NOTE 2 – MANAGEMENT’S PLANS
TO CONTINUE AS A GOING CONCERN
Basis of Presentation
The opinion of our independent registered
accounting firm on our financial statements contains explanatory going concern language. 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 since inception and have an accumulated
deficit of $60 million as of September 30, 2019. 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 mipsagargin through
clinical studies. 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, 2019 were approximately $50,000, representing 71% of our total assets. Based on our current expected
level of operating expenditures, we expect to be able to fund our operations into the first quarter of 2020. We curtailed operations
in February 2018. 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. We raised
approximately $500,000 in July 2018 and $25,000 in December 2018, which enabled us to bring our required annual and quarterly filings
current, which will enable us to seek additional financing.
In the event additional financing is not
obtained, we may pursue cost cutting measures as well as explore the sale of selected 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 significant 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 auditors’ report issued in connection
with our December 31, 2018 consolidated 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. Accordingly, our current cash level raises substantial doubt about our ability to continue as a going
concern past the fourth quarter of 2019. 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, 2019 and 2018 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, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any
future period. All references to September 30, 2019 and 2018 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, 2018, included in the Company’s annual report on Form 10-K filed with the SEC on August 6, 2019.
The consolidated balance sheet as of December
31, 2018 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 September 17, 2019, the Company’s
Board of Directors approved a one-for-twenty five (1-for-25) reverse stock split of the Company’s common stock (“Reverse
Stock Split”). In furtherance of the Reverse Stock Split, the Company has 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 September 30,
2019 (“Effective Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders
will receive one new share of common stock for every twenty five shares such shareholder held immediately prior to the Effective
Time. The Reverse Stock Split will also affect the Company’s outstanding stock options, warrants and other exercisable or
convertible instruments and will result 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 restated in the accompanying
consolidated financial statements and footnotes for all periods presented to reflect the effects of the September 30, 2019 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. Our research and development expenses consist primarily of expenditures for toxicology and other studies,
manufacturing, clinical trials, compensation and consulting costs.
We incurred research and development expenses
of approximately $0.01 million and $0.01 million for the three months ended September 30, 2019 and 2018, respectively. We incurred
research and development expenses of approximately $0.03 million and $0.2 million for the nine months ended September 30, 2019
and 2018, 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.
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 bringing
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 OTCQB and FINRA.
Income (loss) per Share
Basic income (loss) per share is calculated
by dividing net income (loss) and net income (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.
The following potentially dilutive securities have been excluded from the computations of basic and diluted
weighted average shares outstanding as of September 30, 2019 and 2018, as they would be anti-dilutive:
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Shares underlying options outstanding
|
|
|
11,825
|
|
|
|
13,013
|
|
Shares underlying warrants outstanding
|
|
|
96,330
|
|
|
|
100,517
|
|
Shares underlying convertible notes outstanding
|
|
|
54,219,053
|
|
|
|
22,915,293
|
|
Shares underlying convertible preferred stock outstanding
|
|
|
1,095,825
|
|
|
|
1,055,825
|
|
|
|
|
55,423,033
|
|
|
|
24,084,648
|
|
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, 2019. The tables below summarize the fair values
of our financial liabilities as of September 30, 2019 (in thousands):
|
|
Fair Value at
September 30,
|
|
|
Fair Value Measurement Using
|
|
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
1,478
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,478
|
|
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,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
2,134
|
|
|
$
|
2,934
|
|
Additions to derivative instruments
|
|
|
150
|
|
|
|
577
|
|
Reclassification on conversion
|
|
|
(166
|
)
|
|
|
(133
|
)
|
(Gain) loss on change in fair value of derivative liability
|
|
|
(640
|
)
|
|
|
1,346
|
|
Balance at end of period
|
|
$
|
1,478
|
|
|
$
|
4,724
|
|
Stock-Based Compensation
We measure the cost of employee services
received in exchange for equity awards based on the grant-date fair value of the awards. All awards under our stock-based compensation
programs are accounted for at fair value and that cost is recognized over the period during which an employee is required to provide
service in exchange for the award (the vesting period).
Compensation expense for options granted
to non-employees is determined in accordance with the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is a more reliable measurement. Compensation expense for awards granted to non-employees is re-measured
on each accounting period.
Determining the appropriate fair value
of stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based compensation
and the volatility of our stock price. We use the Black-Scholes option-pricing model to value our stock option awards which incorporates
our stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life.
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, 2019 that are of significance or potential significance
to the Company.
