NOTE 2 – MANAGEMENT’S PLANS
TO CONTINUE AS A GOING CONCERN
We have prepared our
unaudited condensed consolidated financial statements on the basis that we will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred losses from operations
since inception and have an accumulated deficit of $60 million as of September 30, 2020. We anticipate incurring additional losses
for the foreseeable future until such time, if ever, that we can generate significant sales from our therapeutic product candidates
which are currently in development or we enter into cash flow positive business development transactions.
To date, we have generated no sales or
revenues, have incurred significant losses and expect to incur significant additional losses as we advance our product candidates
through development. Consequently, our operations are subject to all the risks inherent in the establishment of a pre-revenue business
enterprise as well as those risks associated with a company engaged in the research and development of pharmaceutical compounds.
Our cash and cash equivalents and restricted
cash balances at September 30, 2020 were approximately $33,000, representing 100% of our total assets. We curtailed substantially
all operations in February 2018. Based on our current expected level of operating expenditures, and including approximately $250,000
that we raised in March 2020 and $500,000 that we raised in October 2020 (see Note 10), pursuant to the sale of our senior convertible
debentures, we expect to be able to fund our operations into the second quarter of 2021. We will require additional cash to fund
and continue our operations beyond that point. This period could be shortened if there are any unanticipated increases in planned
spending on development programs or other unforeseen events. We anticipate raising additional funds through collaborative arrangements,
licensing agreements, public or private sales of debt or equity securities, or some combination thereof. There is no assurance
that any such arrangement will be entered into or that financing will be available when needed in order to allow us to continue
our operations, or if available, on terms favorable or acceptable to us.
In the event additional financing is not obtained, we may pursue
cost cutting measures as well as explore the sale of assets to generate additional funds. If we are required to significantly reduce
operating expenses and delay, reduce the scope of, or eliminate any of our development programs or clinical trials, these events
could have a material adverse effect on: our business, results of operations, and financial condition. These factors raise substantial
doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we
be unable to continue as a going concern.
Our current cash level raises substantial
doubt about our ability to continue as a going concern past the second quarter of 2021. If we do not obtain additional funds by
such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will
lose their entire investment.
NOTE 3 – SUMMARY OF CRITICAL ACCOUNTING
POLICIES AND USE OF ESTIMATES
Basis of Presentation
The accompanying condensed consolidated
financial statements are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of
the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual
financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the information not misleading.
These interim consolidated financial statements
as of and for the three and nine months ended September 30, 2020 and 2019 are unaudited; however, in the opinion of management,
such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented. The results for the three and nine months ended
September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any
future period. All references to September 30, 2020 and 2019 in these footnotes are unaudited.
These unaudited condensed consolidated
financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended
December 31, 2019, included in the Company’s annual report on Form 10-K filed with the SEC on May 14, 2020.
The consolidated balance sheet as of December
31, 2019 has been derived from the audited consolidated financial statements at that date but do not include all disclosures required
by the accounting principles generally accepted in the United States of America. Certain items have been reclassified to conform
to the current period presentation.
Reverse Stock Split
On June 10, 2020, the Company’s Board
of Directors approved a one-for-thirty (1-for-30) reverse stock split of the Company’s common stock (“Reverse Stock
Split”). Pursuant to the Reverse Stock Split, the Company filed an amended and restated certificate of incorporation with
the Secretary of State of Delaware to effect the Reverse Stock Split effective as of 5:00 p.m. Eastern Time on June 26, 2020 (“Effective
Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders received one new share
of common stock for every thirty shares such shareholder held immediately prior to the Effective Time. The Reverse Stock Split
also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted
in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock
Split ratio. All share and per share data has been retroactively adjusted in the accompanying consolidated financial statements
and footnotes for all periods presented to reflect the effects of the June 26, 2020 amendment.
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
amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative
instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ
from those estimates.
Research and Development
Research and development costs are charged
to expense as incurred. We incurred research and development expenses of approximately $0.01 million and $0.01 million for the
three months ended September 30, 2020 and 2019, respectively. We incurred research and development expenses of approximately $0.03
million and $0.03 million for the nine months ended September 30, 2020 and 2019, respectively.
Cash Equivalents
For purposes of the statements of cash
flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate insurance limits. We have
not experienced any losses in our accounts. We did not have any cash equivalents at September 30, 2020 or December 31, 2019.
Restricted Cash
Restricted cash consists of funds held
in trust for the Company. The use of these funds is restricted to: (i) the payment of professional fees in connection with keeping
the Company’s filings current, and (ii) the payment of vendors associated with the issuance and trading of the Company’s
securities, such as transfer agent fees and fees payable to the OTC Markets Group and FINRA
Concentrations of Credit Risk
Financial instruments and related items,
which potentially subject the Company to concentrations of credit risk, consist of cash. The Company places its cash with credit
quality institutions. At times, such investments may exceed applicable government mandated insurance limits. Cash and restricted
cash was $0.03 million and $0.02 million at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020 and
December 31, 2019, there was no cash over the federally insured limit.
Loss per Share
Basic loss per share is calculated by dividing
net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.
Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive
in the computation of net loss per share for the periods in which we have a net loss.
As of September 30, 2020 and 2019, the
Company has the following potentially dilutive securities:
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Shares underlying options outstanding
|
|
|
225
|
|
|
|
394
|
|
Shares underlying warrants outstanding
|
|
|
2,980
|
|
|
|
3,211
|
|
Shares underlying convertible notes outstanding
|
|
|
528,659,354
|
|
|
|
1,807,302
|
|
Shares underlying convertible preferred stock outstanding
|
|
|
280,395
|
|
|
|
36,528
|
|
|
|
|
528,494,954
|
|
|
|
1,847,435
|
|
For the nine months ended September 30, 2019 the potentially dilutive shares have been excluded from the
weighted average shares outstanding as they would be anti-dilutive.
