0001213900-19-010762.txt : 20190614 0001213900-19-010762.hdr.sgml : 20190614 20190614160859 ACCESSION NUMBER: 0001213900-19-010762 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20190614 DATE AS OF CHANGE: 20190614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Inspyr Therapeutics, Inc. CENTRAL INDEX KEY: 0001421204 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55331 FILM NUMBER: 19898971 BUSINESS ADDRESS: STREET 1: 2511 N LOOP 1604 W STREET 2: SUITE 204 CITY: SAN ANTONIO STATE: TX ZIP: 78258 BUSINESS PHONE: (210) 479-8112 MAIL ADDRESS: STREET 1: 2511 N LOOP 1604 W STREET 2: SUITE 204 CITY: SAN ANTONIO STATE: TX ZIP: 78258 FORMER COMPANY: FORMER CONFORMED NAME: GENSPERA INC DATE OF NAME CHANGE: 20071213 10-Q 1 f10q0918_inspyrtherape.htm QUARTERLY REPORT

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C.20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2018

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-55331

 

INSPYR THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-0438951
State or other jurisdiction of   (I.R.S. Employer
incorporation or organization   Identification No.)

 

31200 Via Colinas, Suite 200    
Westlake Village, CA   91362
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (818) 661-6302

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class   Trading Symbol   Name of Each Exchange on Which Registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
   
Non-accelerated filer Smaller reporting company

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes   No

 

As of May 15, 2019, the issuer had 150,000,000 common shares, $0.0001 par value, issued and outstanding.

 

 

 

 

 

 

Table of Contents

 

    Page
     
PART I FINANCIAL INFORMATION 1
     
Item 1. Condensed Consolidated Financial Statements (unaudited) 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 1
     
  Condensed Consolidated Statements of Losses (unaudited) for the three and nine months ended September 30, 2018 and 2017 2
     
  Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) for the nine months ended September 30, 2018 and 2017 3
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017 4
     
  Notes to Unaudited Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
     
Item 4. Controls and Procedures 28
     
PART II OTHER INFORMATION 30
     
Item 1. Legal Proceedings 30
     
Item 1A. Risk Factors 30
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
     
Item 3. Defaults Upon Senior Securities 42
     
Item 4. Mine Safety Disclosure 42
     
Item 5. Other Information 42
     
Item 6. Exhibits 42

 

i

 

 

ADVISEMENT

 

We urge you to read this entire Quarterly Report, including the financial statements and related notes included herein as well as our 2017 Annual Report on Form 10-K for the year ended December 31, 2017, which also includes “Risk Factors,” filed with the United States Securities and Exchange Commission or SEC on April 26, 2019. As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,” “our,” “the Company,” “Inspyr Therapeutics” and “registrant” refer to Inspyr Therapeutics, Inc. and our wholly owned subsidiary, Lewis & Clark Pharmaceuticals, Inc. Also, any reference to “common stock “or “common shares” refers to our $0.0001 par value common stock. The information contained herein is current as of the date of this Quarterly Report (September 30, 2018), unless another date is specified. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.0001 par value Series A preferred stock, our $0.0001 par value series B preferred stock, our $.0.0001 par value Series C preferred stock, and our $0.0001 par value series D preferred stock, unless specified. All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:30 reverse stock split that became effective on November 17, 2016 as if it had taken place as of the beginning of the earliest period presented.

 

We prepare our interim financial statements in accordance with United States generally accepted accounting principles. Our financials and results of operation for the three and nine month periods ended September 30, 2018 is not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2018. The interim financial statements and other information presented in this Quarterly Report should be read together with the reports, statements and information filed by us with the United States Securities and Exchange Commission or SEC.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to our business development plans, pre-clinical studies and potential clinical trials, regulatory reviews, timing, strategies, expectations, anticipated expense levels, business prospects and positioning with respect to the market for our proposed products, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations), express, our current intentions, beliefs, expectations, strategies or predictions, as well as historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, to be materially different from anticipated results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,” “believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including our ability to, without limitation:

 

Resume our corporate operations that have been curtailed;

 

  attract, build and retain a senior management team;
     
  manage our business given continuing operating losses and negative cash flows;

 

obtain sufficient capital or a strategic business arrangement to fund our operations and expansion plans;

 

build the infrastructure necessary to support the growth of our business;

 

ii

 

 

manage competitive factors and developments beyond our control;

 

manage scientific and medical developments which may be beyond our control;

 

manage the governmental regulation of our business including state, federal and international laws;

 

maintain and protect our intellectual property;

 

obtain patents based on our current and/or future patent applications;

 

obtain and maintain other rights to technology required or desirable to conduct or expand our business;

 

  achieve any potential strategic benefits of licensing transactions, collaborations, acquisitions, or in-licensing of new technologies, if any; 
     
  successfully integrate the business of with our wholly owned subsidiary, Lewis & Clark Pharmaceuticals, Inc.; and

 

manage any other factors discussed in the “Risk Factors” section, and elsewhere in this Quarterly Report.

 

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise, except to the extent required by federal securities laws. The risks discussed in this report should be considered in evaluating our business and future prospects.

 

iii

 

 

PART I 

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
ASSETS        
         
Current assets:        
Cash  $3   $10 
Restricted cash   346     
Prepaid expenses       5 
Total current assets   349    15 
Office and lab equipment, net of accumulated depreciation of $4 and $2, respectively   3    4 
Intangible assets, net of accumulated amortization of $175 and $162, respectively   37    50 
Total assets  $389   $69 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable  $1,977   $1,968 
Accrued expenses   1,774    1,539 
Convertible debentures, net of unamortized discount of $386 and $227, respectively   2,707    2,476 
Derivative liability   4,724    2,934 
Total current liabilities   11,182    8,917 
Total liabilities   11,182    8,917 
           
Commitments and contingencies (Note 7)        
           
Stockholders’ deficit:          
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 and 495 shares issued  and outstanding, respectively        
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 21,388,929 and 10,888,929 shares issued and outstanding, respectively   2    1 
Additional paid-in capital   51,148    50,885 
Accumulated deficit   (61,943)   (59,734)
           
Total stockholders’ deficit   (10,793)   (8,848)
           
Total liabilities and stockholders’ deficit  $389   $69 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSSES

(unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2018   2017   2018   2017 
                 
Operating expenses:                
Research and development  $11   $384   $197   $1,349 
General and administrative   94    474    331    1,255 
Total operating expenses   105    858    528    2,604 
                     
Loss from operations   (105)   (858)   (528)   (2,604)
                     
Other income (expense):                    
(Loss) gain on change in fair value of derivative liability   (2,329)   201    (1,346)   201 
Gain on conversion of debt   21    39    83    39 
Interest (expense), net   (258)   (5,154)   (418)   (5,154)
                     
Loss before provision for income taxes   (2,671)   (5,772)   (2,209)   (7,518)
                     
Provision for income taxes                
                     
Net loss   (2,671)   (5,772)   (2,209)   (7,518)
Deemed dividend       (435)   (110)   (1,703)
                     
Net loss attributable to common shareholders  $(2,671)  $(6,207)  $(2,319)  $(9,221)
                     
Net loss per common share, basic and diluted  $(0.15)  $(0.96)  $(0.15)  $(2.90)
                     
Weighted average shares outstanding   18,163,331    6,440,802    15,180,156    3,183,289 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

  

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(in thousands, except share and per share data)

 

   Convertible                         
   Preferred       Common       Additional         
   Stock       Stock       Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                             
Balance, December 31, 2016   2,828   $    1,398,832   $   $47,746   $(48,634)  $(888)
                                    
Stock-based compensation                   174        174 
                                    
Conversion of preferred stock to common stock   (118)       223,585                 
                                    
Preferred stock exchanged for convertible notes payable   (2,505)                        
                                    
Conversion of notes           331,000        44        44 
                                    
Common stock issued for acquisition           7,122,172    1    2,492        2,493 
                                    
Sale of preferred stock and warrants at $1.00 per share   285                285        285 
                                    
Preferred stock and warrants issued for services   5                5        5 
                                    
Net loss                       (7,518)   (7,518)
                                    
Balance, September 30, 2017 (unaudited)   495   $    9,075,589   $1   $50,746   $(56,152)  $(5,405)
                                    
Balance, December 31, 2017   495   $    10,888,929   $1   $50,885   $(59,734)  $(8,848)
                                    
Stock-based compensation                   90        90 
                                    
Conversion of debentures           10,500,000    1    173        174 
                                    
Net loss                       (2,209)   (2,209)
                                    
Balance, September 30, 2018 (unaudited)   495   $    21,388,929   $2   $51,148   $(61,943)  $(10,793)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

  

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

   Nine Months Ended
September 30,
 
   2018   2017 
Cash flows from operating activities:        
Net loss  $(2,209)  $(7,518)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   14    23 
Stock-based compensation   90    179 
Loss (gain) on change in fair value of derivative liability   1,346    (201)
Gain on conversion of debt   (83)   (39)
Amortization of debt discount   355    13 
Finance cost   63    5,138 
Decrease in operating assets:          
Prepaid expenses   4    100 
Increase in operating liabilities:          
Accounts payable and accrued expenses   259    1,221 
Cash used in operating activities   (161)   (1,084)
           
Cash flows from investing activities:          
Cash from acquisition       23 
Acquisition of office equipment       (3)
Cash provided by investing activities       20 
           
Cash flows from financing activities:          
Proceeds from convertible notes   500    250 
Proceeds from sale of stock and warrants       285 
Cash provided by financing activities   500    535 
           
Net increase (decrease) in cash and restricted cash   339    (529)
Cash and restricted cash, beginning of period   10    547 
           
Cash and restricted cash, end of period  $349   $18 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

  

INSPYR THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BACKGROUND

 

Inspyr Therapeutics, Inc. (“we”, “us”, “our company”, “our”, “Inspyr” or the “Company”) was formed under the laws of the State of Delaware in November 2003, and has its principal office in Westlake Village, California. We are an early-stage, pre-revenue, pharmaceutical company focused on the discovery and development of prodrug cancer therapeutics for the treatment of solid tumors, including brain, liver, prostate and other cancers. We plan to develop a series of therapies based on our target-activated prodrug technology platform.

 

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 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 attempt to become current in 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.

 

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 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 $62 million as of September 30, 2018. 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, 2018 was approximately $349,000, representing 89.7% of our total assets. Based on our current expected level of operating expenditures, we expect to be able to fund our operations into the third quarter of 2019. 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 we expect will enable us to bring our required annual and quarterly filings current, which will enable us to seek additional financing.

 

5

 

  

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, 2017 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 third 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 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 financial statements as of and for the three and nine months ended September 30, 2018 and 2017 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, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any future period. All references to September 30, 2018 and 2017 in these footnotes are unaudited.

 

These unaudited condensed financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended December 31, 2017, included in the Company’s annual report on Form 10-K filed with the SEC on April 26, 2019.

 

The condensed balance sheet as of December 31, 2017 has been derived from the audited 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.

 

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 $0.4 million for the three months ended September 30, 2018 and 2017, respectively. We incurred research and development expenses of approximately $0.2 million and $1.3 million for the nine months ended September 30, 2018 and 2017, 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.