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record
a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition
approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. The adoption of this standard
did not have any impact on the Company’s consolidated financial statements.
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 Company does not expect any impact from the adoption of this standard
on its consolidated financial statements.
NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table contains additional
information for the periods reported (in thousands).
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
Common stock issued on conversion of notes payable and derivative liability
|
|
$
|
320
|
|
|
$
|
174
|
|
Debentures converted to common stock
|
|
|
204
|
|
|
|
124
|
|
Derivative liability extinguished upon conversion of notes payable
|
|
|
166
|
|
|
|
133
|
|
Derivative liability issued
|
|
|
150
|
|
|
|
577
|
|
Accounts payable paid through issuance of debentures
|
|
|
-
|
|
|
|
15
|
|
There was no cash paid for interest and income taxes for the
nine months ended September 30, 2019 and 2018.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consist of the following
(in thousands):
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Accrued compensation and benefits
|
|
$
|
1,326
|
|
|
$
|
1,326
|
|
Accrued research and development
|
|
|
222
|
|
|
|
188
|
|
Accrued other
|
|
|
391
|
|
|
|
300
|
|
Total accrued expenses
|
|
$
|
1,939
|
|
|
$
|
1,814
|
|
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 operations, 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 operations.
During the three months ended September
30, 2019 and 2018, we recorded gain of approximately $1.0 million and expense of approximately $2.3 million, respectively, related
to the change in fair value of the derivative liabilities during the periods. During the nine months ended September 30, 2019 and
2018, we recorded gain of approximately $0.6 million and expense of approximately $1.3 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, 2019 are as follows:
|
|
|
2019
|
|
Volatility
|
|
|
229% - 246
|
%
|
Expected term (years)
|
|
|
6 – 9 months
|
|
Risk-free interest rate
|
|
|
1.79% - 1.83
|
%
|
Dividend yield
|
|
|
None
|
|
As of September 30, 2019 and December 31,
2018, the derivative liability recognized in the financial statements was approximately $1.5 million and $2.1 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 nine
months ended September 30, 2019 and 2018.
Legal Matters
On March 16, 2016, Dr. Craig Dionne provided us his notice of termination as the company’s Chief
Executive Officer and Chief Financial Officer. Dr. Dionne’s notice of termination states that such termination was for “Good
Reason” as a result of a material change in his authority, functions, duties and responsibilities as chief executive officer.
In the event that termination was for “Good Reason”, Dr. Dionne would be entitled to certain severance payments as
well as other benefits. The notice of termination, in additional to requesting such severance, also requests the payment of Dr.
Dionne’s annual and long term bonus for 2014 and 2015. On April 11, 2016, we received a letter from Dr. Dionne demanding
approximately $2.3 million as a result of the foregoing. While the Company disputes that the termination was for “Good Reason,”
as well as the amount of the bonuses due Dr. Dionne, if any, at this time the Company is unable to predict the financial outcome
of this matter, and any views formed as to the viability of these claims or the financial liability which could result may change
from time to time as the matter proceeds through its course. The Company is uncertain whether any litigation may result from the
foregoing and the outcome of any such litigation is uncertain.
The Company is subject at times to other
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.
NOTE 8 – CAPITAL STOCK AND STOCKHOLDERS’
DEFICIT
Preferred Stock
As of September 30, 2019, 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 and 5,000
shares of Series D Preferred Stock.
During December 2018, we designated 5,000
shares of preferred stock as Series D 0% Convertible Preferred Stock (the “Preferred Stock”). Each share of Preferred
Stock shall have a par value of $0.0001 per share and a stated value equal to $1.00 (the “Stated Value”).
With respect to a vote of stockholders
to approve a reverse split of the Common Stock to occur no later than December 31, 2019, only, each share of Series D Preferred
Stock held by a Holder, as such, shall be entitled to the whole number of votes equal to 1,200 shares of Common Stock. On any matter
presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation
(or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of 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 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 Preferred Stock shall vote together with
the holders of Common Stock as a single class.
Each share of Preferred Stock shall be
convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into
that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated
Value of such share of Preferred Stock by the Conversion Price. The Conversion Price is $0.125 per share.
In December 2015, we issued 1,853 shares
of our Series A 0% Convertible Preferred Stock, with a stated value of $1,000 per share and the common shares are issuable pursuant
to conversion of the preferred stock at a conversion price of $112.50 per share, subject to a 9.99% beneficial ownership limitation
and subject to adjustment pursuant to stock splits and dividends, and subject to adjustment pursuant to anti-dilution protection
for subsequent equity sales for a period of 18 months from the effective date of the registration statement.