Diluted loss per share for the three months
ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 is calculated as follows:
|
|
Three months ended
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
Net income attributable to common shareholders
|
|
$
|
2,106
|
|
|
$
|
421
|
|
|
$
|
205
|
|
Income attributable to convertible debentures
|
|
|
(2,264
|
)
|
|
|
(959
|
)
|
|
|
(751
|
)
|
Expense attributable to convertible debentures
|
|
|
21
|
|
|
|
401
|
|
|
|
169
|
|
Diluted loss attributable to common shareholders
|
|
$
|
(137
|
)
|
|
$
|
(137
|
)
|
|
$
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
13,344,461
|
|
|
|
240,000
|
|
|
|
6,818,722
|
|
Dilutive convertible instruments
|
|
|
528,659,354
|
|
|
|
1,807,302
|
|
|
|
528,659,354
|
|
Diluted shares outstanding
|
|
|
542,003,815
|
|
|
|
2,047,302
|
|
|
|
535,478,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.00
|
)
|
Derivative Liability
The Company has financial instruments that
are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately
from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures
these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during
the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting
liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the
statement of operations.
Fair Value of Financial Instruments
Our short-term financial instruments, including
cash, accounts payable and other liabilities, consist primarily of instruments with maturities of three months or less when acquired.
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.
The derivative liability consists of our
convertible notes with a variable conversion feature. The Company uses the Black-Scholes option-pricing model to value its derivative
liability which incorporate the Company’s stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated
life.
Fair Value Measurements
The U.S. GAAP Valuation Hierarchy establishes
a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs
into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset
or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial
asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant
to the fair value measurement.
The Company has recorded a derivative liability
for its convertible notes with a variable conversion feature as of September 30, 2020. The tables below summarize the fair values
of our financial liabilities as of September 30, 2020 (in thousands):
|
|
Fair Value at
September 30,
|
|
|
Fair Value Measurement Using
|
|
|
|
2020
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
833
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
833
|
|
The reconciliation of the derivative liability
measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,785
|
|
|
$
|
2,134
|
|
Additions to derivative instruments
|
|
|
167
|
|
|
|
150
|
|
Reclassification to additional paid in capital upon conversion
|
|
|
(766
|
)
|
|
|
(166
|
)
|
Gain on change in fair value of derivative liability
|
|
|
(353
|
)
|
|
|
(640
|
)
|
Balance at end of period
|
|
$
|
833
|
|
|
$
|
1,478
|
|
Recent Accounting Pronouncements
With the exception of those discussed below,
there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial
Accounting Standards Board (FASB) during the nine months ended September 30, 2020 that are of significance or potential significance
to the Company.
In January 2017, the FASB issued ASU No.
2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”).
ASU No. 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. A public
business entity that is a SEC filer should adopt the amendments of ASU No. 2017-04 for its annual and interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The adoption of this standard did not have any impact on the Company’s
consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12,
“Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions
to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an
interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity
to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that
includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes
on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity
recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective
date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption
permitted. We are currently evaluating the impact of this guidance.
NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table contains additional information for the
periods reported (in thousands).
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
Common stock issued on conversion of notes payable and derivative liability
|
|
$
|
1,300
|
|
|
$
|
320
|
|
Debentures converted to common stock
|
|
|
933
|
|
|
|
204
|
|
Derivative liability extinguished upon conversion of notes payable
|
|
|
766
|
|
|
|
166
|
|
Debt discount for derivative liability issued
|
|
|
167
|
|
|
|
150
|
|
There was no cash paid for interest and
income taxes for the six months ended June 30, 2020 and 2019.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consist of the following
(in thousands):
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accrued compensation and benefits
|
|
$
|
1,326
|
|
|
$
|
1,326
|
|
Accrued research and development
|
|
|
266
|
|
|
|
233
|
|
Accrued other
|
|
|
348
|
|
|
|
307
|
|
Total accrued expenses
|
|
$
|
1,940
|
|
|
$
|
1,866
|
|
NOTE 6 – DERIVATIVE LIABILITY
We account for equity-linked financial
instruments, such as our convertible preferred stock, convertible debentures and our common stock warrants as either equity instruments
or derivative liabilities depending on the specific terms of the respective agreement. Equity-linked financial instruments are
accounted for as derivative liabilities, in accordance with ASC Topic 815 – Derivatives and Hedging, if the instrument allows
for cash settlement or issuance of a variable number of shares. We classify derivative liabilities on the balance sheet at fair
value, and changes in fair value during the periods presented in the statement of losses, which is revalued at each balance sheet
date subsequent to the initial issuance of the stock warrant.
We have issued convertible debentures which
contain a variable conversion feature, anti-dilution protection and other conversion price adjustment provisions. As a result,
the Company assessed its outstanding equity-linked financial instruments and concluded that the convertible notes are subject to
derivative accounting. The fair value of the conversion feature is classified as a liability in the financial statements, with
the change in fair value during the periods presented recorded in the statement of losses.
During the three months ended September
30, 2020 and 2019, we recorded gain of approximately $2.0 million and $1.0 million, respectively, related to the change in fair
value of the derivative liabilities during the periods. During the nine months ended September 30, 2020 and 2019, we recorded gain
of approximately $0.4 million and $0.6 million, respectively. For purpose of determining the fair market value of the derivative
liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuations
of the derivatives at September 30, 2020 are as follows:
Volatility
|
|
|
228
|
%
|
Expected term (years)
|
|
|
3 months
|
|
Risk-free interest rate
|
|
|
0.1
|
%
|
Dividend yield
|
|
|
None
|
|
As of September 30, 2020 and December 31,
2019, the derivative liability recognized in the financial statements was approximately $0.8 million and $1.8 million, respectively.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
Inspyr currently does not have any ongoing
leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.