 

6

 

  

Loss per Share

 

Basic loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of September 30, 2018 and 2017, as they would be anti-dilutive:

 

   Nine Months Ended
September 30,
 
   2018   2017 
Shares underlying options outstanding   325,333    364,516 
Shares underlying warrants outstanding   2,512,930    4,511,914 
Shares underlying convertible notes outstanding   572,882,313    34,835,228 
Shares underlying convertible preferred stock outstanding   26,395,624    4,770,370 
    376,916,512    44,482,028 

 

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, 2018. The tables below summarize the fair values of our financial liabilities as of September 30, 2018 (in thousands):

 

   Fair Value at
September 30,
   Fair Value Measurement Using 
   2018   Level 1   Level 2   Level 3 
                     
Derivative liability  $4,724   $   $   $4,724 

  

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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,
 
   2018   2017 
         
Balance at beginning of year  $2,934   $ 
Additions to derivative instruments   577    2,953 
Reclassification on conversion   (133)   (44)
Loss (gain) on change in fair value of derivative liability   1,346    (201)
Balance at end of period  $4,724   $2,708 

 

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.

 

Effect of ASU No. 2017-11 on Previously Issued Financial Statements

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company’s previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

 

8

 

  

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

September 30, 2017

 

   As reported   Adjustments   Adjusted 
             
ASSETS            
             
Current assets:            
Cash and cash equivalents  $18   $   $18 
Prepaid expenses   16        16 
Total current assets   34        34 
Office and lab equipment, net of accumulated depreciation of $10   350        350 
Intangible assets, net of accumulated amortization of $158   54        54 
Goodwill   2,159        2,159 
Other assets   3        3 
Total assets  $2,600   $   $2,600 
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT               
                
Current liabilities:               
Accounts payable  $1,724   $   $1,724 
Accrued expenses   1,093        1,093 
Convertible debentures, net of unamortized discount of $307   2,480        2,480 
Derivative liability   3,338    (630)   2,708 
Total current liabilities   8,635    (630)   8,005 
Total liabilities   8,635    (630)   8,005 
                
Commitments and contingencies            
                
Stockholders’ deficit:               
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued  and outstanding            
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding   1        1 
Additional paid-in capital   48,425    2,321    50,746 
Accumulated deficit   (54,461)   (1,691)   (56,152)
                
Total stockholders’ deficit   (6,035)   630    (5,405)
                
Total liabilities and stockholders’ deficit  $2,600   $   $2,600 

 

9

 

  

INSPYR THERAPEUTICS, INC.

CONDENSED STATEMENTS OF LOSSES

(unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
September 30, 2017
   Nine Months Ended
September 30, 2017
 
   Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted 
                         
Operating expenses:                        
Research and development  $384       $384   $1,349   $   $1,349 
General and administrative   474        474    1,255        1,255 
Total operating expenses   858        858    2,604        2,604 
                               
Loss from operations   (858)       (858)   (2,604)       (2,604)
                               
Other income (expense):                              
Gain on change in fair value of derivative liability   1,405    (1,204)   201    3,403    (3,202)   201 
Gain on conversion of debt   39        39    39        39 
Interest income (expense), net   (5,017)   (137)   (5,154)   (6,479)   1,325    (5,154)
                               
Loss before provision for income taxes   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
                               
Provision for income taxes                        
                               
Net loss   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
Deemed dividend       (435)   (435)       (1,703)   (1,703)
                               
Net loss attributable to common shareholders  $(4,431)  $(1,776)  $(6,207)  $(5,641)  $(3,580)  $(9,221)
                               
Net loss per common share, basic and diluted  $(0.69)       $(0.96)  $(1.77)       $(2.90)
                               
Weighted average shares outstanding   6,440,802         6,440,802    3,183,289         3,183,289 

  

10

 

  

INSPYR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine Months Ended September 30, 2017

 

   Reported   Adjustments   Adjusted 
Cash flows from operating activities:            
Net loss  $(5,641)  $(1,877)  $(7,518)
Adjustments to reconcile net loss to net cash used in  operating activities:               
Depreciation and amortization   23         23 
Stock-based compensation   179         179 
Gain on change in fair value of derivative liability   (3,403)   3,202    (201)
Gain on conversion of debt   (39)        (39)
Amortization of debt discount   13         13 
Finance cost   6,463    (1,325)   5,138 
Increase in operating assets:               
Prepaid expenses   100         100 
Increase in operating liabilities:               
Accounts payable and accrued expenses   1,221         1,221 
Cash used in operating activities   (1,084)       (1,084)
                
Cash flows from investing activities:               
Cash from acquisition   23         23 
Acquisition of office equipment   (3)        (3)
Cash provided by investing activities   20        20 
                
Cash flows from financing activities:               
Proceeds from convertible notes   250         250 
Proceeds from sale of stock and warrants   285         285 
Cash provided by financing activities   535        535 
                
Net decrease in cash   (529)        (529)
Cash, beginning of period   547         547 
                
Cash, end of period  $18   $   $18 

 

11

 

  

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, 2018 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 Company does not expect any impact from the adoption of this standard on its 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.

 

12

 

  

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The adoption of this standard did not have a material impact on its consolidated financial statements.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company’s previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

 

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

The following table contains additional information for the periods reported (in thousands).

 

   Nine Months Ended
September 30,
 
   2018   2017 
Non-cash financial activities:        
Common  stock issued on conversion of notes payable and derivative liability  $174   $44 
Debentures converted to common stock   124    38 
Derivative liability extinguished upon conversion of notes payable   133    44 
Derivative liability issued   577    2,953 
Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc.       2,493 
Accounts payable paid through issuance of debentures   15    70 
Debentures issued to retire preferred stock       2,504 

 

There was no cash paid for interest and income taxes for the nine months ended September 30, 2018 and 2017.

 

13

 

  

NOTE 5 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

   September 30,
2018
   December 31,
2017
 
Accrued compensation and benefits  $1,326   $1,154 
Accrued research and development   177    144 
Accrued other   271    241 
Total accrued expenses  $1,774   $1,539 

 

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.

 

In September 2017 and July 2018, we 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 and nine months ended September 30, 2018, we recorded a loss of approximately $2.3 million and $1.3 million, respectively, related to the change in fair value of the derivative liabilities during the periods. During the three and nine months ended September 30, 2017, we recorded a gain of approximately $0.2 million related to the change in fair value of the derivative liabilities during the periods. 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, 2018 are as follows:

 

   2018 
Volatility   237%
Expected term (years)   11 months 
Risk-free interest rate   2.57%
Dividend yield   None 

 

As of September 30, 2018 and December 31, 2017, the derivative liability recognized in the financial statements was approximately $4.7 million and $2.9 million, respectively.

 

As disclosed above, in Note 3, the Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company’s previously issued financial statements were required for the retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11. As a result our financial instruments (such as warrants and convertible instruments) with down round features that required fair value measurement of the entire instrument or conversion option have been retroactively reclassified to remove their classification as derivative instruments.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

Inspyr currently does not have any ongoing leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.

 

There was no rent expense for the three and nine months ended September 30, 2018 and 2017.

  

Employment Agreements

 

We employ our Chief Executive Officer pursuant to a written employment agreement. The employment agreement contains severance provisions and indemnification clauses. The indemnification agreement provides for the indemnification and defense of the executive officer, in the event of litigation, to the fullest extent permitted by law.

 

14

 

 

On February 28, 2017, Russell Richerson, PhD, resigned as chief operating officer of the Company, effective immediately. Dr. Richerson entered into a separation release of claims agreement (“Separation Agreement”) pursuant to which the Company: (i) issued Dr. Richerson a warrant to purchase 76,726 shares of Common Stock with an exercise price of $0.75 per share and a term of three and a half (3.5) years, (ii) agreed to make the vested portion of any options held by Dr. Richerson, exercisable at any time during their remaining term regardless of any termination provisions contained in the applicable equity compensation plans pursuant to which such awards were made (collectively, the “Awards”) and (iii) agreed to reduce the exercise prices of such Awards to $0.75 per share for the duration of their respective terms. In consideration of the foregoing, Dr. Richerson agreed to release the Company from any and all claims, including any rights or obligations as contained in his prior employment agreement, as amended.

 

Severance provisions are not applicable to any other executive officer employment agreements until such time as they have each been employed for at least 6 months and the Company has raised $25 million in gross proceeds from capital raising transactions. Severance provisions pursuant to a termination within 12 months of a Sale Event occurring are not applicable as of September 30, 2018, as no Sale Event has occurred prior to such date.

 

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. 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’ EQUITY

 

Preferred Stock

 

In March and April, 2017, we sold 290.4 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 387,251 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at a conversion price equal to $0.75, 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.

 

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 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 (collectively, the “Exchange”). In connection with the Exchange, such Series A Shares and Series B Shares have been cancelled and terminated.

  

As of September 30, 2018 and December 31, 2017, there were outstanding 133.8 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, and 290.4 shares of Series C Preferred Stock.

 

As a result of recent equity financings and conversions of debentures, the conversion prices of our Series A Preferred Stock has been reduced to $0.53 per share, the conversion price of 200 shares of our Series C preferred stock has been reduced to $0.02 per share, and our Series B Preferred Stock and 90.4 shares of our Series C preferred stock has been reduced to $0.01 per share at September 30, 2018.

 

Common Stock

 

During the nine months ended September 30, 2018, we issued a total of 10,500,000 shares of common stock, valued at $173,850, upon the conversion of $123,878 principal amount of our convertible debentures.

 

Between January 1 and September 30, 2017, we issued a total of 223,585 shares of common stock upon the conversion of 79.5 shares of Series A Preferred Stock and 39 shares of Series B Preferred Stock.

 

15

 

  

During September 2017, we issued a total of 331,000 shares of common stock upon the conversion of $37,995 principal amount of our convertible debentures.

 

Effective July 31, 2017 we issued 7,122,172 shares of common stock to acquire 100% of the capital stock of Lewis & Clark, Pharmaceuticals, Inc., a Virginia Corporation, pursuant to the terms of a share exchange agreement dated July 31, 2017.

 

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 $0.53 per share, the conversion price of 200 shares of our Series C preferred stock has been reduced to $0.02 per share, and our Series B Preferred Stock and 90.4 shares of our Series C preferred stock has been reduced to $0.01 per share. The exercise prices of the warrants issued in conjunction with the Series B and Series C preferred stock have also been reduced to $0.02 and $0.01 per share.

 

As a result of the reductions of the conversion prices of our preferred stock and warrants, we have recorded deemed dividends of approximately $0 and $110,000 during the three and nine months ended September 30, 2018.

 

As a result of the reductions of the conversion prices of our preferred stock and warrants, we have recorded deemed dividends of approximately $435,000 and $1,703,000 during the three and nine months ended September 30, 2017, respectively.

 

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 consolidated statement of losses (in thousands):

 

   Nine Months Ended
September 30,
 
   2018   2017 
Research and development  $62   $111 
General and administrative   28    63 
Total stock-based compensation expense  $90   $174 

 

During the nine months ended September 30, 2018, we accelerated the vesting of all unvested employee options. As of September 30, 2018, there was no unrecognized compensation cost related to non-vested stock options.

  

The following table summarizes stock option activity for the nine months ended September 30, 2018:

 

   Number of
shares
   Weighted-
average
exercise
price
   Weighted-average
remaining
contractual term
(in years)
   Aggregate
intrinsic
value (in
thousands)
 
Outstanding at December 31, 2017   356,280   $7.45                                
Granted      $           
Forfeited   (30,947)  $18.09           
Outstanding at September 30, 2018   325,333   $6.44    4.0   $ 
                     
Exercisable at September 30, 2018   325,333   $6.44    4.0   $ 

 

No options were exercised during the nine months ended September 30, 2018 and 2017.

 

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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, 2017   3,045,740   $5.39                               
Issued                  
Expired   (532,810)  $15.87           
Outstanding at September 30, 2018   2,512,930   $3.16    2.9   $ 
                     
Exercisable at September 30, 2018   2,512,930   $3.16    2.9   $ 

 

No warrants were exercised during the nine months ended September 30, 2018 and 2017.