In December 2016, we issued 1,000 shares
of our Series B 0% Convertible Preferred Stock, with a stated value of $1,000 per share and the common shares are issuable pursuant
to conversion of the preferred stock at a conversion price of $18.75 per share, subject to beneficial ownership limitations and
subject to adjustment pursuant to stock splits and dividends, and subject to adjustment pursuant to anti-dilution protection for
subsequent equity sales and other conversion price adjustments.
In March and April, 2017, we sold 290.43148
shares of Series C 0% Convertible Preferred Stock. The Series C Preferred Stock has a stated value of $1,000 and is immediately
convertible into 315,490 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at a
conversion price equal to $18.75, subject to adjustment. The Conversion Price is subject to certain reset adjustments including
the date of any future amendment to the Company’s certificate of incorporation with respect to a reverse stock split. The
Series C Preferred Stock has anti-dilution protection until such the twelve (12) month anniversary of the issuance of the Series
C Preferred Stock.
During January 2019, we issued the 5,000
shares of Series D Convertible Preferred Stock for proceeds of $5,000.
Common Stock
On September 17, 2019, the Company’s
Board of Directors approved a one-for-twenty five (1-for-25) reverse stock split of the Company’s common stock (“Reverse
Stock Split”). In furtherance of the Reverse Stock Split, the Company has 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 September 30,
2019 (“Effective Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders
will receive one new share of common stock for every twenty five shares such shareholder held immediately prior to the Effective
Time. The Reverse Stock Split will also affect the Company’s outstanding stock options, warrants and other exercisable or
convertible instruments and will result 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 restated in the accompanying
consolidated financial statements and footnotes for all periods presented to reflect the effects of the September 30, 2019 amendment.
During the nine months ended September
30, 2019, we issued a total of 2,617,443 shares of common stock, valued at $319,820, upon the conversion of $204,221 principal
amount of our convertible debentures.
Conversion and exercise price resets
As a result of recent equity financings
and conversions of debentures, the conversion prices of our Series A Preferred Stock has been reduced to $13.25 per share at September
30, 2019, the conversion price of 200 shares of our Series C preferred stock has been reduced to $0.50 per share at September 30,
2019, and our Series B Preferred Stock and 90.4 shares of our Series C preferred stock has been reduced to $0.25 per share at September
30, 2019. The exercise prices of the warrants issued in conjunction with the Series B and Series C preferred stock have also been
reduced to $0.50 and $0.25 per share, respectively, at September 30, 2019.
NOTE 9 – STOCK OPTIONS
The Company has recorded aggregate stock-based
compensation expense related to the issuance of stock option awards in the following line items in the accompanying unaudited condensed
consolidated statement of operations (in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
—
|
|
|
$
|
62
|
|
General and administrative
|
|
|
—
|
|
|
|
28
|
|
Total stock-based compensation expense
|
|
$
|
—
|
|
|
$
|
90
|
|
The following table summarizes stock option
activity for the nine months ended September 30, 2019:
|
|
Number of
shares
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-average
remaining
contractual term
(in years)
|
|
|
Aggregate
intrinsic
value
(in thousands)
|
|
Outstanding at December 31, 2018
|
|
|
12,941
|
|
|
$
|
157.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,116
|
)
|
|
$
|
637.78
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
11,825
|
|
|
$
|
111.71
|
|
|
|
3.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2019
|
|
|
11,825
|
|
|
$
|
111.71
|
|
|
|
3.3
|
|
|
$
|
—
|
|
No options were exercised during the nine
months ended September 30, 2019 and 2018.
NOTE 10 – WARRANTS
Transactions involving our warrants are
summarized as follows:
|
|
Number of
shares
|
|
|
Weighted-
average exercise
price
|
|
|
Weighted-average
remaining contractual
term
(in years)
|
|
|
Aggregate
intrinsic
value
(in thousands)
|
|
Outstanding at December 31, 2018
|
|
|
100,517
|
|
|
$
|
79.00
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(4,187
|
)
|
|
$
|
904.91
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
96,330
|
|
|
$
|
43.10
|
|
|
|
2.0
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2019
|
|
|
96,330
|
|
|
$
|
43.10
|
|
|
|
2.0
|
|
|
$
|
—
|
|
No warrants were exercised during the nine
months ended September 30, 2019 and 2018.
As a result of recent equity financings
and conversions of debentures, the exercise prices of the warrants issued in conjunction with our Series B and Series C preferred
stock have also been reduced to $0.50 and $0.25 per share, respectively, at September 30, 2019.