There was no rent expense for the three
and nine months ended September 30, 2020 and 2019.
Legal Matters
The Company is subject at times to legal
proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements
may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial
position, results of operations or liquidity.
COVID-19 Uncertainty
On March 11, 2020, the World Health Organization
declared a pandemic related to the rapidly spreading coronavirus (COVID-19) outbreak, which has led to a global health emergency.
The extent of the public-health impact of the outbreak is currently unknown and rapidly evolving, and the related health crisis
could adversely affect the global economy, resulting in an economic downturn. Any disruption of the Company’s facilities
or those of our suppliers could likely adversely impact the Company’s operations. At this time, there is significant uncertainty
relating to the potential effect of the novel coronavirus on our business.
NOTE 8 – CAPITAL STOCK AND STOCKHOLDERS’ DEFICIT
Preferred Stock
As of September 30, 2020, there were outstanding
133.8 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, 290.4 shares of Series C Preferred Stock, 5,000
shares of Series D Preferred Stock and 5,000 shares of Series E Preferred Stock.
On May 2, 2020, we sold 5,000 shares of
Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of
$5,000. Each share of Series E Preferred Stock has stated value of $1.00. The Series E Preferred Stock is convertible, at any time
after the Original Issue Date at the option of the Holder into that number of shares of Common Stock (Subject to the limitations
set forth in Section 6(d) of the certificate of designation of the Series E Preferred Stock), determined by dividing the stated
value by the then in effect conversion price. As of the date hereof, the conversion price is $0.30 per share.
With respect to a vote of stockholders
to approve a reverse split of the Common Stock to occur no later than December 31, 2022 only, each share of Series E Preferred
Stock held by a holder, as such, is entitled to 100,000 votes. On any matter presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
each holder of outstanding shares of Series E Preferred Stock shall be entitled to cast the number of votes equal to the number
of whole shares of Common Stock into which the shares of Series E Preferred Stock held by such holder are convertible as of the
record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions
of the certificate of incorporation, holders of the Series E Preferred Stock shall vote together with the holders of Common Stock
as a single class.
During January 2019, we issued the 5,000
shares of Series D Convertible Preferred Stock for proceeds of $5,000.
Common Stock
During the nine months ended September
30, 2020, we issued a total of 39,867,275 shares of common stock, valued at $1,300,653, upon the conversion of $932,935 principal
amount of our convertible debentures. We recorded gain on conversion of debt of $240,356 and $398,323 during the three and nine
months ended September 30, 2020, respectively.
During the nine months ended September 30, 2019, we issued a
total of 87,249 shares of common stock, valued at $319,820, upon the conversion of $204,221 principal amount of our convertible
debentures. We recorded gain on conversion of debt of $50,281 during the nine months ended September 30, 2019.
Conversion and exercise price resets
As a result past equity financings and
conversions of debentures, the conversion prices of (i) our Series A Preferred Stock has been reduced to $397.50 per share as of
September 30, 2020, (ii) our Series B Preferred Stock has been reduced to $0.30 per share as of September 30, 2020, (iii) 200 shares
of our Series C preferred stock has been reduced to $15.00 per share as of September 30, 2020, (iv) 90.43418 shares of our Series
C Preferred Stock has been reduced to $7.50 per share as of September 30, 2020, and (v) our Series D Preferred stock has been reduced
to $3.75 per share as of September 30, 2020. The exercise prices of the outstanding warrants issued in conjunction with (i) the
Series B Preferred Stock have been reduced to $0.30 per share, (ii) 200 shares of Series C Preferred Stock have been reduced to
$15.00 per share, and (iii) 91.43418 shares of Series C preferred Stock have been reduced to $7.50 per share, respectively, as
of September 30, 2020.
NOTE 9 – CONVERTIBLE DEBENTURES AND NOTES
Extension of Outstanding Debentures
until December 31, 2020
Effective March 6, 2020, Sabby Healthcare
Master Fund, Ltd and Sabby Volatility Warrant Master Fund, Ltd. waived certain events of default under debentures and notes issued
in our December 2018 note offering, July 2018 debenture offering and September 2017 debenture offering (collectively, the “Debenture
Offerings”) and extended the maturity date of such debentures until July 16, 2020. Effective July 16, 2020 the maturity date
of all of the debentures was extended to December 31, 2020.
March 2020 Debentures
On March 6, 2020, the Company sold an aggregate
of $250,000 of senior convertible debentures (the “March 2020 Debentures”) for cash to existing accredited institutional
investors of the Company (the “March 2020 Offering”). The March 2020 Debentures issued (i) are non-interest bearing,
(ii) have a maturity date of July 16, 2020 and (iii) are convertible into shares of common stock of the Company at the election
of the Investor at any time, subject to a beneficial ownership limitation of 9.99%. The March Debentures have a conversion price
equal to the lesser of (i) $9.90 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately
preceding a conversion date and (b) the volume weighted average price on a conversion date. Effective July 16, 2020 the maturity
date of the debentures was extended to December 31, 2020.
The March 2020 Debentures also contain
provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The investors will
also have the right to participate in subsequent rights offerings and pro rata distributions. Additionally, the March 2020 Debentures
contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion
price until such time that the March 2020 Debentures are no longer outstanding. Additionally, the Company has the option to redeem
some or all of the March 2020 Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by
the Company as more fully described in the debentures.
Furthermore, without the approval of the
debenture holders holding at least 67% of the then outstanding principal amount of the March Debentures, the Company may not (i)
amend its charter documents in any manner that adversely affects the rights of any investor, (ii) repay or repurchase or acquire
shares of its common stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions
on any equity securities of the Company.
