ITEM 1. Condensed Consolidated Financial Statements
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ANGIOGENEX, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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As of
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As of
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June 30,
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December 31,
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2018
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2017
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(unaudited)
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ASSETS
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CURRENT ASSETS
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Cash
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$
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251,382
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$
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493,676
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Prepaid expenses
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3,995
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21,634
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TOTAL CURRENT ASSETS
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255,377
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515,310
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TOTAL ASSETS
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$
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255,377
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$
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515,310
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
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Accounts payable and accrued expenses
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$
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436,602
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$
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383,695
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Accounts payable and accrued expenses - related parties
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456,779
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495,536
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Notes payable
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1,000
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11,000
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Notes payable - related parties
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127,750
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127,750
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Accrued interest
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45,037
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51,081
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Accrued interest - related parties
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76,400
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73,321
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TOTAL CURRENT LIABILITIES
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1,143,568
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1,142,383
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LONG-TERM LIABILITIES
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Notes payable, related parties
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27,450
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27,450
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COMMITMENTS AND CONTINGENCIES (Note 9)
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STOCKHOLDERS' DEFICIT
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Preferred stock, 5,000,000 shares authorized, $0.001 par value;
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no shares issued and outstanding
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-
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-
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Common stock, 150,000,000 shares authorized, $0.001 par value;
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29,386,667 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
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29,387
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29,387
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Additional paid-in capital
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5,900,391
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5,892,359
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Accumulated deficit
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(6,845,419)
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(6,576,269)
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TOTAL STOCKHOLDERS' DEFICIT
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(915,641)
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(654,523)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
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$
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255,377
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$
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515,310
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See accompanying notes to condensed consolidated financial statements (unaudited).
5
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ANGIOGENEX, INC
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(UNAUDITED)
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For the Three Months Ended
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For the Six Months Ended
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June 30,
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June 30,
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2018
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2017
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2018
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2017
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EXPENSES
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Research and development
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$
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22,638
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$
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204,884
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$
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12,266
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$
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234,926
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General and administrative
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64,045
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200,932
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252,481
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257,910
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TOTAL OPERATING EXPENSES
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86,683
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405,816
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264,747
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492,836
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LOSS FROM OPERATIONS
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(86,683)
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(405,816)
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(264,747)
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(492,836)
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OTHER INCOME (EXPENSE)
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Other expense
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331
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(386)
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177
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(455)
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Interest income
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256
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-
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515
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-
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Interest expense
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(2,113)
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(2,669)
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(5,095)
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(5,367)
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TOTAL OTHER EXPENSE
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(1,526)
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(3,055)
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(4,403)
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(5,822)
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LOSS BEFORE INCOME TAXES
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(88,209)
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(408,871)
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(269,150)
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(498,658)
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INCOME TAXES
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-
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-
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-
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-
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NET LOSS
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$
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(88,209)
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$
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(408,871)
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$
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(269,150)
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$
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(498,658)
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NET LOSS PER COMMON SHARE -
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BASIC AND DILUTED
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$
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(0.00)
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$
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(0.02)
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$
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(0.01)
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$
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(0.02)
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WEIGHTED AVERAGE NUMBER OF
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COMMON STOCK SHARES OUTSTANDING -
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BASIC AND DILUTED
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29,386,667
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26,366,667
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29,386,667
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26,366,667
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See accompanying notes to condensed consolidated financial statements (unaudited).
6
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ANGIOGENEX, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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For the Six Months
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Ended June 30,
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2018
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2017
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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(269,150)
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$
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(498,658)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Stock-based compensation issuance of common stock options
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8,032
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85,874
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Changes in operating assets and liabilities:
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Prepaid expenses
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17,639
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-
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Accounts payable and accrued expenses
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52,907
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76,682
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Accounts payable and accrued expenses, related party
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(38,757)
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162,639
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Accrued interest
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(6,044)
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1,264
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Accrued interest related parties
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3,079
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3,548
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Net cash used in operating activities
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(232,294)
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(168,651)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Repayment of notes payable
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(10,000)
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-
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Net cash used in financing activities
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(10,000)
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Net decrease in cash
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(242,294)
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(168,651)
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Cash, beginning of period
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493,676
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272,471
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Cash, end of period
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$
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251,382
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$
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103,820
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
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Cash paid for interest and income taxes:
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Interest expense
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$
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8,086
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$
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555
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Income taxes
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$
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-
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$
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-
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See accompanying notes to condensed consolidated financial statements (unaudited).