The following table summarizes outstanding
common stock purchase warrants as of September 30, 2019:
|
|
Number of
shares
|
|
|
Weighted-
average
exercise
price
|
|
|
Expiration
|
|
Issued to consultants
|
|
|
3,758
|
|
|
$
|
69.57
|
|
|
August 2019 through August 2023
|
|
Issued pursuant to 2015 financings
|
|
|
18,415
|
|
|
$
|
210.00
|
|
|
July 2020 through December 2020
|
|
Issued pursuant to 2016 financings
|
|
|
58,667
|
|
|
$
|
0.25
|
|
|
December 2021
|
|
Issued pursuant to 2017 financings
|
|
|
15,490
|
|
|
$
|
0.50
|
|
|
March 2022 through April 2022
|
|
|
|
|
96,330
|
|
|
|
|
|
|
|
|
NOTE 11 – CONVERTIBLE DEBENTURES
On July 16, 2019, we entered into securities
purchase agreements (“Securities Purchase Agreement”) with certain institutional investors (the “Investors”).
Pursuant to the Securities Purchase Agreement, we issued an aggregate of $154,000 of senior convertible debentures (“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 have charged $154,000 to finance cost at the date of issuance.
The 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 Debentures will have a conversion price equal to the lesser of (i) $8.25 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 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 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.
Furthermore, without the approval of the
Investors 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 Company is also required under the Securities Purchase Agreement to hold a shareholder meeting by January 3,
2019 in order to increase the number of authorized shares of Common Stock of the Company such that there are sufficient shares
of Common Stock available for issuance underlying the Debentures upon their conversion in full. 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 Debenture in cash upon our failure to have current public information available beginning
six (6) months after the issuance date of the Debentures.
The Investors were additionally given a
right of participation in future offerings for a period of up to eighteen (18) months from the date on which the shares underlying
the Debentures are registered. The Securities Purchase Agreement also prohibits us from issuing any common stock, subject to certain
exemptions, for a period of 60 days following the closing of the Offering, without the written approval of the Investors owning
at least 50.1% of the securities issued in the Offering. Additionally, until the twelve month anniversary of the registration of
the shares underlying the Debentures, we are prohibited from entering into any agreement to effect any issuance of common stock
in a variable rate transaction.
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 March 31, 2020 (see
Note 12).
On July 3, 2018, we entered into securities
purchase agreements (“Securities Purchase Agreement”) with certain institutional investors (the “Investors”).
Pursuant to the Securities Purchase Agreement, we sold an aggregate of $515,000 of senior convertible debentures (“Debentures”)
consisting of $500,000 in cash and the cancellation of $15,000 of obligations of the Company (the “Offering”). Pursuant
to the terms of the Securities Purchase Agreement, we will issue $515,000 in principal amount of Debentures.
The 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 Debentures will have a conversion price equal to the lesser of (i) $8.25 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 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 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. The maturity date of
the debentures has been extended to March 31, 2020 (see Note 12).
Furthermore, without the approval of the
Investors 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 Company is also required under the Securities Purchase Agreement to hold a shareholder meeting by January 3,
2019 in order to increase the number of authorized shares of Common Stock of the Company such that there are sufficient shares
of Common Stock available for issuance underlying the Debentures upon their conversion in full. 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 Debenture in cash upon our failure to have current public information available beginning
six (6) months after the issuance date of the Debentures. This requirement has been waived by the Investors through March 31, 2020
(see Note 12).
The Investors were additionally given a
right of participation in future offerings for a period of up to eighteen (18) months from the date on which the shares underlying
the Debentures are registered. The Securities Purchase Agreement also prohibits us from issuing any common stock, subject to certain
exemptions, for a period of 60 days following the closing of the Offering, without the written approval of the Investors owning
at least 50.1% of the securities issued in the Offering. Additionally, until the twelve month anniversary of the registration of
the shares underlying the Debentures, we are prohibited from entering into any agreement to effect any issuance of common stock
in a variable rate transaction.
On September 12, 2017 we entered into an
exchange agreement (“Exchange Agreement”) with certain holders (the “Investors”) 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 (“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 Debentures. The sale consisted of $250,000 in cash and the cancellation of $70,000 of obligations of the Company.
The Debentures to be issued to the Investors
(i) are non-interest bearing, (ii) have a maturity date of September 12, 2018 and (iii) are convertible into shares of common stock
(“Common Stock”) of the Company 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 Debentures will have a conversion price
equal to the lesser of (i) $8.25 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 maturity date of the debentures
has been extended to March 31, 2020 (see Note 12).