We recorded debt discount of $167,080 related to the fair value of the derivative liability associated
with the debentures at the date of issuance. This discount has been fully amortized to interest expense at September 30, 2020.
November 2019 Debentures
Sabby Volatility Warrant Master Fund, Ltd.
has paid certain of our accounts payable in the amount of $26,235. We issued $26,235 in new debentures with substantially the same
terms as those issued in our Debenture Offerings. The debentures were issued in November 2019. The debentures originally matured
November 20, 2020. The maturity date of the debentures was extended to December 31, 2020.
October 2019 Debentures
Effective September 30 2019, Sabby Healthcare
Master Fund, Ltd and Sabby Volatility Warrant Master Fund, Ltd. waived certain events of default under debentures and notes issued
in our Debenture Offerings and extended the maturity date of such debentures until March 31, 2020 in exchange for the issuance
of $96,000 in new debentures with substantially the same terms as those issued in our Debenture Offerings. The debentures were
issued in October 2019. The debentures originally matured on October 1, 2020. The maturity date of these debentures was extended
to December 31, 2020.
July 2019 Debentures
On July 16, 2019, we entered into securities
purchase agreements with certain institutional investors. Pursuant to the securities purchase agreement, we issued an aggregate
of $154,000 of senior convertible debentures (the “July 2019 Debentures”) in exchange for the extension of the maturity
date of our December 2018 convertible notes and certain of our July 2018 and September 2017 convertible debentures, and the waiver
of certain default provisions of our July 2018 and September 2017 convertible debentures. We charged $154,000 to finance cost at
the date of issuance.
The July 2019 Debentures (i) are non-interest
bearing, (ii) have a maturity date one (1) year from the date of issuance and (iii) are convertible into shares of our common stock
at the election of the investor at any time, subject to a beneficial ownership limitation of 4.99% which may be increased to 9.99%
by the investor upon 61 days’ notice. The July 2019 Debentures have a conversion price equal to the lesser of (i) $247.50
and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date
and (b) the volume weighted average price on a conversion date. The July 2019 Debentures also contain provisions providing for
an adjustment in the event of stock splits or dividends, and fundamental transactions. The investors will also have the right to
participate in subsequent rights offerings and pro rata distributions. Additionally, the July 2019 Debentures contain anti-dilution
protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such
time that the July 2019 Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of
the July 2019 Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as
more fully described in the July 2019 Debentures. Effective July 16, 2020 the maturity date of the debentures was extended to December
31, 2020.
Furthermore, without the approval of the
Investors holding at least 67% of the then outstanding principal amount of the July 2019 Debentures, the Company may not (i) amend
its charter documents in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares
of its Common Stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any
equity securities of the Company. The Company is also obligated under the Securities Purchase Agreement to pay investors, as partial
liquidated damages, a fee of 2.0% of each Investor’s initial principal amount of such Investor’s July 2019 Debenture
in cash upon our failure to have current public information available beginning six (6) months after the issuance date of the Debentures.
December 2018 Debentures
On December 13, 2018 we issued an aggregate
of $25,000 in convertible promissory notes (“Notes”) for cash proceeds of $25,000. The Notes will mature on the earlier
of (i) June 30, 2019 or (ii) such time as we raise capital in exchange for the sale of securities (“Maturity Date”)
and bear interest at 10% per year, payable on the Maturity Date. Pursuant to the terms of the Notes, the Notes may be converted
into shares of common stock upon an Event of Default (as such term is defined in the Notes) or upon the Maturity Date at the election
of the holder at a price per share equal to 75% of the lowest trade price of our common stock on the trading day immediately prior
to the date such exchange is exercised by the holder. The maturity date of the debentures has been extended to July 16, 2020. Effective
July 16, 2020 the maturity date of the debentures was extended to December 31, 2020.
July 2018 Debentures
On July 3, 2018, we entered into securities
purchase agreements with certain institutional investors. Pursuant to the securities purchase agreement, we sold an aggregate of
$515,000 of senior convertible debentures (“July 2018 Debentures”) consisting of $500,000 in cash and the cancellation
of $15,000 of obligations of the Company. Pursuant to the terms of the securities purchase agreement, we issued $515,000 in principal
amount of July 2018 Debentures. The July 2018 Debentures have substantially the same terms as the July 2019 Debentures. Effective
July 16, 2020 the maturity date of the debentures was extended to December 31, 2020.
September 2017 Debentures
On September 12, 2017 we entered into an
exchange agreement (“Exchange Agreement”) with certain holders of our Series A 0% Convertible Preferred Stock (“Series
A Shares”) and Series B 0% Convertible Preferred Stock (“Series B Shares”). Pursuant to the terms of the Exchange
Agreement, we issued to the investors approximately $2.5 million in principal amount of senior convertible debentures (the “September
2017 Debentures”) in exchange for 1,614.8125 Series A Shares with a stated value of approximately $1.6 million and 890 Series
B Shares with a stated value of approximately $0.9 million.
On September 12, 2017, we sold an aggregate
of $320,000 of our September 2017 Debentures. The sale consisted of $250,000 in cash and the cancellation of $70,000 of obligations
of the Company.
The September 2017 Debentures have substantially
the same terms as the July 2019 Debentures. The maturity date of the September 2017 Debentures has been extended to December 31,
2020.
As a result of a buy-in failure to deliver
certain shares pursuant to a debenture conversion, the Company incurred penalties of $24,551, as provided for in the debenture;
such amount reduced the gain on our conversion of debt during the nine months ended September 30, 2020.
NOTE 10 – SUBSEQUENT EVENTS
Issuance of Common Stock upon Conversion of Debentures
The Company issued 44,509,343 shares of common stock pursuant
to the conversion of $124,923 of our outstanding debentures.