 

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 $0.02 and $0.01 per share.

 

The following table summarizes outstanding common stock purchase warrants as of September 30, 2018:

 

   Number of
shares
   Weighted-
average
exercise
price
   Expiration
Issued to consultants   102,213   $7.09   February 2019 through August 2023
Issued pursuant to 2014 financings   96,412   $34.50   June 2019
Issued pursuant to 2015 financings   460,384   $8.40   July 2020 through December 2020
Issued pursuant to 2016 financings   1,466,670   $0.01   December 2021
Issued pursuant to 2017 financings   387,251   $0.02   March 2022 through April 2022
    2,512,930         

 

NOTE 11 – CONVERTIBLE DEBENTURES

 

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) $0.33 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.

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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) $0.33 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 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 July 5, 2019.

 

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 July 5, 2019.

 

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, 2018, we issued a total of 10,500,000 shares of common stock, valued at $173,850, upon the conversion of $123,878 principal amount of our convertible debentures.

 

NOTE 12 – ACQUISITION

 

On July 31, 2017, we acquired 100% of the capital stock of Lewis & Clark, Pharmaceuticals, Inc., a Virginia Corporation (“L&C”), pursuant to the terms of a share exchange agreement (“Agreement”) dated July 31, 2017 (“Closing Date”), by and among, the Company, L&C, certain principals of L&C (the “Principals”) and all of the existing shareholders of L&C (“Shareholders”). As consideration for the acquisition of L&C, the Company agreed to issue an aggregate of 7,122,172 shares of the Company’s common stock (“Payment Shares”) to the Shareholders, accounting for, subsequent to the closing of the transaction, the Shareholders owning 50% of the issue and outstanding capital stock of the Company (including common shares issuable upon conversion of the Company’s outstanding preferred stock). The shares issued for the acquisition of L&C have been valued at $2,492,760.

 

The Principals have agreed to establish escrow accounts with respect to an aggregate of 973,251 of the Payment Shares pursuant to a share escrow agreement (“Escrow Agreement”) in order to satisfy certain indemnification obligations to the extent such may arise under the Agreement for the benefit of the Company, its shareholders, and its personnel. The Agreement contains certain customary indemnification provisions with respect to the Company one on hand and L&C and the Principals, on the other hand.

 

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Additionally, pursuant to the Agreement, all Shareholders that receive at least 5% of the Payment Shares (at least 356,109 shares) (including any shares held in escrow) agree to vote such shares in accordance with the recommendation of the Company’s board of directors (“Board”) with respect to any matter to be voted upon by shareholders of the Company for a period of eighteen (18) months from the Closing Date.

 

Furthermore, each Shareholder agrees that for a period of eighteen (18) months from the Closing Date, it will not sell or transfer any of the Payment Shares it receives pursuant to the Agreement, except that if a Shareholder is employed by the Company, it may sell up to five percent (5%) of Payment Shares it receives on each ninety (90) day period following the one (1) year anniversary of the Closing Date.

 

The allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows (in thousands):

 

Cash  $23 
Prepaid expenses   3 
Equipment   353 
Goodwill   2,159 
Total assets acquired   2,538 
Accounts payable and other liabilities   (45)
Total  $2,493 

 

Due to the curtailment of business activity in February 2018, the Company determined that the goodwill assigned to the Lewis & Clark, Pharmaceuticals, Inc. acquisition had become fully impaired as of December 31, 2017. Accordingly, we recorded a goodwill impairment charge of $2.2 million during the year ended December 31, 2017. The Company also determined that the office and lab equipment acquired pursuant to the Lewis & Clark, Pharmaceuticals, Inc. acquisition had become fully impaired as of December 31, 2017. Accordingly, we recorded an impairment charge of $0.3 million during the year ended December 31, 2017.

 

Pro forma results

 

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of L&C had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

 

   Three Months
September 30,
   Nine Months
September 30,
 
   2017   2017 
Revenue  $   $ 
Net loss attributable to common shareholders   (6,329)   (9,759)
Net loss per share   (0.72)   (1.12)

  

The amounts of revenue and loss of L&C since the acquisition date included in the consolidated statement of operations for the nine months ended September 30, 2017 are approximately $0 and ($149,000), respectively.

 

NOTE 13 – SUBSEQUENT EVENTS

 

No material events have occurred after September 30, 2018 that requires recognition or disclosure in the financial statements except as follows:

 

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.

 

From October 1, 2018 through January 22, 2019, we issued a total of 128,611,071 shares of common stock upon the conversion of $441,599 principal amount of our convertible debentures.

 

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”).

 

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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 30,001 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 $0.005 per share.

 

During January 2019, we issued the 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000.

 

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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, 2017, filed with the SEC on April 26, 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, 2018, to the comparable periods of 2017.

 

  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.

 

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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 attempt to become current in 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 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.
     
  On July 5, 2018, we completed the private placement of $515,000 of non-interest bearing senior convertible debentures.
     
  Between October 2, 2017 and October 23, 2017, we announced three (3) separate collaborations for preclinical studies of our proprietary adenosine receptor modulator based compounds.  The collaborations are with the University of Virginia School of Medicine, NYU Winthrop Hospital, and the National Institutes of Health.
     
  On September 12, 2017, we completed (i) the private placement of approximately $320,000 non-interest bearing senior convertible debentures and (ii) the exchange of approximately $2.5 million in stated value Series A and Series B Preferred stock for non-interest bearing senior convertible debentures.

  

  On July 31, 2017, we completed a share exchange agreement whereby we acquired 100% of the capital stock of Lewis & Clark Pharmaceuticals, Inc. in exchange for 7,122,172 shares of our common stock (50% of our issued and outstanding common stock, including common shares issuable upon conversion of our preferred stock).

 

  On April 24, 2017, April 18, 2017 and March 17, 2017, we completed the private placement of an aggregate of approximately $290,000 of our securities.

 

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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, 2018 we had an accumulated deficit of approximately $62 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, 2018 was approximately $349,000, representing 89.7% of our total assets. Based on our current expected level of operating expenditures, we expect to be able to fund our operations into the third quarter of 2019. 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.

 

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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, 2017 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. If we do not obtain additional funds, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

Critical Accounting Policies and Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2017 Annual Report on Form 10-K.

 

Result of Operations

 

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

 

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, 2018 and 2017, and we do not anticipate generating any revenues during 2018. Net losses for the three months ending September 30, 2018 and 2017 were approximately $2.7 million and $5.8 million, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled approximately $0.1 million and $0.9 million during the three months ended September 30, 2018 and 2017, respectively. The decrease in operating expenses is the result of the following factors.

 

   Three months ended
September 30
   Change in 2018 versus
2017
 
   2018   2017   $   % 
   (amount in thousands)         
Operating Expenses                
Research and development  $11   $384   $(373)   (97)%
General and administrative   94    474    (380)   (80)%
Total operating expenses  $105   $858   $(753)   (88)%

 

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Research and Development Expenses

 

Research and development expenses totaled approximately $0.01 million and $0.4 million for the three months ended September 30, 2018 and 2017, respectively. The decrease of approximately $0.4 million, or 97%, for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to the curtailment of 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 $0.1 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively. The decrease of approximately $0.4 million, or 80%, for the three months ended September 30, 2018 compared to the same period in 2017, was primarily due to the curtailment of 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 $2.6 million and $4.9 million for the three months ended September 30, 2018 and 2017, respectively.

 

   Three Months Ended
September 30,
   Change in 2018 Versus
2017
 
   2018   2017   $   % 
   (amount in thousands)         
(Loss) gain on change in fair value of derivative liability  $(2,329)  $201   $(2,530)   (1,259)%
Gain on conversion of debt   21    39    (18)   (46)%
Interest income (expense), net   (258)   (5,154)   4,896    95%
Total other income (expense)  $(2,566)  $(4,914)  $2,348    48%

 

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 loss of $2.3 million during the three months ended September 30, 2018 compared to a gain in the fair value of our derivative liability of $0.2 million during the three months ended September 30, 2017. The change in the fair value of our derivative liability was the result of our sale of convertible debentures in September 2017 and July 2018, 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 $0.02 million during the three months ended September 30, 2018, compared to a gain of $0.04 million during the three months ended September 30, 2017. 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.

 

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Interest income (expense)

 

We had net interest expense of $0.3 million in the three months ended September 30, 2018 compared to expense of $5.2 million for the three months ended September 30, 2017. The decrease of $4.9 million was attributable to new derivative instruments with a value in excess of proceeds received in the 2017 period.

 

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

 

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, 2018 and 2017, and we do not anticipate generating any revenues during 2018. Net losses for the nine months ending September 30, 2018 and 2017 were approximately $2.2 million and $7.5 million, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled approximately $0.5 million and $2.6 million during the nine months ended September 30, 2018 and 2017, respectively. Operating expenses are comprised of the following factors.

 

   Nine months ended
September 30,
   Change in 2018 versus
2017
 
   2018   2017   $   % 
   (amount in thousands)         
Operating Expenses                
Research and development  $197   $1,349   $(1,152)   (85)%
General and administrative   331    1,255    (924)   (74)%
Total operating expenses  $528   $2,604   $(2,076)   (80)%

 

Research and Development Expenses

 

Research and development expenses totaled approximately $0.2 million and $1.3 million for the nine months ended September 30, 2018 and 2017, respectively. The decrease of approximately $1.1 million, or 85%, for the nine months ended September 30, 2018 compared to the same period in 2017 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 $0.3 million and $1.3 million for the nine months ended September 30, 2018 and 2017, respectively. The decrease of approximately $0.9 million, or 74%, for the nine months ended September 30, 2018 compared to the same period in 2017, was primarily 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.

 

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Other Income (Expense)

 

Other income (expense) totaled approximately $1.7 million and $4.9 million for the nine months ended September 30, 2018 and 2017, respectively.

 

   Nine Months Ended
September 30,
   Change in 2018 Versus
2017
 
   2018   2017   $   % 
   (amount in thousands)         
(Loss) gain on change in fair value of derivative liability  $(1,346)  $201   $(1,547)   (770)%
Gain on conversion of debt   83    39    44    113%
Interest income (expense), net   (418)   (5,154)   4,736    92%
Total other income (expense)  $(1,681)  $(4,914)  $3,233    66%

 

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 loss of $1.3 million during the nine months ended September 30, 2018 compared to a gain in the fair value of our derivative liability of $0.2 million during the nine months ended September 30, 2017. The change in the fair value of our derivative liability was the result of our sale of convertible debentures in September 2017 and July 2018, 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 during the nine months ended September 30, 2018, compared to a gain of $0.04 million during the nine months ended September 30, 2017. 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 nine months ended September 30, 2018 compared to expense of $5.2 million for the nine months ended September 30, 2017. The decrease of $4.8 million was attributable to new derivative instruments with a value in excess of proceeds received in the 2017 period.

 

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 $62 million as of September 30, 2018 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 cash equivalents at September 30, 2018 were $0.3 million.

 

Our auditors’ report on our December 31, 2017 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 third quarter of 2019. 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.

 

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Nine months ended

September 30,

   Change in 2018 versus
2017
 
   2018   2017   $   % 
   (amount in thousands)         
Cash and restricted cash at beginning of period  $10   $547   $(537)   (98)%
Net cash used in operating activities   (161)   (1,084)   923    85%
Net cash provided by investing activities       20    (20)   (100)%
Net cash provided by financing activities   500    535    (35)   (7)%
Cash and restricted cash at end of period  $349   $18   $331    184%

 

Cash, including restricted cash, totaled approximately $0.3 million and $0.02 million as of September 30, 2018 and 2017, respectively. The increase of approximately $0.3 million at September 30, 2018 compared to the same period in 2017 was primarily attributable to a reduction in cash used in operation, offset by cash available from prior year private placements.

