement the Company sold an aggregate of 2,250 shares of its Series A convertible preferred stock, par value $0.0001 per share (Preferred Stock) for gross proceeds to the Company of $2,250,000. Each share of the Preferred Stock is convertible into 800 shares of the Companys common stock (Common Stock) which results in an effective conversion price of $1.25 per share. The Preferred Stock has no dividend rights or liquidation preference. If dividends are declared on the Common Stock, the holders of the Preferred Stock shall be entitled to participate in such dividends on an as-converted-to-common stock basis. In addition, in the private placement the Company issued to the investors warrants
11
ACCUREXA INC.
Notes To Interim Financial Statements
(Unaudited)
(Investor Warrants) to purchase up to 1,800,000 shares of Common Stock. The Warrants have an exercise price of $1.50 per share and are exercisable through June 21, 2019. The shares of the Companys common stock issuable on exercise of the Investor Warrants are registered under the Companys Form S-1. H.C. Wainwright & Co., LLC (Placement Agent) acted as the exclusive placement agent for the placement of the Companys Preferred Stock and Investor Warrants. The Placement Agent purchased securities in the offering on the same terms and conditions as the other investors. In addition, the Placement Agent and its designees received an aggregate of 162,000 warrants to purchase the Companys common stock at a price of $1.50 per share through June 21, 2019 (Agent Warrants). The shares underlying the Agent Warrants are registered under the Companys Form S-1. The Company will not receive any proceeds from the sale of shares sold by the Selling Stockholders or from the conversion of Preferred Stock. However, the Company will receive proceeds of $1.50 per share upon the exercise of any Investor Warrants or Agent Warrants. The Companys Form S-1 registration statement became effective on August 10, 2015.
On August 11, 2015, the Selling Stockholders converted an aggregate of 375 convertible preferred stock into 300,000 shares of common stock that were issued by the Company to the Selling Stockholders.
On September 1, 2015, the Placement Agent converted an aggregate of 250 convertible preferred stock into 200,000 shares of common stock that were issued by the Company to the Placement Agent.
10 - SUBSEQUENT EVENTS
On October 17, 2016, we announced a collaboration with StemImmune to develop its stem cell-mediated immunotherapy for the treatment of cancer, such as brain cancer. StemImmune's immunotherapy uses the stealth anti-cancer payload carrying and tumor seeking capacities of a patient's own readily available (adult) stem cells to target cancer. The patient's immune system cannot recognize and react to the "Trojan Horse" stem cells, because they are the patient's own. To date, StemImmune has treated 25 cancer patients with its proprietary technology in a Phase 1 clinical trial that showed that its stem cell-mediated immunotherapy was safe and well-tolerated with no adverse events reported, and demonstrated potential anti-tumor activity which supports further investigation in clinical trials. All patients received treatment through a minimally invasive outpatient procedure.
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