7
ANGIOGENEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
The condensed consolidated financial statements include AngioGenex, Inc. (AngioGenex or the Company) and its wholly owned subsidiary AngioGenex Therapeutics, Inc. AngioGenex was incorporated in the State of New York on March 31, 1999. AngioGenex is a bio-pharmaceutical company dedicated to the development and commercialization of a novel, inexpensive treatment for vascular diseases including many forms of cancer, and macular degeneration.
NOTE 2 LIQUIDITY AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has incurred substantial net losses since inception. The future of the Company is dependent upon obtaining additional financing and generating revenue to fund research and development activities and to support operations. However, there is no assurance that the Company will be able to obtain additional financing. Furthermore, there is no assurance that the United Stated Food and Drug Administration (the FDA) will grant future approval of the Companys prospective products or that profitable operations can be attained as a result thereof. Our financial statements do not include any recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
The Company anticipates that its principal source of funds for the next year will be the issuance of additional equity or debt instruments for cash. Management plans to seek additional capital from new equity securities issuances that will provide funds needed to increase liquidity, fund internal growth and fully implement its business plan.
Based on the Company's current cash usage expectations, management believes it will not have sufficient liquidity to fund its operations through September 2018. Further, management cannot provide any assurance that it is probable that the Company will be successful in accomplishing any of its plans to raise debt or equity financing. Collectively, these factors raise substantial doubt regarding the Company's ability to continue as a going concern.
NOTE 3 BASIS OF REPORTING AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiary and have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, these interim unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of the operating results for the entire year. The accompanying Condensed Consolidated Balance Sheets at December 31, 2017, were derived from audited annual financial statements but do not contain all of the footnote disclosures from the annual financial statements. These financial statements should be read in conjunction with the annual financial statements and related disclosures included in the audited financial statements for the year ended December 31, 2017.
The accompanying interim unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes. As of June 30, 2018, the
8
Companys significant accounting policies and estimates remain unchanged from those detailed in the audited financial statements for the year ended December 31, 2017.
Recent Accounting Pronouncements Not Yet Adopted
The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board. ASUs not discussed below were considered by management and either determined to be not applicable or expected to have minimal impact on our consolidated balance sheets or statements of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. The adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations.
In June 2018, FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of Accounting Standards Codification, or ASC, 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entitys own operations and supersedes the guidance in ASC 505-50. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASC 606. We are currently evaluating the effect of this guidance on our consolidated financial statements and disclosures.
NOTE 4 AGREEMENT WITH MEMORIAL SLOAN KETTERING CANCER CENTER
(MSKCC)
In March 2000, in exchange for $30,000, the Company obtained from MSKCC, a related party, an exclusive worldwide right and license in the field of use, including to make, have made, use, lease, commercialize and sell licensed products and to use licensed processes derived from the invention of our two leading drug candidates . In 2014, the Company issued 810,000 shares of common stock in exchange for previously agreed milestone, royalty and sub-license payments. The aforementioned issuance of shares of common stock released the Company from any future obligations and there are no remaining obligations under the agreement.
In July 2017 the Company executed a service agreement with MSKCC, a related party, to provide pre-clinical research services in connection with the development and Investigational New Drug (IND) Application for the Companys lead compound and its derivatives. The effective date of the agreement is February 2, 2017, and $250,000 of fees and costs have been incurred as of June 30, 2018.
NOTE 5 RELATED PARTY TRANSACTIONS
The Company owes MSKCC for research and development expenses $75,000 and $150,000 as of June 30, 2018 and 2017, respectively.