Termination of License Agreement
On October 5, 2020, the Company entered
into an agreement with Ridgeway Therapeutics, Inc. (“Termination Agreement”) whereby the parties terminated the licensing
agreement previously entered into on August 3, 2018 (“Licensing Agreement”), whereby the Company had previously licensed
certain technologies related to targeting adenosine receptor antagonists for the treatment of cancer (the “Licensed Assets”).
As a result of the Termination Agreement, the Company reacquired full ownership and worldwide rights to all of the Licensed Assets
as well as any improvements made thereto.
In exchange for entering into the Termination
Agreement, the Company issued to Ridgeway: (i) sixty-five million shares (“Common Shares”) of the Company’s common
stock, (“Common Stock”), and (ii) 8,000 shares of Series F 0% Convertible Preferred Stock (“Series F Preferred
Stock”). Additionally, we have agreed to pay certain expenses and costs of Ridgeway’s aggregating approximately $25,000.
The Company has filed a certificate of
designation (“COD”) with the Secretary of State of the State of Delaware that contains the rights, preferences, and
privileges of the Series F Preferred Stock. Pursuant to the COD, each share of Series F Preferred Stock has a stated value of $10.00
per share and is convertible into Common Stock at any time at the election of the holder. In the aggregate, all of the Series F
Preferred Stock issued to Ridgeway is convertible into such number of shares of Common Stock equal to eighty percent (80%) of the
issued and outstanding shares of Common Stock, post-conversion, on the conversion date (taking into effect any forward or reverse
stock splits or consolidations). The Series F Preferred Stock votes on an as converted to common stock basis. Additionally, upon
the Company’s outstanding Convertible Debentures (as such term is defined in the COD) being terminated, converted, or otherwise
extinguished, the Series F Preferred Stock will automatically convert into Common Stock.
Pursuant to the Termination Agreement,
in the event that the Company is unable to secure equity financing resulting in aggregate gross proceeds to the Company of at least
$5,000,000 by October 5, 2023, or in the event that the Company cases its operations, then the Termination Agreement will be deemed
terminated and the Licensing Agreement will be reinstated in exchange for the return of the Common Shares and Series F Preferred
Stock.
As a result of the issuance of the Common
Shares and Series F Preferred Stock, Ridgeway Therapeutics became the owner of approximately 54.14% of the Company’s issued
and outstanding Common Stock. Furthermore, by virtue of the issuance of the Series F Preferred Stock, Ridgeway will vote on an
as converted to common stock basis which shall be equal to eighty percent (80%) of the issued and outstanding Common Stock post-conversion.
Accordingly, the board of directors of the Company has determined that a change in control of the registrant has occurred. The
Company did not have a prior relationship with Ridgeway, or any of its principals, except pursuant to the terms contained in the
Termination Agreement and its previous relationship under the Licensing Agreement.
Sale of Convertible Debentures
On October 23, 2020, the Company sold an
aggregate of $600,000 of senior convertible debentures (“Debentures”) for (i) $500,000 in cash and (ii) $100,000 in
cancellation of outstanding indebtedness to existing accredited and institutional investors (the “Investors”) of the
Company.
The Debentures (i) are non-interest bearing,
(ii) have a maturity date of October 23, 2021, (iii) are convertible into shares of common stock (“Common Stock”) of
the Company at the election of the Investors at any time, subject to a beneficial ownership limitation of 9.99%, and (iv) have
a conversion price equal to the lesser of $0.02 and 85% of the lesser of (a) the volume weighted average price on the trading day
immediately preceding a conversion date and (b) the volume weighted average price on a conversion date.
The Debentures also contain provisions
providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Investors also have the
right to participate in subsequent rights offerings and pro rata distributions. Additionally, the Debentures contain anti-dilution
protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such
time that the Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of the Debentures
for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as more fully described in
the Debentures.
Without the approval of the Debenture holders
holding at least 67% of the then outstanding principal amount of the Debentures, the Company may not (i) amend its charter documents
in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares of its Common Stock,
(iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any equity securities
of the Company.
The securities offered have not been registered
under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements. This current report shall not constitute an offer to sell or the solicitation of an offer
to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any such state.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking
statements regarding our business development plans, pre-clinical and clinical studies, regulatory reviews, timing, strategies,
expectations, anticipated expense levels, business prospects and positioning with respect to market, demographic and pricing
trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and
changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies
or predictions. These forward-looking statements are based on a number of assumptions and currently available information and
are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under “Special Note Regarding Forward-Looking
Statements” and under “Risk Factors” and elsewhere in this quarterly report. The following discussion should
be read in conjunction with Part I, Item 1 of this Quarterly Report as well as the financial statements and related notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on May 14, 2020.
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided
in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial
condition, and cash flows. MD&A is organized as follows:
|
●
|
Company
Overview - Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.
|
|
●
|
Critical
Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated
in our reported financial results and forecasts.
|
|
●
|
Results
of Operations - Analysis of our financial results comparing the three and nine months ended September 30, 2020 to the comparable
periods of 2019.
|
|
●
|
Liquidity
and Capital Resources - Liquidity discussion of our financial condition and potential sources of liquidity.
|
Company
Overview
Business
Inspyr Therapeutics, Inc is a pharmaceutical
company focused on the research and development of novel targeted precision therapeutics for the treatment of cancer. Our approach
utilizes our proprietary delivery technology to better enhance immuno-modulation for improved therapeutic outcomes. Our potential
first-in-class immune-oncology lead asset, RT-AR001, an adenosine receptor antagonist, is differentiated by its novel microparticle
formulation that allows for better tumor infilitration and enhanced outcomes when administered intra-tumorally. Our patented portfolio
of adenosine receptor antagonists provides flexibility to optimize treatment based on the specific adenosine targets found in each
type of cancer.