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was approximately $0.2 million and $1.1 million for the nine months ended September 30, 2018 and 2017, respectively. Cash used for operations declined by approximately $0.9 million, or 84%, during the nine months ended September 30, 2018, compared to the same period in 2017. The decrease in cash used was primarily attributable to a decrease in our net loss (after adjusting for noncash items) of approximately $2.0 million, partially offset by a decrease in accounts payable and accrued expenses of approximately $1.0 million.

 

Net Cash Provided by Investing Activities

 

There was $20,000 provided by investing activities for the nine months ended September 30, 2017 compared to no cash provided by or used in investing activities for the nine months ended September 30, 2018. The cash provided by investing activities was due to cash acquired in the acquisition of our subsidiary of $23,000, partially offset by purchases of office equipment in 2017.

 

Net Cash Provided by Financing Activities

 

There was $0.5 million provided by financing activities for the nine months ended September 30, 2018, compared to $0.5 million cash provided by financing activities for the nine months ended September 30, 2017, attributable to 2018 and 2017 private placements in which we raised approximately $0.5 million and $0.5 million in net proceeds, respectively.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are not required to provide the information required by this item as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

 

Our management, with the participation of our principal executive officer and principal accounting officer (both positions are held by our Chief Executive Officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act of 1934, as amended (the Exchange Act)), as of September 30, 2018. Based on that evaluation, management has concluded that due to limited resources and limited number of employees, its internal control over financial reporting was ineffective as of September 30, 2018 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles. To mitigate the current limited resources and employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase the number of employees, which would enable us to implement adequate segregation of duties within the internal control framework.

 

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Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the three month period ending September 30, 2018 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Limitations on Internal Controls

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

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PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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 alleges that such termination was for “Good Reason” as a result of a purported 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. His 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.

 

The Company vigorously disputes that the termination of his employment was for “Good Reason,” as that term is defined in his employment agreement and under applicable law. This matter is at the early stages. While no litigation is pending at this time, there can be no assurance that this matter will be resolved in such a manner as to avoid litigation. Accordingly, the Company is unable at this time to predict the outcome of this matter, and any views formed as to the viability of these claims or the costs to the Company which could result may change from time to time as the matter proceeds through its course.

 

ITEM 1A. RISK FACTORS

 

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Quarterly Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Quarterly Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Quarterly Report or presented elsewhere by management from time to time.

 

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

 

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Risks Related to our Financial Position and Need to Raise Additional Capital

 

We were forced to curtail our operations due to a lack of operating capital and we will not be able to continue as a going concern if we do not obtain additional financing.

 

Since our inception, we have funded our operations through the sale of our securities. Our cash and cash equivalents and restricted cash balances at September 30, 2018 was approximately $0.3 million. Although we raised approximately $290,000 in gross proceeds pursuant to our March through April 2017 private placement, we were forced to curtail our operations in February 2018. Additionally, despite raising $500,000 in gross proceeds through the sale of convertible debentures in July 2018, our ability to continue as a going concern is still wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure capital in the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, or through other means such as the licensing of our technology or grants. In the event that we are not able to secure additional funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Our auditors’ report on our December 31, 2017 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. Our current cash level raised substantial doubt about our ability to continue as a going concern past the third quarter of 2019. Notwithstanding, in July 2018, we completed a sale of convertible debentures resulting in gross proceeds of $500,000 and we raised $25,000 in December 2018 through the sale of notes. In the event that we are unable to continue as a going concern, we may need to cease operations which means that our shareholders will lose their entire investment.

 

Risks Relating to Our Stage of Development and Business

 

If we are unable to successfully build a new management team and secure additional members and employees, our business could be harmed.

 

On March 16, 2016, our former President, Chief Executive Officer, Chief Financial Officer and founder provided us his notice of termination thereby ceasing his employment. On August 2, 2016, we appointed Christopher Lowe as our new chief executive officer, president and principal accounting officer. In February 2018, Ronald Shazer, MD, resigned as our chief medical officer. We will need to continue to augment senior management as well as additional personnel to execute our business plan and grow our business. Our success depends largely on the development and execution of our business strategy by our senior management team. The recent transitions in our executive team may be disruptive to our business, and if we are unable to manage an orderly transition, our business may be adversely affected. Additionally, since our management team consists of only one individual, Mr. Lowe, the loss of Mr. Lowe would likely harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms, if at all. Additionally, we cannot assure you that management will succeed in working together as a team. In the event that we are unsuccessful, our business and prospects could be harmed.

 

We are an early-stage company, have no product revenues, are not profitable and may never be profitable.

 

From inception through September 30, 2018, we have raised approximately $36.9 million through the sale of our securities and exercise of outstanding warrants. During this same period, we have recorded an accumulated deficit of approximately $62 million. Our net losses for the two most recent fiscal years ended December 31, 2017 and 2016 were $11.1 million and $3.2 million, respectively. None of our products in development have received approval from the United States Food and Drug Administration or FDA, or other regulatory authorities; we have no sales and have never generated revenues nor do we expect to for the foreseeable future. We have currently curtailed our pre-clinical and clinical trials related to mipsagargin and are currently focusing our efforts on the development of our adenosine receptor modulators. We expect to incur significant operating losses for the foreseeable future as we continue the research, pre-clinical and clinical development of our product candidates as well as the possible in-licensing of additional clinical and pre-clinical assets. Accordingly, we will need additional capital to fund our continuing operations and any expansion plans. Since we do not generate any revenue, the most likely sources of such additional capital include the sale of our securities, a strategic licensing collaboration transaction or joint venture involving the rights to one or more of our product candidates, or from grants. To the extent that we raise additional capital by issuing equity securities, our stockholders are likely to experience dilution with regard to their percentage ownership of the company, which may be significant. If we raise additional funds through collaborations or licensing arrangements, we may be required to relinquish some or all the rights to our technologies, product candidates, or grant licenses on terms that are not favorable to us. If we raise additional capital by incurring debt, we could incur significant interest expense and become subject to covenants that could affect the manner in which we conduct our business, including securing such debt obligations with our assets.

 

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Our product candidates are at various stages of early development and significant financial resources are required to develop commercially viable products and obtain regulatory approval to market and sell such products. We will need to devote significantly more research and development efforts, financial resources and personnel to develop commercially viable products and obtain regulatory approvals. We may encounter hurdles and unexpected issues as we proceed in the development of our other product candidates. While initial data from our research appear promising, the outcome of the pre-clinical and development work is uncertain and future trials may ultimately be unsuccessful. If we fail to develop and successfully commercialize our product candidates, our business may be materially harmed and could fail.

 

We have a limited operating history as a company, and may not be able to effectively operate our business.

 

Our limited staff and operating history means that there is a high degree of uncertainty regarding our ability to:

 

  develop and commercialize our technologies and proposed products;

 

  obtain regulatory approval to commence the marketing of our products;

 

  identify, hire and retain the needed personnel to implement our business plan;

 

  manage growth;

 

  achieve market acceptance or insurance reimbursement for any of our proposed products, if successfully developed; or

 

  respond to competition.

 

No assurances can be given as to exactly when, if at all, we will be able to fully develop, and take the necessary steps to derive any revenues from our proposed product candidates.

 

Raising capital may be difficult as a result of our history of losses and limited operating history in our current stage of development.

 

When making investment decisions, investors typically look at a company’s management, earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses, new senior management team and relatively limited operating history in our current stage of development makes such evaluation, as well as any estimation of our future performance, substantially more difficult. As a result, investors may be unwilling to invest in us or on terms or conditions which are acceptable. If we are unable to secure additional financing, we may need to materially scale back our business plan and/or operations or cease operations altogether.

 

Risks Related to Commercialization

 

The market for our proposed products is rapidly changing and competitive.

 

The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change and innovation. Developments by others may render our proposed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments and other market factors. Competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

 

As a pre-revenue company, our resources are limited and we may experience challenges inherent in the early development of novel therapeutics. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic efforts compared to our proposed products. Our competitors may develop therapies that are safer, more effective and less costly than our proposed products and therefore, present a serious competitive threat to us.

 

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The acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications and treatments. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of other competing therapies may limit the potential for our proposed products, even if commercialized.

 

Our proposed products may not be accepted by the healthcare community.

 

Our proposed products, if approved for marketing, may not achieve market acceptance by the healthcare community since hospitals, physicians, patients or the medical community in general may decide not to utilize them. We are attempting to develop products that are likely to be first approved for marketing as a treatment for late stage cancer where there is no truly effective standard of care. If approved for use in late stage cancer, our proposed products might then be evaluated in earlier stages where they could represent a substantial departure from established treatment methods and would most likely compete with a number of more conventional drugs and therapies which are manufactured and marketed by major pharmaceutical companies. It is too early in the development cycle of our proposed products for us to predict our major competitors. The degree of market acceptance of our products, if developed, will depend on a number of factors, including but not limited to:

 

  our ability to demonstrate the clinical efficacy and safety of our proposed products to the medical community;

 

  our ability to create products that are superior to alternative products;

 

  our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

 

  the reimbursement policies of government and third-party payors.

 

If the healthcare community does not accept our products, our business could be materially harmed.

 

Our potential competitors in the biotechnology and pharmaceutical industries have significantly greater resources than we have.

 

We compete against numerous companies, many of which have substantially greater resources than we have. Several such competitors have research programs and/or efforts to treat the same diseases we target. Companies such as Roche, Novartis, Celgene, Merck & Co., Inc., Johnson & Johnson, and Sanofi S.A., as well as others, have substantially greater financial, research, manufacturing and marketing resources than we do. As a result, such competitors may find it easier to compete in our industry and bring competing products to market.

 

Risks Related to the Development and Manufacturing of Our Product Candidates

 

We intend to rely exclusively upon third-party FDA-regulated manufacturers and suppliers for our proposed products.

 

We currently have no internal manufacturing capability, and intend to rely exclusively on FDA-approved licensees, strategic partners or third party contract manufacturers or suppliers for the foreseeable future. Because manufacturing facilities are subject to regulatory oversight and inspection, the failure of any of our third-party FDA regulated manufactures or suppliers to comply with regulatory requirements could result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development plans. Should we be forced to manufacture our proposed products, we cannot give any assurance that we would be able to develop internal manufacturing capabilities or secure third party suppliers for raw materials. In the event that we seek third party suppliers or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event could materially impact our business prospects and could delay the development of our proposed products. Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products in a timely or cost effective manner or in accordance with applicable regulatory requirements or our own specifications.

 

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We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize our product candidates.

 

As needed, we plan to rely heavily on third party collaborators, partners, licensees, clinical research organizations, clinical investigators, vendors or other third parties to support our research and development efforts and to conduct clinical trials for our product candidates. We cannot guarantee that we will be able to successfully negotiate agreements for, or maintain relationships with, these third parties on a commercially reasonable basis, if at all. Additionally, to commercialize our proposed products, we intend to rely on third party licensees or the outright sale of our proposed products to pharmaceutical partner(s). If we fail to establish or maintain such third-party relationships as anticipated, our business could be adversely effected.

 

We are dependent upon third parties to develop our product candidates, and such parties are, to some extent, outside of our control.

 

We depend upon independent contract research organizations, investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical studies. These individuals and/or entities are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These third parties may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If these third parties fail to devote sufficient time and resources to our programs, or if their performance is substandard, the development of our drug candidates and corresponding FDA approval could be delayed or fail entirely.

 

Our therapeutic compounds may not be able to be manufactured profitably on a large enough scale to support commercialization.