An officer of the Company allows the Company to use space in his offices for file keeping and other business purposes. The Company pays no rent for this space. This same officer also provides services to the Company in the form of accounting, bookkeeping and tax preparation, for which the Company is billed. As of June 30, 2018 and 2017, the Company owed the officers business $149,618 and $163,628, respectively, which is included in accounts payable and accrued expenses related parties in our financial statements.
At June 30, 2018 and 2017, the Company owed a former officer $95,000 for unpaid salary pursuant to an agreement. In addition, two former officers are owed $99,159 for unreimbursed business expenses as of June 30, 2018 and 2017, respectively, which is included in accounts payable and accrued expenses - related parties in our financial statements.
9
Two shareholders provided legal services to the Company, for which the Company is billed. As of June 30, 2018 and 2017, the Company owed these shareholders $38,002, which is included in accounts payable and accrued expenses related parties in the financial statements.
NOTE 6 NOTES PAYABLE
At June 30, 2018, the Companys loans from related parties total $155,200 of principal and accrued interest of $76,400. The interest rate on these notes vary from 0% to 6%. Related parties include directors, officers, stockholders and stock option holders.
At June 30, 2018, the Companys loans from unrelated parties total $1,000 in principal and $756 of accrued interest. The interest rate on these notes is 6%, and the principal and accrued interest is due on demand.
On November 19, 2007, the Company obtained an unsecured loan in the amount of $10,000 from an unrelated party. The loan was repaid on April 6, 2018. The Company paid interest payments of $6,171 on March 5, 2018 and $61 on April 6, 2018, totaling $6,232 of interest accrued and paid on this loan.
The principal maturity on all of these notes payable (including related parties and non-related parties) is as follows:
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June 30, 2019
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$
128,750
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June 30, 2020
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-
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June 30, 2021
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4,700
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June 30, 2022
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-
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Thereafter
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22,750
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$
156,200
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NOTE 7 CAPITAL STOCK
Common Stock
The Company is authorized to issue 150,000,000 shares of $0.001 par value common stock.
In July 2017, the Company sold 3,000,000 shares of common stock to related parties at $0.25 per share for proceeds of $750,000.
NOTE 8 STOCK OPTIONS
The Company did not grant any options during the six months ended June 30, 2018. As of June 30, 2018, 3,890,000 options are available under the 2012 Plan.
The following table summarizes information regarding outstanding stock option grants as of June 30, 2018:
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Outstanding
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Exercisable
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Range of Exercise Prices
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Granted
Stock Options
Outstanding
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Weighted-
Average
Remaining
Contractual
Life (Years)
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Weighted-
Average
Exercise
Price
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Granted
Stock Options
Exercisable
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Weighted-
Average
Exercise
Price
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$
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0.01-0.05
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6,659,999
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2.35
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$
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0.04
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6,659,999
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$
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0.04
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0.08-0.10
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3,570,000
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2.88
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0.08
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3,145,000
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0.08
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0.17-0.20
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2,060,000
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1.05
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0.18
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2,060,000
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0.18
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$
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0.01-0.20
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12,289,999
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2.29
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$
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0.07
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11,864,999
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$
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0.07
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10
Compensation expense of $18,562 and $60,558 has been recognized for stock options for the three months ended June 30, 2018 and 2017, and $8,032 and $85,874 has been recognized for stock options for the six months ended June 30, 2018 and 2017, respectively. The aggregate intrinsic value of the outstanding and exercisable options at June 30, 2018 was $2,896,700 and $2,798,950 respectively. At June 30, 2018, $25,521 of unamortized compensation expense for unvested options is expected to be recognized over the next year.
During 2016, the Company granted 200,000 stock options to a consultant, 100,000 of which will vest upon obtaining certain regulatory approval and submission of an IND application to the FDA, and 100,000 of which will vest upon the commencement of the Phase I human clinical trial. The first 100,000 stock options described above are accounted for as variable performance based option awards, as the performance is probable of occurring, and will be adjusted each reporting period to reflect the estimated fair value until such approvals and filings are obtained. The second 100,000 stock options are contingent upon an event (initiation of a clinical trial) in the future, and management cannot determine if this event is probable at this time. The fair value of these options as of June 30, 2018 and 2017 was $24,001 and $109,774, respectively. The change in value of $(8,990) and $68,852 has been included with stock based compensation in research and development for the six months ended June 30, 2018 and 2017.