Adenosine
Receptor Modulators
The adenosine receptor modulators include A2A, A2B
and dual A2A/A2B antagonists, that have broad development applicability including indications within immuno-oncology.
Very high concentrations of adenosine are produced in the tumor microenvironment which prevents the host’s own immune cells
from attacking the tumor. Adenosine receptor antagonists as single-agents and in combination with other existing immuno-oncology
agents may overcome this immunosuppression, and boost the host immune response leading to enhanced anti-tumor activity as well
as inhibition of metastasis. Preclinical data has shown effects with our drug candidates in animal models utilizing a novel platform
delivery system. While we believe that the data from our nonclinical studies appear encouraging, the outcome of our ongoing or
future studies may ultimately be unsuccessful
Inspyr
/ Ridgeway Licensing Agreement
Pursuant to our recent termination of license
with Ridgeway Therapeutics, Inc., we reacquired the rights to certain intellectual property, discussed above, and are currently
focusing on a pipeline of small molecule adenosine receptor modulators. In October 2020, pursuant to the cancellation of a license
agreement whereby we previously licensed US Patent 9,493,118, we reacquired the exclusive right to such patent that covers both
A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be to: (i) further
characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2A, A2B
and dual A2A/A2B antagonists, leading to selection of a clinical candidate or candidates for an Investigative
New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2A, A2B
and dual A2A/A2B antagonists for further development.
Our ability to execute the business plan
is contingent upon our ability to raise the necessary funds. During March 2020, we sold approximately $250,000 of debt securities
and in October 2020, we sold $500,000 of debt securities for cash. We are currently using such funds to maintain our SEC reporting
requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and to retain consultants and
other personnel in preparation for an IND filing related to our unique delivery platform and portfolio of adenosine A2R
antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business
plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential
development partners and/or acquirors.
Pre-Revenue
We
are a research and development company that has not achieved profitability, and has no product revenues or goods or services that
generate cash. Additionally, we have no approved products for sale.
Recent
Developments
|
●
|
On
October 5, 2020, in exchange for the issuance of (i) 65,000,000 shares of Common Stock and (ii) 8,000 shares of Series F 0%
Convertible Preferred Stock, we entered into an agreement to terminate an outstanding license agreement with Ridgeway Therapeutics,
Inc. whereby we had previously licensed certain immune-oncology delivery technologies for the treatment of cancer to Ridgeway
Therapeutics (“License Termination”). As a result of the License Termination, the Company announced on October
8, 2020 that it would be refocusing its efforts on a novel-immuno-oncology delivery technology targeting adenosine receptor
antagonists for the treatment of cancer.
|
|
|
|
|
●
|
On
October 6, 2020, our stockholders approved an increase in our authorized shares of Common Stock from one hundred fifty
million (150,000,000) to one billion (1,000,000,000) shares, as well as authorizing a reverse stock split of our Common Stock
at the discretion of the Board of not less than 1-for-2 and not greater than 1-for-200 at any time prior to October 5,
2021.
|
|
|
|
|
●
|
On
October 23, 2020, we issued $600,000 in senior convertible debentures in exchange for $500,000 in cash and the cancellation
of $100,000 in obligations.
|
Product
Development of Adenosine Receptor Modulators
As a result of the License Termination,
the Company has refocused its business plan on the research and development of RT-AR001 and its other proprietary assets.
Adenosine is an extracellular signalling
molecule that regulates multiple aspects of tissue function and specifically plays a role in immunity and inflammation. High levels
of adenosine in the tumor microenvironment are produced in response to hypoxia and ischemia that occur in and around the site of
the tumor. In turn, adenosine signalling, mediated through the A2A and A2B receptors, suppresses the host
immune response to the tumor cells.
As such, our portfolio of adenosine receptor
antagonists have broad applicability as potential immuno-oncology (IO) therapeutic agents in multiple solid tumor types both as
a single agent and in combination with other IO agents, in addition to traditional cytotoxic chemotherapy. We are actively seeking
licensing opportunities and/or partners to further develop our unique platform delivery system of A2B and dual A2A/A2B
receptor antagonists. Our current product development plan for adenosine receptor antagonists contemplates the following
major initiatives, subject to the Company receiving sufficient funds:
|
●
|
Continue development of anti-cancer agents with partner company, Ridgeway Therapeutics, Inc.
|
|
|
|
|
●
|
Further characterization of our
platform delivery system and existing agents toward IND enabling studies.
|
|
|
|
|
●
|
Support ongoing licensing / partnership activities.
|
|
|
|
|
●
|
Conduct IND enabling studies.
|
|
|
|
|
●
|
Conduct preclinical and clinical studies with our platform delivery system and one or more of the adenosine A2 receptor antagonists.
|
Financial
To date, we have devoted substantially
all of our efforts and financial resources to the development of our proposed drug candidates. We have not received FDA approval
to market, distribute or sell any products. We have recently begun working on developing IND approved studies for our adenosine
receptor technology platform.
Since
our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the
private and public sales of our equity securities. We have never been profitable and as of September 30, 2020 we had an accumulated
deficit of approximately $60 million. We expect to continue to incur significant operating losses for the foreseeable future as
we continue the development of our product candidates and advance them through clinical trials.
Our
cash and restricted cash balances at September 30, 2020 was approximately $33,000 representing 100% of total assets. In October
2020, we completed a private placement of $500,000 in cash of our debt securities. Based on our current expected level of operating
expenditures and current cash balance as of the date of this report, we expect to be able to fund our operations into the second
quarter of 2021. This period could be shortened if there are any significant increases in spending that were not anticipated or
other unforeseen events.
We
anticipate raising additional cash through the private or public sales of equity or debt securities, collaborative arrangements,
licensing agreements or a combination thereof, to continue to fund our operations and the development of our product candidates.