 

To date, our therapeutic compounds have only been manufactured at a scale which is adequate to supply our research activities and early-stage clinical trials. There can be no assurance that the procedures currently used to manufacture our therapeutic compounds will work at a scale which is adequate for commercial needs. In the event our therapeutic compounds cannot be manufactured in sufficient quantities for commercialization, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

 

Risks Relating to our Intellectual Property

 

Our competitive position is dependent on our intellectual property and we may not be able to withstand challenges to our intellectual property rights.

 

We rely on our intellectual property, including our issued and applied for U.S. and foreign patents as well as our licenses, as the foundation of our business. If our intellectual property rights are challenged, no assurances can be given that our patents or licenses would survive claims alleging invalidity or infringement on other patents and/or licenses. In addition, disputes may arise regarding inventorship of our intellectual property. It is possible that our intellectual property may be infringing upon existing patents that we are not currently unaware of. As the number of participants in the marketplace grows, the possibility of patent infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes would be resolved. Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk that some of our confidential information could be required to be publicly disclosed. Any litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources, divert the attention of management or restrict our core business or result in the public disclosure of confidential information.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.

 

Some or all of our patent applications may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and we may not have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on the ground that such other party’s activities do not infringe on our rights contained in these patents.

 

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Furthermore, a third party may claim that we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.

 

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies.

 

If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

 

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the capital necessary to continue our operations.

 

Obtaining and maintaining our patent protection depends upon compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

 

We may not be able to adequately protect our intellectual property.

 

We rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others do not develop the same or similar technologies on their own. Additionally, research with regard to our technologies has been performed in countries outside of the United States, and we also anticipate conducting joint ventures, collaborations and future clinical trials outside the US. The laws in some of these countries may not provide protection for our trade secrets and intellectual property. We have taken steps, including entering into confidentiality agreements with our employees, consultants, service providers, and potential strategic partners to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us are our property. However, these agreements may not be honored, including in foreign countries in which we conduct research, and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

 

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We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the biotechnology and pharmaceutical industries, we employ and hire individuals and/or entities who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these individuals, entities or that we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

Risks Relating to Marketing Approval and Government Regulations

 

Data obtained from clinical trials are susceptible to varying interpretations and may not be sufficient to support approval of our proposed products by the FDA.

 

The design of our potential clinical trials will be based on many assumptions about the expected effect of our product candidates and if those assumptions are incorrect, our potential clinical trials may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed results of early clinical trials. Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that may be obtained from later trials. Moreover, pre-clinical and clinical data are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of the potential drug. Our products may not prove to be safe and effective in clinical trials and may not meet all regulatory requirements needed to receive regulatory approval. While data from our completed trials appear promising, the outcome of the current trials is uncertain and these trials or future trials may ultimately be unsuccessful. Our clinical trials may among other things, not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.

 

Our proposed products may not receive FDA or other regulatory approvals.

 

The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through expensive, lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity and novelty of the proposed product. Our proposed products are subject to extensive regulation and/or acceptance by numerous governmental authorities in the United States, including the FDA, and authorities in other countries. Most of our proposed products will require governmental approval before they can be commercialized. Our failure to receive the regulatory approvals in the United States or foreign countries will materially impact our business.

 

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Our proposed products may not have favorable results in clinical trials or receive regulatory approval.

 

Encouraging results from our studies to date should not be relied upon as evidence that our planned pre-clinical and clinical trials will ultimately be successful or our products approved for marketing. Even though the results of our studies to date seem promising, we will be required to demonstrate through further pre-clinical and clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate fails to demonstrate sufficient safety and efficacy in any clinical trial, then we could experience potentially significant delays in, or be required to abandon, development of that product candidate. While initial data from our preliminary studies appear promising, the outcome of any clinical trials is uncertain and such trials or future trials may ultimately be unsuccessful.

 

If users of our proposed products are unable to obtain adequate reimbursement from third-party payors, market acceptance of our proposed products may be limited and we may not achieve revenues or profits.

 

The continuing efforts of governments, insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability as well as the future revenues and profitability of our potential customers, suppliers and collaborative partners in addition to the availability of capital. In other words, our ability to commercialize our proposed products depends in large part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations, products and related treatments are obtained by the health care providers of these products and treatments. At this time, we cannot predict the precise impact that recently adopted or future laws will have on these reimbursement levels.

 

We may be unable to comply with our reporting and other requirements under federal securities laws.

 

The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the United States Securities and Exchange Commission, or SEC, and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, would be expected to materially increase the Company’s legal and financial compliance costs and make some activities more time-consuming and more burdensome. Presently we qualify as a non-accelerated filer. Accordingly, we are exempt from the requirements of Section 404(b) and our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management’s assessment of the design and the operating effectiveness of such internal controls. In the event that we become an accelerated filer, we will be required to expend substantial capital in connection with compliance.

 

We do not have effective internal controls over our financial reporting.

 

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial and other reports and effectively prevent fraud. If we cannot provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our SEC reports, our operating results and the trading price of our common stock could suffer materially and we may become subject to litigation.

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and will divert time and attention away from revenue generating activities.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team invests significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from developing our business to compliance activities which could have an adverse effect on our business.

 

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Risks Relating to our Securities

 

Our common stock price may be particularly volatile because of our stage of development and business.

 

The market prices for the securities of biotechnology and pharmaceutical companies in general, and early-stage drug development companies in particular, such as ours, have been highly volatile and may continue to be highly volatile in the future. The following may have a significant impact on the market price of our common stock:

 

  our ability retain and augment our current management team and workforce, which currently consists of only one employee, our chief executive officer;

 

  the development status of our drug candidates, particularly the results of our clinical trials;

 

  market conditions or trends related to the biotechnology and pharmaceutical industries, or the market in general;

 

  announcements of technological innovations, new commercial products, or other material events by our competitors or us;

 

  disputes or other developments concerning our proprietary rights;

 

  changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial and developmental performance;

 

  additions or departures of key personnel;

 

  loss of any strategic relationship;

 

  discussions of our business, products, financial performance, prospects, or stock price by the financial and scientific press and online investor communities such as chat rooms;

 

  industry developments, including, without limitation, changes in healthcare policies or practices or third-party reimbursement policies;

 

  public concern as to, and legislative action with respect to, testing or other research areas of biopharmaceutical and pharmaceutical companies, the pricing and availability of prescription drugs, or the safety of drugs;

 

  regulatory developments in the United States or foreign countries; and

 

  economic, political and other external factors.

 

Broad market fluctuations may cause the market price of our common stock to decline substantially. Additionally, fluctuations in the trading price or liquidity of our common stock may materially and adversely affect, among other things, the interest of investors to purchase our common stock on the open market and, generally, our ability to raise capital.

 

Our board of directors has broad discretion to issue additional securities, in the event that we have adequate authorized capital to issue such securities.

 

We are authorized under our certificate of incorporation to issue up to 150,000,000 shares of common stock and 30,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide the board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of May 15, 2019, we have issued and outstanding 150,000,000 shares of common stock and accordingly, no available shares of common stock reserved for future grants under our equity compensation plans and for issuances upon the exercise or conversion of currently outstanding shares of preferred stock, options, warrants and other convertible securities until such time as we complete a reverse stock split or authorize additional shares. As of May 15, 2019, we have issued 1,853 shares of Series A 0% Convertible Preferred Stock, of which 133.8125 are outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock, of which 71 are outstanding, 290.4318 shares of Series C 0% Convertible Preferred Stock, that are all outstanding, and 5,000 shares of Series D 0% Convertible Preferred Stock, all of which are outstanding. Accordingly, we are entitled to issue no additional shares of common stock, and 29,991,856 additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders. Any additional preferred shares we may issue could have such rights, preferences, privileges, and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.

 

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It is likely that we will issue a large amount of additional securities to raise capital in order to further our business plans. It is also likely that we will issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our various stock plans. Any issuances could be made at a price that reflects a discount to, or a premium from, the then-current market price of our common stock. These issuances would dilute the percentage ownership interest of our current shareholders, which would have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the net tangible book value per share of our common stock.

 

We currently do not have enough authorized shares of common stock for additional issuances. The shareholders have approved a reverse stock split in amount not less than 1-for-2 and not more than 1-for-500 at the discretion of the Board until December 31, 2019. The Board currently plans to effect a reverse stock split in order to authorize additional capital for its future sale of securities stock issuances to service providers, warrant exercises, and conversions of outstanding preferred stock and convertible debentures.

 

Future sales of our common stock could cause our stock price to fall.

 

Transactions that result in a large amount of newly issued shares become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of a robust trading market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management’s attention and harm our business.

 

As of May 15, 2019, we had 150,000,000 shares of common stock, 1,853 shares of Series A 0% Convertible Preferred Stock issued and 133.8125 Series A 0% Convertible Preferred Stock outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock issued and 71 Series B 0% Convertible Preferred Stock outstanding, 290.43148 shares of Series C 0% Convertible Preferred Stock issued and outstanding, and 5,000 shares of Series D 0% Convertible Preferred Stock issued and outstanding. We additionally have issued an aggregate of $3,364,813 of senior convertible debentures and convertible notes that are convertible into common stock at any time, of which $2,676,967 is outstanding. Substantially all of the common shares and common shares underlying the Series A 0% Convertible Preferred, Series B 0% Convertible Preferred, and Series C 0% Convertible shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. As of May 15, 2019, we were obligated to reserve for issuance (i) 328,221 shares of our common stock issuable upon the conversion of 133.8125 shares of Series A 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering; (ii) 14,200,000 shares of our common stock issuable upon the conversion of 71 shares of Series B 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2016 offering; (iii) 38,086,296 shares of our common stock issuable upon the conversion of 290.43148 shares of Series C 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our March 2017 offering, (iv) 1,000,000 shares of common stock issuable upon the conversion of 5,000 shares of Series D 0% Convertible Preferred Stock, (v) 4,327,803 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $3.05 per share, including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering, December 2016 offering and March 2017 offering, (vi) 301,015 shares of our common stock issuable upon exercise of outstanding stock options under our equity compensation plans at a weighted average exercise price of $5.27 per share and (vii) 992,962,529 shares of our common stock issuable upon conversion of our outstanding convertible notes payable. Subject to applicable vesting requirements and holding periods, upon conversion or exercise of the outstanding convertible notes, warrants and options, the underlying shares may be resold into the public market. Notwithstanding the foregoing, none of the shares of common stock underlying these convertible securities may be converted or exercised given that we have no shares of common stock available under our certificate of incorporation. We cannot predict if future issuances or sales of our common stock, or the availability of our common stock for sale, would harm the market price of our common stock or our ability to raise capital. Notwithstanding the foregoing, we currently do not have adequate authorized shares available for issuance pursuant to our convertible securities as of May 15, 2019.

 

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The market for our common stock has been illiquid and our investors may be unable to sell their shares.

 

Our common stock trades with limited volume on the pink sheets of the OTC Markets Group Inc. Accordingly, although a limited public market for our common stock exists, it is still relatively illiquid compared to that of a seasoned issuer. Prior to making an investment in our securities, you should consider the limited market for our common stock. No assurances can be given that the trading volume of our common stock will increase or that a liquid public market for our securities will ever materialize.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the market price of our common stock appreciates.

 

Provisions of Delaware law and executive employment agreements may prevent or delay a change of control, which could depress the trading price of our common stock.

 

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s assets unless:

  

  the Board of Directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

 

  after the transaction in which the stockholder acquired 15% or more of the corporation’s assets, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

  on or after this date, the merger or sale is approved by the Board of Directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

 

A Delaware corporation may opt out of the Delaware anti-takeover laws if its certificate of incorporation or bylaws so provides. We have not opted out of the provisions of the anti-takeover laws. As such, these laws could prohibit or delay mergers or other takeover or change of control transactions and may discourage attempts by other companies to acquire us.