The 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 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.
Furthermore, without the approval of the
Investors 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 Company is also obligated pay Investors,
as partial liquidated damages, a fee of 2.0% of each Investor’s initial principal amount of such Investor’s Debenture
in cash upon our failure to have current public information available. This requirement has been waived by the Investors through
March 31, 2020 (see Note 12).
In connection with the Offering, the Investors
also entered in a registration rights agreement (“Registration Rights Agreement”). Pursuant to the Registration Rights
Agreement, the Company agreed to file a registration statement with the Securities and Exchange Commission (“the Commission”)
within 45 days from the date of the Registration Rights Agreement to register the resale of 100% of the shares of Common Stock
underlying the Debentures and to maintain the effectiveness thereunder. The Company also agreed to have the registration statement
declared effective within 75 days from the date of the Registration Rights Agreement and keep the registration statement continuously
effective until the earlier of (i) the date after which all of the securities to be registered thereunder have been sold, or (ii)
the date on which all the securities to be registered thereunder may be sold without volume or manner-of-sale restrictions and
without current public information pursuant to Rule 144 under the Securities Act of 1933, as amended. We are also obligated to
pay the Investors, as partial liquidated damages, a fee of 1.5% of each Investor’s subscription amount per month in cash
upon the occurrence of certain events, including our failure to file and / or have the registration statement declared effective
within the time periods provided. This requirement has been waived by the Investors through March 31, 2020 (see Note 12).
The Investors were additionally given a
right of participation in future offerings for a period of up to eighteen months from the date in which the shares underlying the
Debentures are registered as contemplated in the Registration Rights Agreement. The Securities Purchase Agreement also prohibits
the Company from issuing any Common Stock, subject to certain exemptions, for a period of 60 days following the closing of the
Offering, without the written approval of the Investors owning at least 50.1% of the securities issued in the Offering. Additionally,
until the twelve (12) month anniversary of such effectiveness of the registration statement as contemplated in the Registration
Rights Agreement, the Company is prohibited from entering into any agreement to effect any issuance of Common Stock in a variable
rate transaction.
During the nine months ended September
30, 2019, we issued a total of 2,617,443 shares of common stock, valued at $319,820, upon the conversion of $204,221 principal
amount of our convertible debentures.
NOTE 12 – SUBSEQUENT EVENTS
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 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 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. We have accrued $96,000 of finance cost expense at September 30, 2019.
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.
Subsequent to September 30, 2019, we issued
a total of 6,922,525 shares of common stock upon the conversion of $96,523 principal amount of our convertible debentures.
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, capital raising, pre-clinical studies and clinical trials, regulatory reviews, timing, strategies, expectations, anticipated
expense levels, business prospects and positioning with respect to the market, 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 several assumptions and currently available information and are subject to several risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking statements because of various factors, including those
set forth under “Cautionary Note Regarding Forward-Looking Statements” 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, 2018, filed with the SEC on
August 6, 2019.
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, 2019 to the comparable periods of 2018.
|
|
●
|
Liquidity and Capital Resources - Liquidity discussion of our financial condition and potential sources of liquidity.
|
Company Overview
Business
We are a clinical-stage, pre-revenue, pharmaceutical
company primarily focused on the development of therapeutics for the treatment of diseases. Through our acquisition of Lewis and
Clark Pharmaceuticals, Inc., we currently are focusing on a pipeline of small molecule adenosine receptor modulators.
The adenosine receptor modulators include
A2B antagonists, dual A2A/A2B antagonists, and A2A agonists that have broad development
applicability including indications within immuno-oncology and inflammation. Adenosine is implicated in immunosuppression in the
tumor microenvironment. Adenosine receptor antagonists may boost the host immune response against the tumor as a single-agent and
in combination with other existing immuno-oncology agents leading to enhanced tumor killing and inhibition of metastasis. Adenosine
also has anti-inflammatory properties in the acute and chronic setting. Adenosine receptor agonists may promote a decreased inflammatory
response and can potentially treat a broad range of inflammatory and autoimmune based diseases and conditions (e.g., rheumatoid
arthritis, joint injury, Crohn’s disease, psoriasis) as well as improve wound healing and decrease pain.