NOTE 9 COMMITMENTS AND CONTINGENCIES
In July 2006, Comparative Biosciences Inc. (CompBio) , a company that AngioGenex hired to breed and house a colony of its proprietary Id-Knockout mice, sued the Company claiming approximately $200,000 in unpaid invoices. AngioGenexs response included counter-claims for CompBios breaches of contract, as well as a number of business torts. On November 6, 2007, the parties agreed to a disposition of the suit under a stipulated judgment and settlement agreement pursuant to which: CompBio must return the laboratory mice and all scientific data from the research, CompBio agreed to forego all intellectual property rights in the mice and in the research that it acknowledged belong to AngioGenex, and AngioGenex agreed to pay the CompBio $55,000 in installments over a 5-year period, plus accumulated interest at 5% per annum. The stipulated judgment and settlement agreement was filed with the court in November 2007. The Company has not made the required payments since the fourth quarter of 2008, and is in default of this settlement agreement. Under the terms of the agreement, upon receipt of written notification of default from CompBio the Company has five days to cure. Failure by the Company to cure the default results in an increase in the settlement amount to $75,000 plus retroactive interest of 5% on the balance. The Company has not received any notification of default from CompBio as of report date. In November 2007 and various dates in 2008, the Company has made $17,500 payments to CompBio pursuant to the settlement agreement, and had accrued interest of $44,281. Since those dates, no payments have been made.
NOTE 10 NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding and issuable during the periods presented. The computation of diluted loss per share is similar to the computation of basic loss per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially dilutive securities using the treasury stock method unless the effect is antidilutive.
The Company has 12,289,999 common stock options outstanding as of June 30, 2018 and 2017. These options are excluded from the calculation as they are antidilutive.
11
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This managements discussion and analysis (MD&A) of the financial condition and results of operations of the Company should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2018 and 2017, which have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). All dollar amounts are in U.S. dollars (US$ or $) unless stated otherwise.
Our MD&A is intended to enable readers to gain an understanding of our current operating results and financial position. To do so, we provide information and analysis comparing the results of operations and financial position for the current period to those of the preceding comparable period. We also provide analysis and commentary that we believe is required to assess our future prospects. Accordingly, certain sections of this report contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are affected by risks and uncertainties that are discussed in Item 1A of this Form 10-Q and Item 1A of our Annual Report on Form 10-K filed on April 2, 2018 (the 2017 Annual Report on Form 10-K), and above in the section titled Special Note Regarding Forward-Looking Statements; such risks and uncertainties could have a material impact on future prospects. Readers are cautioned that actual results could vary from those forecasted in this MD&A.
1. Executive Summary
Background and History of the Company.
AngioGenex, Inc. (AngioGenex, we, us, our, or the Company) is a public bio-pharmaceutical company dedicated to the development and commercialization of a novel, inexpensive treatment for vascular diseases including many forms of cancer and macular degeneration. The Company was incorporated in the state of Nevada in March 1999.
The Science Discovering the Target.
Since the discovery of Id genes more than 20 years ago, Dr. Robert Benezra, the Companys Chief Scientific and Executive Officer (CEO and CSO) and a Member at Memorial Sloan Kettering Cancer Center (MSKCC), has been pursuing the role of Id genes, and the proteins they express, in stimulating intrinsic tumor cell growth and blood vessel development to support such growth that occurs both in early fetal development and in the pathology of numerous important diseases. Subsequent experiments by Dr. Benezra with an Id knock-out mouse suggested that interfering with Id protein activity might prevent the establishment and spread of tumors that normally dupe the body into activating the Id mechanism for cancer cell proliferation and creating the new blood vessels cancer cells need to grow and spread. The role of the Id proteins as targets for neovessels and tumor cell proliferation, as well as metastasis, was further discussed in numerous scientific articles. The articles also discuss the Id mechanism and potential for disease prevention.