 

In addition, employment agreements with certain executive officers provide for the payment of severance and accelerated vesting of options and restricted stock in the event of termination following a change of control. These provisions could have the effect of discouraging potential takeover attempts even if it would be beneficial to shareholders.

 

Our certificate of incorporation and bylaws contain provisions that could discourage a third-party from acquiring us.

 

Our certificate of incorporation and bylaws, as applicable, among other things (i) provide our board with the ability to alter the bylaws without stockholder approval and (ii) provide that vacancies on our board of directors may be filled by a majority of directors in office. These provisions, while designed to reduce vulnerability to an unsolicited acquisition proposal, and to discourage certain tactics used in proxy fights, may negatively impact a third-party’s decision to acquire us even if it would be beneficial to shareholders.

 

40

 

 

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may not develop and the price of our common stock could decline.

 

We are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading levels could be sustained or not diminish. In addition, in the event any analysts downgrades our securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any, to decline.

 

Our common stock may be considered a “penny stock,” and may be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock may be considered a “penny stock.” The principal result or effect of being designated a penny stock is that securities broker-dealers participating in sales of our common stock may be subject to the penny stock regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

We currently have no available common stock available for new securities issuances, or for the conversion / exercise of outstanding securities, which may restrict us from accessing additional capital through the sale of new securities or the exercise of outstanding convertible securities.

 

Our Certificate of Incorporation authorizes us to issue up to 150,000,000 shares of common stock, all of which are issued and outstanding as of May 15, 2019. Accordingly, we do not have sufficient authorized shares of common stock for additional issuances. While our shareholders have approved a reverse stock split in amount not less than 1-for-2 and not more than 1-for-500 at the discretion of the Board until December 31, 2019, no such additional reverse stock split has taken place. Notwithstanding, the Board currently plans to effect a reverse stock split in order to authorize additional capital for its future stock issuances, warrant exercises, and conversions of outstanding preferred stock and convertible debentures. Our failure to complete the reverse stock split may further subject us to penalties if we are unable to satisfy conversions of our outstanding convertible debentures, or exercises of our outstanding warrants and options, which may harm our financial position and business prospects.

 

We may be required to make significant payments to members of our management in the event their employment with us is terminated or if we experience a change of control.

 

We are a party to an employment agreement with Christopher Lowe that calls for severance payments in the event certain conditions as further described in his employment agreement are met. In the event that (i) we terminate the employment, (ii) we experience a change in control or, (ii) if he terminates employment with us, Mr. Lowe may be entitled to receive certain severance and related payments, provided certain conditions are previously met. Additionally, in such instance, certain securities held by Mr. Lowe shall become immediately vested and exercisable. Upon the occurrence of any such event, our obligation to make such payments could significantly impact our working capital and, accordingly, our ability to execute our business plan which could have a materially adverse effect to our business. Also, these provisions may discourage potential takeover attempts that could be beneficial to our stockholders.

 

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If our management team is not effective or if we fail to attract, hire or retain qualified personnel, we may not be able to design, develop or commercialize our products successfully or manage our business.

 

While we have been able to secure a chief executive officer, our anticipated growth and expansion may require the addition of new personnel and the development of additional expertise by existing management. There is intense competition for qualified personnel in such areas. Accordingly, there can be no assurances that we would be able to attract and retain the qualified personnel necessary for the successful development of our business.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sale of Unregistered Securities

 

  Between July 1, 2018 and September 30, 2018, Debenture holders converted an aggregate of $28,087.83 into 4,750,000 shares of common stock at per share conversion prices ranging from $0.007 to $0.005.

 

  In July 2018, we issued an aggregate of $515,000 of senior convertible debentures (“Debentures”) for (i) $500,000 in cash and (ii) the cancellation of $15,000 in obligations. The Debentures are non-interest bearing, have a maturity date of July 5, 2019 and are convertible into common stock at any time at a conversion price equal to the lesser of (i) $0.33 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion and (b) the volume weighted average price on the conversion date. The Debentures also contain provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Debentures also contain anti-dilution protection in the event of subsequent equity sales that is lower than the then applicable conversion price until such time that the Debentures are no longer outstanding. The Debentures are further redeemable for cash upon twenty (20) trading days’ notice provided that certain conditions are met. The Debentures are further redeemable for cash upon twenty (20) trading days’ notice provided that certain conditions are met.

 

Use of Proceeds

 

On May 23, 2014, our registration statement on Form S-1 (File No. 333-194687) was declared effective by the Securities and Exchange Commission for our initial public offering pursuant to which we sold an aggregate of 138,799 units at a public offering price of $24.00 per unit. There has been no material change in the planned use of proceeds from our public offering as described in our final prospectus filed with the Securities and Exchange Commission on May 30, 2014 pursuant to Rule 424(b).

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-Q.

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned hereunto duly authorized.

 

  INSPYR THERAPEUTICS, INC.
   
Date: June 14, 2019 /s/ Christopher Lowe
  Chief Executive Officer
  (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

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INDEX TO EXHIBITS

 

            Incorporated by Reference
Exhibit
No.
  Description   Filed
Herewith
  Form   Exhibit
No.
  File
No.
  Filing
Date
                         
3.01(i)   Amended and Restated Certificate of Incorporation dated September 4, 2013       8-K   3.01   333-153829   9/6/13
                         
3.02(i)   Amendment to the Amended and Restated Certificate of Incorporation, effective August 1, 2016       8-K   3.01   333-153829   8/2/16
                         
3.03(i)   Amended and Restated Certificate of Incorporation dated October 21, 2016       8-K   3.01(i)   000-55331   11/10/16
                         
3.04(ii)   Amended and Restated Bylaws       8-K   3.02   333-153829   1/11/10
                         
3.05(i)   Certificate of Designation of Preferences, Rights and Limitations of Series A 0% Convertible Preferred Stock       8-K   3.01   000-55331   12/23/15
                         
3.06(i)   Certificate of Designation of Preferences, Rights and Limitations of Series B 0% Convertible Preferred Stock       8-K   3.01   000-55331   12/12/16
                         
3.07(i)   Certificate of Designation of Preferences, Rights and Limitations of Series C 0% Convertible Preferred Stock       8-K   3.01   000-55331   3/20/17
                         
3.08(i)   Certificate of Designation of Preferences, Rights and Limitations of Series D 0% Convertible Preferred Stock       10-K   3.08(i)   000-55331   4/26/19
                         
  4.01     Specimen of Common Stock Certificate       S-1   4.01   333-153829   10/03/08
                         
4.02    Form of Series A Preferred Stock Certificate       8-K    4.01   000-55331   12/23/15
                         
4.03   Form of Series B Preferred Stock Certificate       8-K   4.01   000-55331   12/12/16
                         
4.04   Form of Series C Preferred Stock Certificate       8-K   4.01   000-55331   3/20/17
                         
  4.05**   Amended and Restated GenSpera 2007 Equity Compensation Plan amended January 2010       8-K   4.01   333-153829   1/11/10
                         
  4.06**   GenSpera / Inspyr Therapeutics Form of 2007 Equity Compensation Plan Option Grant, 2009 Executive Compensation Plan Option Grant and 2017 Equity Compensation Plan Option Grant       8-K   4.02   333-153829   9/09/09
                         
4.07   Form of 4.0% convertible note issued to shareholder       S-1   4.05   333-153829   10/03/08
                         
4.08   Form of 4.0% convertible debenture modification between GenSpera, Inc. and shareholder       8-K   10.02   333-153829   2/20/09
                         
4.09**   Amended and Restated 2009 Executive Compensation Plan amended on March 25, 2013       10-K   4.11   333-153829   3/29/13
                         
4.10   Form of Common Stock Purchase Warrant issued Jan - Mar 2010       10-K   4.28   333-153829   3/31/10
                         
4.11   Form of Consultant Warrants issued in May 2010       10-Q   4.29   333-153829   5/14/10
                         
4.12   Form of Common Stock Purchase Warrant - May 18, 2010 offering, and June 2010 Consultant Warrants       8-K   10.02   333-153829   5/25/10

  

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   4.13**   Form of 2007 Equity Compensation Plan Restricted Stock Grant, 2009 Executive Compensation Plan Restricted Stock Grant and 2017 Equity Compensation Plan Restricted Stock Grant       S-8   4.03   333-171783   1/20/11
                         
4.14   Form of Common Stock Purchase Warrant dated January and February of 2011       8-K   10.02   333-153829   1/27/11
                         
4.15**   Form of 2007 Equity Compensation Plan Restricted Stock Unit Agreement, 2009 Executive Compensation Plan Restricted Stock Unit Agreement and 2017 Equity Compensation Plan Restricted Stock Unit Agreement       10-K   4.22   333-153829   3/30/11
                         
4.16   Form of Common Stock Purchase Warrant dated April 2011       8-K   10.02   333-153829   5/03/11
                         
  4.17**   Form of Executive Deferred Compensation Plan       8-K   99.01   333-153829   7/08/11
                         
  4.18     Form of Common Stock Purchase Warrant issued to consultants in December of 2011       10-K   4.26   333-153829   3/06/12
                         
4.19   Form of Common Stock Purchase Warrant issued to LifeTech on January 12, 2012       10-K   4.27   333-153829   3/06/12
                         
4.20   Form of Common Stock Purchase Warrant for December 2012 through March 2013 Offering       8-K   4.01   333-153829   3/28/13
                         
4.21   Form of Securities Purchase Agreement for August 2013 Offering       8-K   10.02   333-153829   8/20/13
                         
4.22   Form of Warrant from August 2013 Offering       8-K   10.04   333-153829   8/20/13
                         
4.23   Form of Series A, B and C Common Stock Purchase Warrant for May 2014 Registered Offering       S-1/A   4.34   333-194687   5/22/14
                         
4.24   Form of Securities Purchase Agreement for May 2014 Registered Offering       S-1/A   10.12   333-194687   5/22/14
                         
4.25   Form of Series D Common Stock Purchase Warrant for June 2014 Private Placement       10-Q   4.36   333-153829   8/8/14
                         
4.26   Form of Securities Purchase Agreement for June 2014 Private Placement       10-Q   4.37   333-153829   8/8/14
                         
4.27   Form of Consultant Common Stock Purchase Warrant issued February, August 2014, January 2015 and May 2015       10-Q   4.38   333-153829   8/8/14
                         
4.28   Form of Securities Purchase Agreement for July 2015 Private Placement       8-K   10.01   000-55331   7/6/15
                         
4.29   Form of Registration Rights Agreement for July 2015 Private Placement       8-K   10.02   000-55331   7/6/15
                         
4.30   Form of Series D and E Common Stock Purchase Warrants for July 2015 Private Placement       8-K   10.03   000-55331   7/6/15
                         
4.31   Form of Securities Purchase Agreement for December 2015 Private Placement       8-K   10.01   000-55331   12/23/15

  

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4.32   Form of Registration Rights Agreement for December 2015 Private Placement       8-K   10.02   000-55331   12/23/15
                         
4.33   Form of Series F and Series G Common Stock Purchase Warrants for December 2015 Private Placement       8-K   10.03   000-55331   12/23/15
                         
4.34   Form of Series H and I Common Stock Purchase Warrants for December 2015 Private Placement       8-K   10.05   000-55331   12/23/15
                         
4.35   Form of Amendment Agreement from December 2015 Private Placement       8-K   10.04   000-55331   12/23/15
                         
4.36**   Inducement Stock Option Plan adopted 7/15/2016       8-K   4.01   000-55331   7/20/16
                         