During February 2018, due to a lack of
capital, we curtailed substantially all our business operations. In the event that we are able to raise sufficient capital, our
major focus would be to: (i) further characterization, in conjunction with Ridgeway Therapeutics, of anti-cancer activity of the
current pipeline of A2B antagonists and dual A2A/A2B antagonists leading to selection of a clinical
candidate for an Investigative New Drug or IND enabling studies, (ii) further characterization of the current pipeline of A2A
agonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies; (iii) licensing
and/or partnering the A2B antagonists, dual A2A/A2B antagonists, and/or A2A agonists
for further development, (iv) through our newly acquired adenosine receptor chemistry technology platform, continue to produce
next generation adenosine receptor modulators, (v) pursue licensing and/or partnering of mipsagargin, (vi) conduct a clinical study
of mipsagargin in patients with advanced HCC, and (vii) explore collaborations utilizing mipsagargin in new, non-clinical solid
tumor models with leading researchers in the oncology field.
Our ability to execute our business plan
is dependent on the amount and timing of cash, if any, that we are able to raise. During February of 2018, we curtailed our operations
due to our lack of cash. During July 2018, we were able to raise approximately $500,000 through the sale of debt securities and
we raised $25,000 in December 2018 through the sale of notes. We are currently using such funds to maintain our SEC reporting requirements,
pay outstanding invoices to our independent registered accounting firm, and other outstanding obligations, the payment of which
we believe to be vital to our future operations. Should we fail to further raise sufficient funds to execute our business plan,
our priority would be to maintain our intellectual property portfolio and continue, to the best of our ability, our public company
reporting requirements.
While we believe that the data from our
nonclinical studies appear promising, the outcome of our ongoing or future studies may ultimately be unsuccessful.
Our ability to execute our business plan
is dependent on the amount and timing of cash, if any, that we are able to raise. Should we not raise sufficient funds to execute
our business plan, our priority is the continued production of adenosine receptor modulator products for any existing material
transfer agreements and continuing business development discussions with potential development partners.
Recent Developments
|
●
|
On July 26, 2019, we appointed Michael Cain as our interim Chief Executive Officer and as a member of the Board of Directors.
|
|
|
|
|
●
|
In December 2018, we raised $25,000 through the sale of promissory notes.
|
|
|
|
|
●
|
On August 3, 2018, we entered into an agreement with Ridgeway Therapeutics, Inc. to develop A2B antagonists, dual A2A/A2B antagonists, initially as anti-cancer agents.
|
Product Development of Adenosine
Receptor Modulators
Adenosine is an extracellular signaling
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 inhibits immune response mediated through the A2A and A2B receptors.
Adenosine also plays a role in non-malignant conditions where it is rapidly increased in response to inflammation, hypoxia, ischemia,
or trauma. Adenosine released in this setting has been shown to have a protective effect and limits excessive inflammatory damage
to tissues.
The adenosine receptor antagonists have
broad applicability as a potential immuno-oncology (IO) therapeutic agent in multiple 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 development our 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 existing agents toward IND enabling studies and support ongoing licensing/partnership activities.
|
|
●
|
Conduct IND enabling
studies.
|
|
●
|
Conduct clinical studies
with one or more of the adenosine receptor antagonists.
|
|
●
|
Continue generating
additional adenosine receptor antagonists to expand our portfolio.
|
The adenosine receptor agonists have applicability
in a broad range of non-oncology conditions including inflammatory and autoimmune diseases and conditions. We are actively seeking
licensing opportunities and/or partners to further development our A2A receptor agonists. Our current product development
plan for adenosine receptor agonists contemplates the following major initiatives subject to the Company receiving sufficient funds:
|
●
|
License and/or partner
to companies with development expertise in the intended indication.
|
|
●
|
Further characterize
existing agents to support licensing/partnership activities.
|
|
●
|
Continue generating
additional adenosine receptor agonists to expand our portfolio.
|
Financial
To date, we have devoted substantially all of our efforts and financial resources to the development of
our proposed drug candidates. mipsagargin is the only product candidate for which we have conducted clinical trials, and we have
not received FDA approval to market, distribute or sell any products. We have currently curtailed our research on mipsagargin.
We are also 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, 2019 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 cash equivalents and restricted
cash balances at September 30, 2019 was approximately $50,000, representing 71% of our total assets. Based on our current expected
level of operating expenditures, we expect to be able to fund our operations into the first quarter of 2020. We curtailed substantially
all operations in February 2018. 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. We raised approximately $500,000 in July 2018 and $25,000 in December 2018, which we expect will enable us to
bring our required annual and quarterly filings current, which will enable us to seek additional financing.