The Companys bio-pharmaceutical technology and its development plans are based on the hypothesis that Id protein-supported cell proliferation and neo-vascularization is central to the pathology of many forms of cancer and macular degeneration (a disease characterized by unregulated blood vessel growth in the eye), and that the inhibition of Id has a powerful positive effect on preventing the progression of many forms of cancer and macular degeneration.
The Company Business Strategy.
AngioGenex was created to capture the full potential of the Id platform. We currently own what we believe are unencumbered exclusive worldwide rights under issued and pending patents to a novel class of drugs that target the Id proteins. Central to this strategy is our symbiotic relationship with MSKCC, which includes a coordinated research and development program and clinical trial plan. MSKCC holds common stock in the Company that was granted in return for the efforts it contributed to Dr. Benezras early efforts in discovering the role of the Id proteins and their potential as targets for disease intervention.
Product Development Designing and Testing Novel Drugs.
With the Company confident that the cell biology suggesting the importance of the target was established (as suggested in the following publications: Angiogenesis impairment in Id-deficient mice cooperates with an Hsp90 inhibitor to completely suppress HER2 neu-dependent breast tumors (Candia et al, Proceedings of The National Academy of Sciences 2003) and The Id proteins and Angiogenesis (Benezra, Rafii, Lyden, Oncogene 2001)), the next step was to try to hit that target with a drug that would inhibit Id, and prevent the process of tumor cell proliferation and new blood vessel formation, thereby impeding the spread of cancer cells. Attempting to do so required the creation of a company to complete the medicinal chemistry and preclinical development. Commercializing the concept required raising seed capital,
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organizing a team with the expertise to identify the targets molecular structure, conducting high through-put screening and rational drug design modeling, securing the intellectual property protecting its findings and conducting the pre-clinical experiments with the most active hits. The Company was created for that purpose and focused on developing this platform technology into the first Id-inhibitor drug. AngioGenex has accomplished key benchmarks since its inception by incubating the technology and concretizing the concept in the form of active proprietary chemical compounds, which are small molecules such as our two lead drug candidates that, based on unpublished data, the Company believes to have shown specific activity in various animal models of various cancers and macular degeneration.
Our two lead drug candidates are AGX51 and its derivative AGX51-
α
, with AGX51-
α
being the first drug candidate we are testing towards an Investigational New Drug Application (IND). The Company also has a number of other proprietary small molecules. Focusing on the exact three-dimensional atomic structure of the Id protein, our chemists designed drugs that we believe bind to the Id proteins and inhibit their activity, based on unpublished experimental data regarding the drugs activity in
in vitro
tests, and from animal models of breast cancer and macular degeneration. The goal of these experiments was to see if, in pre-clinical models, AGX51-
α
and AGX51
s other derivatives can reproduce the impact of Id gene deletion in preventing the Id proteins from performing their role in support of the establishment and spread of cancer. The Company
s working hypothesis is that the Company
s drugs interfere with Id activity both in the tumor cells themselves and the vessels that support their growth, and that this dual activity might support the Company
s attempts to establish the superior performance of AGX51-
α
over other drugs which only inhibit blood vessel growth.
Competition.
We believe that there is no other company developing an Id-based therapeutic, diagnostic or prognostic product. However, there are a large number of competitors developing cancer therapeutics based on an anti-angiogenic approach. There are also a significant number of companies developing therapeutics and diagnostics based on other technologies.
The leading drugs in the field of anti-angiogenic drug therapy are Genentechs Avastin for cancer (approximately $5.98 billion in sales in 2016) and Regenerons Eylea for macular degeneration (whose sales have lifted the companys market cap to over $50 billion in 2017). Both target a different molecule (Vascular Endothelial Growth Factor) that is active in normal adult biology with anti-bodies or
biologics.
Corporate Strategy
Pre-Clinical and Clinical Development.
The Company
s drugs (including our two lead drug candidates AGX51 and its derivative AGX51-
α
) are at the pre-clinical stage of development. Our Company would like to ultimately develop different Id-inhibitor drugs to treat cancer and macular degeneration. As a corporate strategy, the cancer program (i.e. AGX51) is on hold pending the receipt of sufficient resources or partnerships and we have determined to move first with the macular degeneration program (i.e. AGX51-
α
).