There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when
needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient
funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing pre-clinical studies and potential
clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding
from any source.
Going
Concern
Our
auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the
date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year
unless we raised additional funds. During February of 2018, we curtailed our operations due to our lack of cash, but upon the
cancellation of the Ridgeway license, we are resuming preclinical development. Notwithstanding our recent financing in March 2020
whereby we raised $250,000, and October 2020, whereby we raised $500,000, our current cash level raises substantial doubt about
our ability to continue as a going concern. If we do not obtain additional funds, we may no longer be able to continue as a going
concern and will cease operation which means that our shareholders will lose their entire investment.
Critical
Accounting Policies and Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make significant judgments and estimates 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 expenses during the reporting
period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes
to be reasonable based upon information presently available. Actual results could differ from those estimates under different
assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates
previously disclosed in our 2019 Annual Report on Form 10-K.
Result
of Operations
Three
Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
Our
results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future.
We did not have revenue during the three months ended September 30, 2020 and 2019, and we do not anticipate generating any revenues
during 2020. Net income for the three months ending September 30, 2020 and 2019 was approximately $2.1 million and $0.4 million,
respectively, resulting from the operational activities described below.
Operating
Expenses
Operating
expense totaled approximately $0.14 million and $0.14 million during the three months ended September 30, 2020 and 2019, respectively.
Operating expenses consist of the following factors.
|
|
Three months ended
September 30
|
|
Change in 2020 versus
2019
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
|
(amount in thousands)
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
126
|
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
$
|
137
|
|
|
$
|
137
|
|
|
$
|
-
|
|
|
|
-
|
|
Research
and Development Expenses
Research
and development expenses totaled approximately $0.01 million and $0.01 million for the three months ended September 30, 2020 and
2019, respectively.
Our
research and development expenses currently consist of storage costs for our therapeutic agents.
General
and Administrative
General
and administrative expenses totaled approximately $0.13 million and $0.13 million for the three months ended September 30, 2020
and 2019, respectively.
Our
general and administrative expenses currently consist primarily of expenditures related to compensation, legal, accounting and
tax, other professional services, and general operating expenses.
Other
Income (Expense)
Other
income (expense) totaled approximately $2.2 million and $0.6 million of income for the three months ended September 30, 2020 and
2019, respectively.
|
|
Three Months Ended
September 30,
|
|
Change in 2020 Versus
2019
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
|
(amount in thousands)
|
|
|
|
|
Gain on change in fair value of derivative liability
|
|
$
|
2,024
|
|
|
$
|
959
|
|
|
$
|
1,065
|
|
|
|
111
|
%
|
Gain on conversion of debt
|
|
|
240
|
|
|
|
-
|
|
|
|
240
|
|
|
|
100
|
%
|
Interest (expense), net
|
|
|
(21
|
)
|
|
|
(401
|
)
|
|
|
380
|
|
|
|
95
|
%
|
Total other income (expense)
|
|
$
|
2,243
|
|
|
$
|
558
|
|
|
$
|
1,685
|
|
|
|
302
|
%
|
Gain
on change in fair value of derivative liability
As
a result of a change in the fair value of our derivative liability, we recorded income of $2.0 million and $1.0 million during
the three months ended September 30, 2020 and 2019, respectively. The change in the fair value of our derivative liability was
the result of our convertible debentures and notes issued in September 2017, July 2018, December 2018, July 2019, October 2019,
November 2019 and March 2020, where we issued convertible notes with variable conversion rates. Refer to Note 6 in our Financial
Statements for further discussion on our derivative liability.
Gain
on conversion of debt
We
recorded gain of $0.2 million on conversion of debentures during the three months ended September 30, 2020. We had no conversion
of debt during the three months ended September 30, 2019. Gain on conversion of debt results from the difference between the fair
value of common stock issued upon conversion and the carrying amount of the debt converted.
Interest
income (expense)
We had net interest expense of $0.02 million in the three months
ended September 30, 2020 compared to expense of $0.4 million for the three months ended September 30, 2019. The decrease of $0.38
million was attributable to a decrease in the cost associated with derivative instruments issued with a value in excess of proceeds
received.
Nine
Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Our
results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future.
We did not have revenue during the nine months ended September 30, 2020 and 2019, and we do not anticipate generating any revenues
during 2020. Net income for the nine months ending September 30, 2020 was approximately $0.2 million and net loss for the nine
months ended September 30, 2019 was approximately $0.5 million, resulting from the operational activities described below.
Operating
Expenses
Operating
expense totaled approximately $0.4 million and $0.5 million during the nine months ended September 30, 2020 and 2019, respectively.
Operating expenses are comprised of the following factors.
|
|
Nine months ended
September 30,
|
|
Change in 2020 versus
2019
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
|
(amount in thousands)
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
344
|
|
|
|
466
|
|
|
|
(122
|
)
|
|
|
(26
|
)%
|
Total operating expenses
|
|
$
|
377
|
|
|
$
|
499
|
|
|
$
|
(122
|
)
|
|
|
(24
|
)%
|
Research
and Development Expenses
Research
and development expenses totaled approximately $0.03 million and $0.03 million for the nine months ended September 30, 2020 and
2019, respectively.
Our
research and development expenses currently consist of storage costs for our therapeutic agents.
General
and Administrative
General
and administrative expenses totaled approximately $0.34 million and $0.47 million for the nine months ended September 30, 2020
and 2019, respectively. The decrease of approximately $0.12 million, or 26%, for the nine months ended September 30, 2020 compared
to the same period in 2019, was primarily due to decreased professional fees.
Our
general and administrative expenses consist primarily of expenditures related to compensation, legal, accounting and tax, other
professional services, and general operating expenses.