4.37**   Form of Inducement Award non-Qualified Stock Option Grant       8-K   4.01   000-55331   7/20/16
                         
4.38   Form of Securities Purchase Agreement for December 2016 Private Placement       8-K   10.01   000-55331   12/12/16
                         
4.39   Form of Registration Rights Agreement for December 2016 Private Placement       8-K   10.02   000-55331   12/12/16
                         
4.40   Form of Series J, K and L Warrants for December 2016 Private Placement       8-K   10.03   000-55331   12/12/16
                         
4.41   Form of Common Stock Purchase Warrant issued to 3rd party pursuant to Mr. Lowe’s Employment Agreement       S-1   4.41   333-215561   1/13/17
                         
4.42   Form of Securities Purchase Agreement for March 2017 – April 2017 Private Placement       8-K   10.01   000-55331   3/20/16
                         
4.43   Form of Series M, N and O warrants for March 2017 – April 2017 Private Placement       8-K   10.02   000-55331   3/20/16
                         
4.44**   2017 Equity Compensation Plan adopted 11/1/17       8-K   4.01   000-55331   11/3/17
                         
4.45   Form of Series D Preferred Stock Certificate       10-K   4.45   000-55331   4/26/19
                         
 10.01     Exclusive Supply Agreement between GenSpera and Thapsibiza dated April 2012 that expires April 6, 2022       10-K    10.01     333-153829   3/29/13 
                         
 10.02**   Craig Dionne Employment Agreement       8-K   10.04   333-153829   9/09/09
                         
 10.03**   Amendment dated May 14, 2010 to the Employment Agreement of Craig Dionne       10-Q   10.03   333-153829   8/13/10
                         
 10.04**   Craig Dionne Severance Agreement       8-K   10.05   333-153829   9/09/09
                         
10.05**   Form of Indemnification Agreement with Directors and Officers       8-K   10.01   000-55331   9/12/16
                         
10.06**   Russell Richerson Employment Agreement       8-K   10.08   333-153829   9/09/09
                         
 10.07**   Amendment dated May 14, 2010 to the Employment Agreement of Russell Richerson       10-Q   10.08   333-153829   8/13/10
                         
 10.08**   Independent Director Agreement       8-K   10.01   333-153892   06/1/12
                         
10.09   Engagement Letter with H.C. Wainwright for May 2014 Registered Offering       S-1/A   10.11   333-194687   5/22/14
                         
 10.10**   Christopher Lowe employment Agreement       8-K   10.01   000-55331   8/05/16

  

46

 

 

10.11**   Form of Proprietary Information, Inventions and Competition Agreement       8-K   10.01   000-55331   8/10/16
                         
10.12**   Ronald Shazer Employment Agreement       8-K   10.01   000-55331   8/10/16
                         
10.13**   Form of Separation Agreement with Russell Richerson dated February 28, 2017       8-K   10.01   000-55331   3/03/17
                         
10.14   Form of Share Exchange Agreement between Inspyr Therapeutics and Lewis & Clark Pharmaceuticals       8-K   10.01   000-55331   8/03/17
                         
10.15   Form of Share Escrow Agreement pursuant to Lewis & Clark Share Exchange Transaction       8-K   10.02   000-55331   8/03/17
                         
10.16   Form of Exchange Agreement for September 2017 Private Placement       8-K   10.01   000-55331   9/12/17
                         
10.17   Form of Senior Convertible Debenture due 9/12/18 issued pursuant to Exchange Agreement       8-K   10.02   000-55331   9/12/17
                         
10.18   Form of Securities Purchase Agreement for September 2017 Private Placement       8-K   10.01   000-55331   9/12/17
                         
10.19   Form of Senior Convertible Debenture due 9/12/17 issued pursuant to Securities Purchase Agreement       8-K   10.02   000-55331   9/12/17
                         
10.20   Form of Registration Rights Agreement entered into 9/12/17       8-K   10.03   000-55331   9/12/17
                         
10.21   Form of Securities Purchase Agreement for July 2018 Private Placement       8-K   10.01   000-55331   7/3/18
                         
10.22   Form of Debenture for July 2018 Private Placement       8-K   10.02   000-55331   7/3/18
                         
10.23   Form of Securities Purchase Agreement for January 2019 Preferred Stock Offering       10-K   10.23   000-55331   4/26/19
                         
31.1   Certification of the Principal Executive Officer Pursuant to Section 3.02 of the Sarbanes-Oxley Act of 2002.   *                
                         
31.2   Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   *                
                         
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C § 1350.   *                
                         
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C § 1350.   *                
                         
101.INS     XBRL Instance Document                  
                         
101.SCH    XBRL Taxonomy Extension Schema                  
                         
101.CAL    XBRL Taxonomy Extension Calculation Linkbase                  
                         
101.DEF    XBRL Taxonomy Extension Definition Linkbase                  
                         
101.LAB    XBRL Taxonomy Extension Label Linkbase                  
                         
101.PRE    XBRL Taxonomy Extension Presentation Linkbase                   

  

*Filed Herein
**Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

 

47

 

 

EX-31.1 2 f10q0918ex31-1_inspyrther.htm CERTIFICATION

EXHIBIT 31.1

 

SECTION 302 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

 

I, Christopher Lowe, certify that:

 

(1) I have reviewed this Quarterly Report on Form 10-Q of Inspyr Therapeutics, Inc.;

 

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4) The registrant’s other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its unconsolidated investments, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 14, 2019  By:  /s/ Christopher Lowe
    Christopher Lowe, Chief Executive Officer

 

EX-31.2 3 f10q0918ex31-2_inspyrther.htm CERTIFICATION

EXHIBIT 31.2

 

SECTION 302

CERTIFICATION OF THE PRINCIPAL ACCOUNTING OFFICER

 

I, Christopher Lowe, certify that:

 

(1) I have reviewed this Quarterly Report on Form 10-Q of Inspyr Therapeutics, Inc.;

 

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4) The registrant’s other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its unconsolidated investments, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 14, 2019  By:  /s/ Christopher Lowe
    Christopher Lowe, Principal Financial Officer and Principal Accounting Officer

 

EX-32.1 4 f10q0918ex32-1_inspyrther.htm CERTIFICATION

EXHIBIT 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b)

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

In connection with the Quarterly Report of Inspyr Therapeutics, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher Lowe, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.

 

Date:  June 14, 2019  
   
/s/ Christopher Lowe  
Chief Executive Officer  
Inspyr Therapeutics, Inc.  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-32.2 5 f10q0918ex32-2_inspyrther.htm CERTIFICATION

EXHIBIT 32.2

 

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO

18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b)

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

In connection with the Quarterly Report of Inspyr Therapeutics, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher Lowe, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.

 

Date:  June 14, 2019  
   
/s/ Christopher Lowe  
Principal Financial and Principal Accounting Officer  
Inspyr Therapeutics, Inc.  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

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common shareholders Net loss per common share, basic and diluted (in dollars per share) Weighted average shares outstanding (in shares) Gain on change in fair value of derivative liability Gain on conversion of debt Amortization of debt discount Increase in operating assets: Prepaid expenses Cash used in operating activities Cash from acquisition Cash provided by investing activities Proceeds from convertible notes Cash provided by financing activities Net decrease in cash Cash, beginning of period Cash, end of period Summary of Critical Accounting Policies and Use of Estimates (Textual) Non-cash financial activities: Common stock issued on conversion of notes payable and derivative liability Debentures converted to common stock Derivative liability extinguished upon conversion of notes payable Derivative liability issued Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc. 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Information by plan name pertaining to equity-based compensation arrangements. Information by plan name pertaining to equity-based compensation arrangements. Information by plan name pertaining to equity-based compensation arrangements. Information by plan name pertaining to equity-based compensation arrangements. Value of gross proceeds from capital raising transactions. Information by type of related party. Related parties include, but not limited to, affiliates; other entities for which investments are accounted for by the equity method by the entity; trusts for benefit of employees; and principal owners, management, and members of immediate families. It also may include other parties with which the entity may control or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. 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The weighted average exercise price granted for warrants during the period. The number of equity-based payment instruments, excluding stock (or unit) options, that validly exist and are outstanding as of the balance sheet date. The weighted average exercise price for outstanding warrants. A roll forward is a reconciliation of a concept from the beginning of a period to the end of a period. Information by category of arrangement, including but not limited to collaborative arrangements and non-collaborative arrangements. Number of shares issued during period of conversion of notes. Value of stock issued during period of conversion of notes. Represents the warrants expiration period. The entire disclosure for warrant. It represents the amount of warrants issued to purchase shares of common stock. Disclosure of accounting policy for restricted cash. Percentage of total assets. Amount raised. The amount of gain loss on conversion of debt. Derivative liability issued. Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc. Accounts payable paid through issuance of debentures. Debentures issued to retire preferred stock. Derivative liability measurement input percentage. Value of preferred stock exchanged for convertible notes payable. Number of preferred stock exchanged for convertible notes payable. Value of conversion of notes. Number of conversion of notes. Amount of common stock issued for acquisition. Number of common stock issued for acquisition. It represents the amount of loss (gain) on change in fair value of derivative liability. The cash outflow to acquire for cash. The cash inflow from convertible notes Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc. It represents the amount of goodwill impairment charge. 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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
May 15, 2019
Document And Entity Information    
Entity Registrant Name Inspyr Therapeutics, Inc.  
Entity Central Index Key 0001421204  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Filer Category Non-accelerated Filer  
Entity Shell Company true  
Entity Common Stock, Shares Outstanding   150,000,000
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2018  
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash $ 3 $ 10
Restricted cash 346
Prepaid expenses 5
Total current assets 349 15
Office and lab equipment, net of accumulated depreciation of $4 and $2, respectively 3 4
Intangible assets, net of accumulated amortization of $175 and $162, respectively 37 50
Total assets 389 69
Current liabilities:    
Accounts payable 1,977 1,968
Accrued expenses 1,774 1,539
Convertible debentures, net of unamortized discount of $386 and $227, respectively 2,707 2,476
Derivative liability 4,724 2,934
Total current liabilities 11,182 8,917
Total liabilities 11,182 8,917
Commitments and contingencies (Note 7)
Stockholders' deficit:    
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 and 495 shares issued and outstanding, respectively
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 21,388,929 and 10,888,929 shares issued and outstanding, respectively 2 1
Additional paid-in capital 51,148 50,885
Accumulated deficit (61,943) (59,734)
Total stockholders' deficit (10,793) (8,848)
Total liabilities and stockholders' deficit $ 389 $ 69
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Office and lab equipment, accumulated depreciation $ 4 $ 2
Intangible assets, accumulated amortization 175 162
Net of unamortized discount of, convertible debentures $ 386 $ 227
Convertible preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Convertible preferred stock, shares authorized 30,000,000 30,000,000
Convertible preferred stock, shares issued 495 495
Convertible preferred stock, shares outstanding 495 495
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 21,388,929 10,888,929
Common stock, shares outstanding 21,388,929 10,888,929
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Operating expenses:        
Research and development $ 11 $ 384 $ 197 $ 1,349
General and administrative 94 474 331 1,255
Total operating expenses 105 858 528 2,604
Loss from operations (105) (858) (528) (2,604)
Other income (expense):        
(Loss) gain on change in fair value of derivative liability (2,329) 201 (1,346) 201
Gain on conversion of debt 21 39 83 39
Interest (expense), net (258) (5,154) (418) (5,154)
Loss before provision for income taxes (2,671) (5,772) (2,209) (7,518)
Provision for income taxes
Net loss (2,671) (5,772) (2,209) (7,518)
Deemed dividend (435) (110) (1,703)
Net loss attributable to common shareholders $ (2,671) $ (6,207) $ (2,319) $ (9,221)
Net loss per common share, basic and diluted $ (0.15) $ (0.96) $ (0.15) $ (2.9)
Weighted average shares outstanding 18,163,331 6,440,802 15,180,156 3,183,289
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) - USD ($)
$ in Thousands
Convertible Preferred Stock Shares
Common Stock Shares
Additional Paid-in Capital
Accumulated Deficit
Total
Balance at beginning at Dec. 31, 2016 $ 47,746 $ (48,634) $ (888)
Balance at beginning (in shares) at Dec. 31, 2016 2,828 1,398,832      
Stock-based compensation     174   174
Conversion of preferred stock to common stock    
Conversion of preferred stock to common stock (in shares) (118) 223,585      
Preferred stock exchanged for convertible notes payable    
Preferred stock exchanged for convertible notes payable (in shares) (2,505)        
Conversion of notes   44   44
Conversion of notes (in shares)   331,000      
Common stock issued for acquisition   $ 1 2,492   2,493
Common stock issued for acquisition (in shares)   7,122,172      
Sale of preferred stock and warrants   285   285
Sale of preferred stock and warrants (in shares) 285        
Preferred stock and warrants issued for services   5   5
Preferred stock and warrants issued for services (in shares) 5        
Net loss       (7,518) (7,518)
Balance at ending at Sep. 30, 2017 $ 1 50,746 (56,152) (5,405)
Balance at ending (in shares) at Sep. 30, 2017 495 9,075,589      
Balance at beginning at Dec. 31, 2017 $ 1 50,885 (59,734) (8,848)
Balance at beginning (in shares) at Dec. 31, 2017 495 10,888,929      
Stock-based compensation     90   90
Conversion of debentures   $ 1 173   174
Conversion of debentures (in shares)   10,500,000      
Net loss       (2,209) (2,209)
Balance at ending at Sep. 30, 2018 $ 2 $ 51,148 $ (61,943) $ (10,793)
Balance at ending (in shares) at Sep. 30, 2018 495 21,388,929      
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) (Parenthetical)
Sep. 30, 2017
$ / shares
Statement of Stockholders' Equity [Abstract]  
Share price (in dollars per share) $ 1.00
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:    
Net loss $ (2,209) $ (7,518)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 14 23
Stock-based compensation 90 179
Loss (gain) on change in fair value of derivative liability 1,346 (201)
Gain on conversion of debt (83) (39)
Amortization of debt discount 355 13
Finance cost 63 5,138
Decrease in operating assets:    
Prepaid expenses 4 100
Increase in operating liabilities:    
Accounts payable and accrued expenses 259 1,221
Cash used in operating activities (161) (1,084)
Cash flows from investing activities:    
Cash from acquisition 23
Acquisition of office equipment (3)
Cash provided by investing activities 20
Cash flows from financing activities:    
Proceeds from convertible notes 500 250
Proceeds from sale of stock and warrants 285
Cash provided by financing activities 500 535
Net increase (decrease) in cash and restricted cash 339 (529)
Cash and restricted cash, beginning of period 10 547
Cash and restricted cash, end of period $ 349 $ 18
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.19.2
BACKGROUND
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BACKGROUND