For AGX51, the estimated timeframe and cost for completion of pre-clinical work is approximately 15 to 18 months and approximately $1.5 million to $2 million so that we can file an IND and the estimated cost to complete Phase I/IIA clinical trials is approximately $12 million. For AGX51-
α
, the estimated timeframe and cost for completion of pre-clinical work is approximately 12 to 15 months and approximately $1.7 million so that we can file an IND and the estimated cost to complete Phase I/IIA clinical trials is approximately $8 million to $12 million. We estimate that we are only able to fund our current operations through September 2018 and will need to raise at least $1.5 million in capital to fund our pre-clinical development plan and related operational expenses.
Our team is poised to take one of our two lead compounds, AGX51-
α
, through this pre-clinical testing in 12 to 15 months and then into clinical trials for testing in age-related macular degeneration (
ARMD
). We elected to pursue the ARMD indication first, rather than any form of cancer, because of the relatively lower cost of doing so and our belief, based on the work we have done on AGX51-
α
at the Wilmer Eye Institute, that there is greater predictability in relation to the pre-clinical animal model data for the ARMD indication. Our current plan is to complete pre-clinical work for the filing of an IND in the ocular indication initially and conduct a Phase I/IIA clinical trial thereafter. The Company will need to raise between $6 million and $10 million in additional capital to do so, but has chosen to wait until the completion of the IND application as it expects to be able to do so on better terms at that time, depending on the results of the pre-clinical work. If sufficient additional funds are raised, or if a partnership is obtained for eye disease drug development, those IND funds would be re-allocated to a cancer IND for AGX51 or one of its other identified proprietary molecules derivative of AGX51. If successful, that IND would be followed by Phase I/II clinical trials in patients with high risk of metastatic progression at MSKCC, under the supervision of Dr. Larry Norton (Deputy Physician-in-Chief at MSKCC and Medical Director of the Evelyn H. Lauder Breast Center),
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the Head of the AngioGenex Scientific Advisory Board. With the initiation of these trials, designed to establish safety and proof of principle in humans, the Id story will have come full circle, from a basic biological finding in an academic lab to the discovery of an active chemical inhibitor to be tested on real patients in a clinic at the very institute where it all began. If we raise sufficient resources, we would conduct both the oncology and ocular programs simultaneously.
Our Experiments.
The essential non-confidential information describing the scientific foundation of AngioGenexs proprietary technology and its experimental support is described in detail in the Patent Cooperation Treaty (PCT) patent application (as described in Item 1.3 of our 2017 Annual Report on Form 10-K and filed as Exhibit 99.1 to our Form 10 (the Form 10) filed with the SEC on September 29, 2017) and the following publication: Angiogenesis impairment in Id-deficient mice cooperates with an Hsp90 inhibitor to completely suppress HER2 neu-dependent breast tumors (Candia et al, Proceedings of The National Academy of Sciences 2003). The aforementioned PCT patent application describes numerous experiments that produced the data supporting the patent claims. Additionally, the aforementioned publication describes experiments with a widely accepted model of breast cancer with experimental breast cancer prone herceptin mice.
The Path Forward.
If we successfully complete the pre-clinical work, the next step will be the first human clinical testing of AGX51-
α
regarding safety and preliminary efficacy. To do so, we will seek further financing or a corporate partner for the completion of testing and the ultimate marketing of the drug. Our goal is to achieve interim milestones toward FDA approval in a number of disease indications with distinct proprietary pharmaceutical products.
Financial History.
As a research and development company, we have incurred significant losses since inception. We had an accumulated deficit of $6,845,419 as of June 30, 2018. These losses have resulted principally from costs incurred in connection with research and development activities, license fees and general and administrative expenses.
2. Financial Information
Overview
The Company
s drugs (including our two lead drug candidates AGX51 and its derivative AGX51-
α
) are at the pre-clinical stage of development. Our Company would like to ultimately develop different Id-inhibitor drugs to treat cancer and macular degeneration. As a corporate strategy, the cancer program (i.e. AGX51) is on hold pending the receipt of sufficient resources or partnerships and we have determined to move first with the macular degeneration program (i.e. AGX51-
α
).