Other
Income (Expense)
Other
income (expense) totaled approximately $0.6 million and $0.01 million income for the nine months ended September 30, 2020 and
2019, respectively.
|
|
Nine Months Ended
September 30,
|
|
Change in 2020 Versus
2019
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
|
(amount in thousands)
|
|
|
|
|
Gain on change in fair value of derivative liability
|
|
$
|
353
|
|
|
$
|
640
|
|
|
$
|
(287
|
)
|
|
|
(45
|
)%
|
Gain on conversion of debt
|
|
|
398
|
|
|
|
50
|
|
|
|
348
|
|
|
|
696
|
%
|
Interest expense, net
|
|
|
(169
|
)
|
|
|
(683
|
)
|
|
|
514
|
|
|
|
75
|
%
|
Total other income (expense)
|
|
$
|
582
|
|
|
$
|
7
|
|
|
$
|
575
|
|
|
|
8,214
|
%
|
Gain
on change in fair value of derivative liability
As
a result of a change in the fair value of our derivative liability, we recorded gain of $0.4 million and $0.6 million during the
nine months ended September 30, 2020 and 2019, respectively. The change in the fair value of our derivative liability was the
result of our sale of convertible debentures in September 2017, July 2018, December 2018, July 2019, October
2019, November 2019 and March 2020, where we issued convertible notes with variable
conversion rates. Refer to Note 6 in our unaudited condensed consolidated financial statements for further discussion on our derivative
liability.
Gain
on conversion of debt
There
was a gain on conversion of debentures of approximately $0.4 million during the nine months ended September 30, 2020,
compared to a gain of $0.1 million during the nine months ended September 30, 2019. Gain on conversion of debt results from
the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt
converted.
Interest
expense, net
We
had net interest expense of $0.2 million in the nine months ended September 30, 2020 compared to net interest expense of $0.7
million for the nine months ended September 30, 2019. The decrease of $0.5 million was attributable to a decrease in the cost
associated with derivative instruments issued with a value in excess of proceeds received.
Liquidity
and Capital Resources
We have incurred losses since our inception in 2003 as a result
of significant expenditures on operations, research and development and the lack of any approved products to generate revenue.
We have an accumulated deficit of $60 million as of September 30, 2020 and anticipate that we will continue to incur additional
losses for the foreseeable future. To date, we have funded our operations through the private sale of our equity securities, convertible
debentures, and exercise of options and warrants, resulting in gross proceeds of approximately $37.5 million through September
30, 2020. Cash and restricted cash at September 30, 2020 were $33,000.
Our
auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the
date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year
unless we raised additional funds. Based on our current level of expected operating expenditures and current cash balance, we
expect to be able to fund our operations into the second quarter of 2021. This assumes that we spend minimally on general operations
and only continue conducting our ongoing pre-clinical studies, and that we do not encounter any unexpected events or other circumstances
that could shorten this time period. If we do not obtain additional funds by such time, we may no longer be able to continue as
a going concern and will cease operation which means that our shareholders will lose their entire investment.
We
are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional
capital, we may sell equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can
be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise.
If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates,
or cease operations altogether.
|
|
Nine months ended
September 30,
|
|
Change in 2020 versus
2019
|
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
|
(amount in thousands)
|
|
|
|
|
Cash and restricted cash at beginning of period
|
|
$
|
23
|
|
|
$
|
331
|
|
|
$
|
(308
|
)
|
|
|
(93
|
)%
|
Net cash used in operating activities
|
|
|
(245
|
)
|
|
|
(286
|
)
|
|
|
41
|
|
|
|
14
|
%
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Net cash provided by financing activities
|
|
|
255
|
|
|
|
5
|
|
|
|
250
|
|
|
|
5,000
|
%
|
Cash and restricted cash at end of period
|
|
$
|
33
|
|
|
$
|
50
|
|
|
$
|
(17
|
)
|
|
|
(34
|
)%
|
Cash,
including restricted cash, totaled approximately $0.03 million and $0.05 million as of September 30, 2020 and 2019, respectively.
The decrease of approximately $0.02 million at September 30, 2020 compared to the same period in 2019 was primarily attributable
to cash used in operations offset by cash raised from private placements.
Net
Cash Used in Operating Activities
Net
cash used in operating activities was approximately $0.25 million and $0.29 million for the nine months ended September 30, 2020
and 2019, respectively. Cash used for operations decreased by approximately $0.04 million, or 14%, during the nine months ended
September 30, 2020, compared to the same period in 2019. The decrease in cash used was primarily attributable to a decrease in
our net loss (after adjusting for noncash items) of approximately $0.2 million partially offset by changes in accounts payable
and accrued expenses of approximately $0.16 million.
Net
Cash Provided by Investing Activities
There
was no cash provided by or used in investing activities for the nine months ended September 30, 2020 and 2019.
Net
Cash Provided by Financing Activities
There
was $255,000 cash provided by financing activities for the nine months ended September 30, 2020, compared to $5,000 cash provided
by financing activities for the nine months ended September 30, 2019. In 2020, we received proceeds of $250,000 from the sale
of convertible debentures and $5,000 from the sale of preferred stock, and in 2019 we received proceeds of $5,000 from the sale
of preferred stock.
On
October 23, 2020, we issued an aggregate of $600,000 in senior convertible debentures (“October 2020 Debentures”)
to certain accredited investors for $500,000 cash and the cancellation of $100,000 in outstanding obligations. The October
2020 Debentures have a conversion price equal to the lesser of (i) $0.02 (subject to price protection) and (ii) 85% of the lesser
of (a) the volume weighted average price on the trading day immediately preceding a conversion and (b) the volume weighted average
price on the conversion date. The October 2020 Debentures mature on October 23, 2021 and, except as specifically described therein,
have substantially the same terms as the debentures issued in our March 2020 offering.