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, 2018 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. Notwithstanding our recent financings in July 2018, whereby we raised
$500,000, and December 2018 whereby we raised $25,000, our current cash level raises substantial doubt about our ability to continue
as a going concern past the fourth quarter of 2019. 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.
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 2018 Annual Report on Form
10-K.
Result of Operations
Three Months Ended September 30,
2019 Compared to Three Months Ended September 30, 2018
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, 2019 and 2018, and we do not anticipate generating any revenues during 2019. Net income for the three months
ending September 30, 2019 was approximately $0.4 million and net loss for the three months ended September 30, 2018 was approximately
$2.7 million, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled approximately
$0.1 million and $0.1 million during the three months ended September 30, 2019 and 2018, respectively. The increase in operating
expenses is the result of the following factors.
|
|
Three months ended
June 30
|
|
|
Change in 2019 versus
2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(amount in thousands)
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
-
|
|
|
|
-
|
%
|
General and administrative
|
|
|
126
|
|
|
|
94
|
|
|
|
32
|
|
|
|
34
|
%
|
Total operating expenses
|
|
$
|
137
|
|
|
$
|
105
|
|
|
$
|
32
|
|
|
|
31
|
%
|
Research and Development Expenses
Research and development expenses totaled
approximately $0.01 million and $0.01 million for the three months ended September 30, 2019 and 2018, respectively.
Our research and development expenses consist
primarily of expenditures related to manufacturing, pre-clinical studies, employee compensation, consulting, and patent related
costs.
General and Administrative
General and administrative expenses totaled
approximately $0.1 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively. The increase
of approximately $0.03 million, or 34%, for the three months ended September 30, 2019 compared to the same period in 2018, was
primarily due to increased professional fees and expenses related to our public filings.
Our general and administrative expenses
consist primarily of expenditures related to legal, accounting and tax, other professional services, and general operating expenses.
Other Income (Expense)
Other income (expense) totaled approximately
$0.6 million of income and approximately $2.6 million of expense for the three months ended September 30, 2019 and 2018, respectively.
|
|
Three Months Ended
September 30,
|
|
|
Change in 2019 Versus
2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(amount in thousands)
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative liability
|
|
$
|
959
|
|
|
$
|
(2,329
|
)
|
|
$
|
3,288
|
|
|
|
141
|
%
|
Gain on conversion of debt
|
|
|
-
|
|
|
|
21
|
|
|
|
(21
|
)
|
|
|
(100
|
)%
|
Interest income (expense), net
|
|
|
(401
|
)
|
|
|
(258
|
)
|
|
|
(143
|
)
|
|
|
(55
|
)%
|
Total other income (expense)
|
|
$
|
558
|
|
|
$
|
(2,566
|
)
|
|
$
|
3,124
|
|
|
|
122
|
%
|
Gain on change in fair value of derivative liability
As a result of a change in the fair value
of our derivative liability, we realized gain of $1.0 million during the three months ended September 30, 2019 compared to a loss
in the fair value of our derivative liability of $2.3 million during the three months ended September 30, 2018. 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 and July 2019, 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
There was no gain on conversion of debentures
during the three months ended September 30, 2019, compared to a gain of $0.02 million during the three months ended September 30,
2018. 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 $0.4 million
in the three months ended September 30, 2019 compared to expense of $0.3 million for the three months ended September 30, 2018.
The increase of $0.1 million was attributable to the financial cost of waivers and extensions issued in connection with our debentures,
partially offset by the cost associated with derivative instruments issued with a value in excess of proceeds received.
Nine Months Ended September 30, 2019
Compared to Nine Months Ended September 30, 2018
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, 2019 and 2018, and we do not anticipate generating any revenues during 2019. Net loss for the nine months ending
September 30, 2019 was approximately $0.5 million and net loss for the nine months ending September 30, 2018 was approximately
$2.3 million, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled approximately
$0.5 million and $0.5 million during the nine months ended September 30, 2019 and 2018, respectively. Operating expenses are comprised
of the following factors.
|
|
Nine months ended September 30,
|
|
|
Change in 2019 versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(amount in thousands)
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
33
|
|
|
$
|
197
|
|
|
$
|
(164
|
)
|
|
|
(83
|
)%
|
General and administrative
|
|
|
466
|
|
|
|
331
|
|
|
|
135
|
|
|
|
41
|
%
|
Total operating expenses
|
|
$
|
499
|
|
|
$
|
528
|
|
|
$
|
(29
|
)
|
|
|
(6
|
)%
|
Research and Development Expenses
Research and development expenses totaled
approximately $0.03 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease
of approximately $0.2 million, or 83%, for the nine months ended September 30, 2019 compared to the same period in 2018 was primarily
due to the suspension of substantially all business operations in February 2018, due to a lack of capital.