For AGX51, the estimated timeframe and cost for completion of pre-clinical work is approximately 15 to 18 months and approximately $1.5 million to $2 million so that we can file an IND and the estimated cost to complete Phase I/IIA clinical trials is approximately $12 million. For AGX51-
α
, the estimated timeframe and cost for completion of pre-clinical work is approximately 12 to 15 months and approximately $1.7 million so that we can file an IND and the estimated cost to complete Phase I/IIA clinical trials is approximately $8 million to $12 million.
We have limited financial resources and we will need to raise substantial additional funding in order to execute these plans. If we raise sufficient resources, we would conduct both the oncology and ocular programs simultaneously. However, there can be no assurance that such resources will be available or, if available, will be at rates or prices acceptable to us.
Comparison of Results of Operations for the Three Months ended June 30, 2018 and 2017
Revenues
We had no revenues for the three months ended June 30, 2018 and 2017.
Research and Development Expenses
For the three months ended June 30, 2018 and 2017, total research and development costs were $22,638 and $204,884, respectively. The decrease is due to lower expenditures related to our continued research into the role of the Id genes and proteins, and its identification and development of molecules capable of inhibiting Id activity and
14
preventing the neo-vascularization that supports the growth of cancerous tumors and characterizes other diseases including macular degeneration. The Company views this decrease to be temporary, as it continues its activities. The Company incurred $9,750 and $150,000 in connection with research performed at laboratories in the three months ended June 30, 2018 and 2017, respectively. The decrease is also due to change in stock compensation from $54,884 to $12,888, resulting from awards to a consultant that are accounted for as variable performance based option awards and are adjusted each reporting period.
General and Administrative Expenses
For the three months ended June 30, 2018 and 2017, total general and administrative expenses were $64,045 and $200,932, respectively. General and administrative expenses include professional fees for bookkeepers, auditors, and outside securities counsel who assisted with various aspects of the business and business development, and patent counsel fees and costs, including the maintenance of existing intellectual property. The decrease is primarily due to a decrease in professional fees.
We expect general and administrative expenses to increase overall through 2018 as we continue as a public reporting company. The non-recurring portions of the process of returning to a public reporting status are complete. We anticipate continued increased professional fee expenses associated with ongoing public reporting requirements and increased use of outside accounting and legal services for our continued operations and any financings.
Operating Loss
For the three months ended June 30, 2018, operating loss was $86,683 as compared with $405,816 for the three months ended June 30, 2017. The decrease in operating loss is due to research and development costs, as described in
Research and Development Expenses
above, and to professional fees, which are described in
General and Administrative Expenses
above.
We expect to incur continued operating losses through 2018 as we continue to develop Id inhibitor drugs.
Interest Expense
Interest expense is comprised primarily of interest accrued on our debt. For the three months ended June 30, 2018, our interest expense was $2,113 as compared to $2,669 for the three months ended June 30, 2017.
Comparison of Results of Operations for the Six Months ended June 30, 2018 and 2017
Revenues
We had no revenues for the six months ended June 30, 2018 and 2017.
Research and Development Expenses
For the six months ended June 30, 2018 and 2017, total research and development costs were $12,266 and $234,926, respectively. The decrease is due to lower expenditures related to our continued research into the role of the Id genes and proteins, and its identification and development of molecules capable of inhibiting Id activity and preventing the neo-vascularization that supports the growth of cancerous tumors and characterizes other diseases including macular degeneration. The Company views this decrease to be temporary, as it continues its activities. The Company incurred $15,582 and $160,400 in connection with research performed at laboratories in the six months ended June 30, 2018 and 2017, respectively. The decrease is also due to change in stock compensation from $74,526 to $(3,316), resulting from awards to a consultant that are accounted for as variable performance based option awards and are adjusted each reporting period. Stock-based compensation was negative for the six months ended June 30, 2018 due to the valuation of these contingent options.
General and Administrative Expenses
For the six months ended June 30, 2018 and 2017, total general and administrative expenses were $252,481 and $257,910, respectively. General and administrative expenses include professional fees for bookkeepers, auditors, and outside securities counsel who assisted with various aspects of the business and business development, and
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patent counsel fees and costs, including the maintenance of existing intellectual property. The decrease is due primarily to a decrease in professional fees and office expenses offset by increase in insurance costs.
We expect general and administrative expenses to increase overall through 2018 as we continue as a public reporting company. The non-recurring portions of the process of returning to a public reporting status are complete. We anticipate continued increased professional fee expenses associated with ongoing public reporting requirements and increased use of outside accounting and legal services for our continued operations and any financings.
Operating Loss
For the six months ended June 30, 2018, operating loss was $264,747 as compared with $492,836 for the six months ended June 30, 2017. The decrease in operating loss is due to research and development costs, as described in
Research and Development Expenses
above and to professional fees, which are described in
General and Administrative Expenses
above.
We expect to incur continued operating losses through 2018 as we continue to develop Id inhibitor drugs.
Interest Expense
Interest expense is comprised primarily of interest accrued on our debt. For the six months ended June 30, 2018, our interest expense was $5,095 as compared to $5,367 for the three months ended June 30, 2017.
Liquidity and Capital Resources
We require significant additional cash resources to fund the expenditures necessary to maintain our operating infrastructure, to pay for research and development activities, and to pay our personnel and management team. As we seek to further expand our pre-clinical and clinical programs and expand our intellectual property portfolio, we will need cash to fund such activities and enable in-licensing opportunities and other research and development endeavors.
The Companys significant development milestone is the filing of its first IND application with the FDA for its lead drug candidate, AGX51-
α
, for the treatment of macular degeneration. Reaching the goal of the filing of the IND will require that the Company conduct animal toxicity studies in two separate species, a series of tests to determine how the drug is absorbed, distributed and cleared from the body, and a series of chemistry experiments to determine, among other things, the stability and shelf life of the drug. The Company has contracted with MSKCC to perform some or all of this work under the MSKCC Services Agreement (see Exhibit 10.1 to our Form 10 filed with the SEC on August 22, 2017). The timely and successful completion of this work will allow the Company to seek FDA permission in 2019 to test AGX51-
α
in human volunteers. The Company anticipates a total cost of approximately $1.7 million to accomplish this work in approximately 12-15 months under the current agreement with MSKCC. The Company lacks all of the funding necessary to complete these tasks and will require additional capital to do so. The Company intends to obtain the funds necessary to complete the pre-clinical work needed to accomplish this significant milestone from new and existing investors and insiders.
We have historically relied on financing activities to provide the cash needed for our operating expenses. As of June 30, 2018, we had cash of $251,382.
Management believes that in order for the Company to meet its obligations arising from normal business operations through August 2019, the Company requires additional capital either in the form of a private placement of common stock or debt that will generate sufficient operating cash flows to fund operations.
Without such additional capital, our ability to operate will be limited and we may be unable to continue operations altogether. There can be no assurance that such equity or borrowings will be available or, if available, will be at rates or prices acceptable to us. These factors raise substantial doubt regarding our ability to continue as a going concern. Our unaudited consolidated financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.
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Operating Activities
Cash used for operating activities for the six months ended June 30, 2018 was $232,294 compared to $168,651 for the same period in 2017. The increase is due to increased cash payments for professional fees associated with patent support, auditing, bookkeeping and accounting services in the current period.
Financing Activities
No cash was provided by financing activities for the six months ended June 30, 2018 and 2017. Cash used by financing activities for the six months ended June 30, 2018 comprised repayment of a $10,000 note payable.
Off-Balance Sheet Arrangements
At June 30, 2018, we had no off-balance sheet arrangements.
Critical Accounting Policies, Judgments and Estimates
We have identified certain accounting policies that we believe are the most critical to the presentation of our financial information over a period of time. During the quarterly period ended June 30, 2018, there were no material changes to the critical accounting policies described in our 2017 Annual Report on Form 10-K. See Item 7,
Critical Accounting Policies, Judgments and Estimates
in our 2017 Annual Report on Form 10-K.