Our research and development expenses consist
primarily of expenditures related to manufacturing, pre-clinical studies, employee compensation, consulting, and patent related
costs.
General and Administrative
General and administrative expenses totaled
approximately $0.5 million and $0.3 million for the nine months ended September 30, 2019 and 2018, respectively. The increase of
approximately $0.1 million, or 41%, for the nine months ended September 30, 2018 compared to the same period in 2018, was primarily
due to increased professional fees and expenses related to our public filings, partially offset by a decrease in compensation and
other costs as a result of the suspension of substantially all business operations in February 2018, due to a lack of capital.
Our general and administrative expenses
consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and
general operating expenses.
Other Income (Expense)
Other income (expense) totaled approximately $0.01 million of income and $1.7 million of expense for the
nine months ended September 30, 2019 and 2018, respectively.
|
|
Nine Months Ended September 30,
|
|
|
Change in 2019 Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(amount in thousands)
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative liability
|
|
$
|
640
|
|
|
$
|
(1,346
|
)
|
|
$
|
1,986
|
|
|
|
148
|
%
|
Gain on conversion of debt
|
|
|
50
|
|
|
|
83
|
|
|
|
(33
|
)
|
|
|
(40
|
)%
|
Interest income (expense), net
|
|
|
(683
|
)
|
|
|
(418
|
)
|
|
|
(265
|
)
|
|
|
(63
|
)%
|
Total other income (expense)
|
|
$
|
7
|
|
|
$
|
(1,681
|
)
|
|
$
|
1,688
|
|
|
|
100
|
%
|
Gain on change in fair value of derivative liability
As a result of a change in the fair value
of our derivative liability, we realized a gain of $0.6 million during the nine months ended September 30, 2019 compared to a loss
of $1.3 million in the nine months ended September 30, 2018. 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 and July 2019, 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
There was a gain on conversion of debentures
of approximately $0.1 million and $0.1 million during the nine months ended September 30, 2019 and 2018, respectively. 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
approximately $0.7 million and $0.4 million in the nine months ended September 30, 2019 and 2018, respectively. The increase
of $0.3 million was attributable to the financial cost of waivers and extensions issued in connection with our debentures,
partially offset by 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, 2019 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 $36.9 million. Cash and
restricted cash at September 30, 2019 were $0.05 million.
Our auditors’ report on our December
31, 2018 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, we expect to be able to fund our operations into the first quarter of 2020. 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 2019 versus
2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
(amount in thousands)
|
|
|
|
|
|
|
|
Cash and restricted cash at beginning of period
|
|
$
|
331
|
|
|
$
|
10
|
|
|
$
|
321
|
|
|
|
3200
|
%
|
Net cash used in operating activities
|
|
|
(286
|
)
|
|
|
(161
|
)
|
|
|
(125
|
)
|
|
|
(78
|
)%
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Net cash provided by financing activities
|
|
|
5
|
|
|
|
500
|
|
|
|
(495
|
)
|
|
|
(99
|
)%
|
Cash and restricted cash at end of period
|
|
$
|
50
|
|
|
$
|
349
|
|
|
$
|
(299
|
)
|
|
|
(86
|
)%
|
Cash, including restricted cash, totaled
approximately $0.05 million and $0.3 million as of September 30, 2019 and 2018, respectively. The decrease of approximately $0.3
million at September 30, 2019 compared to the same period in 2018 was primarily attributable to cash used in operations and a decrease
in cash provided by financing activities.
Net Cash Used in Operating Activities
Net cash used in operating activities was
approximately $0.3 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively. Cash used for
operations increased by approximately $0.1 million, or 78%, during the nine months ended September 30, 2019, compared to the same
period in 2018. The increase in cash used was primarily attributable to an increase in our net loss (after adjusting for noncash
items) of approximately $0.2 million, partially offset by an increase in accounts payable and accrued expenses of approximately
$0.04 million.
Net Cash Provided by Investing Activities
There was no cash used in investing activities
for the nine months ended September 30, 2019 and 2018.
Net Cash Provided by Financing Activities
There was $5,000 cash provided by financing activities for the nine months ended September 30, 2019, compared
$0.5 million of cash provided by financing activities for the nine months ended September 30, 2018. In 2019 we received proceeds
of $5,000 from the sale of preferred stock. In 2018 we received proceeds of $0.5 million from the sale of debentures.