NOTE 1 – BACKGROUND

 

Inspyr Therapeutics, Inc. ("we", "us", "our company", "our", "Inspyr" or the "Company") was formed under the laws of the State of Delaware in November 2003, and has its principal office in Westlake Village, California. We are an early-stage, pre-revenue, pharmaceutical company focused on the discovery and development of prodrug cancer therapeutics for the treatment of solid tumors, including brain, liver, prostate and other cancers. We plan to develop a series of therapies based on our target-activated prodrug technology platform.

 

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 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 attempt to become current in 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.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.19.2
MANAGEMENT'S PLANS TO CONTINUE AS A GOING CONCERN
9 Months Ended
Sep. 30, 2018
Management Plans to Continue as Going Concern [Abstract]  
MANAGEMENT'S PLANS TO CONTINUE AS A GOING CONCERN

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 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 $62 million as of September 30, 2018. 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, 2018 was approximately $349,000, representing 89.7% of our total assets. Based on our current expected level of operating expenditures, we expect to be able to fund our operations into the third quarter of 2019. 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 we expect will enable 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, 2017 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 third 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.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

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 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 financial statements as of and for the three and nine months ended September 30, 2018 and 2017 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, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any future period. All references to September 30, 2018 and 2017 in these footnotes are unaudited.

 

These unaudited condensed financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended December 31, 2017, included in the Company's annual report on Form 10-K filed with the SEC on April 26, 2019.

 

The condensed balance sheet as of December 31, 2017 has been derived from the audited 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.

 

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 $0.4 million for the three months ended September 30, 2018 and 2017, respectively. We incurred research and development expenses of approximately $0.2 million and $1.3 million for the nine months ended September 30, 2018 and 2017, 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.

  

Loss per Share

 

Basic loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of September 30, 2018 and 2017, as they would be anti-dilutive:

 

   Nine Months Ended
September 30,
 
   2018   2017 
Shares underlying options outstanding   325,333    364,516 
Shares underlying warrants outstanding   2,512,930    4,511,914 
Shares underlying convertible notes outstanding   572,882,313    34,835,228 
Shares underlying convertible preferred stock outstanding   26,395,624    4,770,370 
    376,916,512    44,482,028 

 

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, 2018. The tables below summarize the fair values of our financial liabilities as of September 30, 2018 (in thousands):

 

   Fair Value at
September 30,
   Fair Value Measurement Using 
   2018   Level 1   Level 2   Level 3 
                     
Derivative liability  $4,724   $   $   $4,724 

  

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,
 
   2018   2017 
         
Balance at beginning of year  $2,934   $ 
Additions to derivative instruments   577    2,953 
Reclassification on conversion   (133)   (44)
Loss (gain) on change in fair value of derivative liability   1,346    (201)
Balance at end of period  $4,724   $2,708 

 

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.

 

Effect of ASU No. 2017-11 on Previously Issued Financial Statements

 

In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception ("ASU No. 2017-11"). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company's previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

September 30, 2017

 

   As reported   Adjustments   Adjusted 
             
ASSETS            
             
Current assets:            
Cash and cash equivalents  $18   $   $18 
Prepaid expenses   16        16 
Total current assets   34        34 
Office and lab equipment, net of accumulated depreciation of $10   350        350 
Intangible assets, net of accumulated amortization of $158   54        54 
Goodwill   2,159        2,159 
Other assets   3        3 
Total assets  $2,600   $   $2,600 
                
LIABILITIES AND STOCKHOLDERS' DEFICIT               
                
Current liabilities:               
Accounts payable  $1,724   $   $1,724 
Accrued expenses   1,093        1,093 
Convertible debentures, net of unamortized discount of $307   2,480        2,480 
Derivative liability   3,338    (630)   2,708 
Total current liabilities   8,635    (630)   8,005 
Total liabilities   8,635    (630)   8,005 
                
Commitments and contingencies            
                
Stockholders' deficit:               
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued  and outstanding            
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding   1        1 
Additional paid-in capital   48,425    2,321    50,746 
Accumulated deficit   (54,461)   (1,691)   (56,152)
                
Total stockholders' deficit   (6,035)   630    (5,405)
                
Total liabilities and stockholders' deficit  $2,600   $   $2,600 

 

CONDENSED STATEMENTS OF LOSSES

(unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
September 30, 2017
   Nine Months Ended
September 30, 2017
 
   Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted 
                         
Operating expenses:                        
Research and development  $384       $384   $1,349   $   $1,349 
General and administrative   474        474    1,255        1,255 
Total operating expenses   858        858    2,604        2,604 
                               
Loss from operations   (858)       (858)   (2,604)       (2,604)
                               
Other income (expense):                              
Gain on change in fair value of derivative liability   1,405    (1,204)   201    3,403    (3,202)   201 
Gain on conversion of debt   39        39    39        39 
Interest income (expense), net   (5,017)   (137)   (5,154)   (6,479)   1,325    (5,154)
                               
Loss before provision for income taxes   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
                               
Provision for income taxes                        
                               
Net loss   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
Deemed dividend       (435)   (435)       (1,703)   (1,703)
                               
Net loss attributable to common shareholders  $(4,431)  $(1,776)  $(6,207)  $(5,641)  $(3,580)  $(9,221)
                               
Net loss per common share, basic and diluted  $(0.69)       $(0.96)  $(1.77)       $(2.90)
                               
Weighted average shares outstanding   6,440,802         6,440,802    3,183,289         3,183,289 

  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine Months Ended September 30, 2017

 

   Reported   Adjustments   Adjusted 
Cash flows from operating activities:            
Net loss  $(5,641)  $(1,877)  $(7,518)
Adjustments to reconcile net loss to net cash used in  operating activities:               
Depreciation and amortization   23         23 
Stock-based compensation   179         179 
Gain on change in fair value of derivative liability   (3,403)   3,202    (201)
Gain on conversion of debt   (39)        (39)
Amortization of debt discount   13         13 
Finance cost   6,463    (1,325)   5,138 
Increase in operating assets:               
Prepaid expenses   100         100 
Increase in operating liabilities:               
Accounts payable and accrued expenses   1,221         1,221 
Cash used in operating activities   (1,084)       (1,084)
                
Cash flows from investing activities:               
Cash from acquisition   23         23 
Acquisition of office equipment   (3)        (3)
Cash provided by investing activities   20        20 
                
Cash flows from financing activities:               
Proceeds from convertible notes   250         250 
Proceeds from sale of stock and warrants   285         285 
Cash provided by financing activities   535        535 
                
Net decrease in cash   (529)        (529)
Cash, beginning of period   547         547 
                
Cash, end of period  $18   $   $18 

 

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, 2018 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 Company does not expect any impact from the adoption of this standard on its 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.

 

In May 2017, the FASB issued ASU 2017-09, "Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting", which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The adoption of this standard did not have a material impact on its consolidated financial statements.

 

In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception ("ASU No. 2017-11"). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company's previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.19.2
SUPPLEMENTAL CASH FLOW INFORMATION
9 Months Ended
Sep. 30, 2018
Supplemental Cash Flow Information [Abstract]  
SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

The following table contains additional information for the periods reported (in thousands).

 

   Nine Months Ended
September 30,
 
   2018   2017 
Non-cash financial activities:        
Common  stock issued on conversion of notes payable and derivative liability  $174   $44 
Debentures converted to common stock   124    38 
Derivative liability extinguished upon conversion of notes payable   133    44 
Derivative liability issued   577    2,953 
Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc.       2,493 
Accounts payable paid through issuance of debentures   15    70 
Debentures issued to retire preferred stock       2,504 

 

There was no cash paid for interest and income taxes for the nine months ended September 30, 2018 and 2017.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.19.2
ACCRUED EXPENSES
9 Months Ended
Sep. 30, 2018
Accrued Liabilities, Current [Abstract]  
ACCRUED EXPENSES

NOTE 5 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

   September 30,
2018
   December 31,
2017
 
Accrued compensation and benefits  $1,326   $1,154 
Accrued research and development   177    144 
Accrued other   271    241 
Total accrued expenses  $1,774   $1,539 
XML 24 R13.htm IDEA: XBRL DOCUMENT v3.19.2
DERIVATIVE LIABILITY
9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITY

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.

 

In September 2017 and July 2018, we 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 and nine months ended September 30, 2018, we recorded a loss of approximately $2.3 million and $1.3 million, respectively, related to the change in fair value of the derivative liabilities during the periods. During the three and nine months ended September 30, 2017, we recorded a gain of approximately $0.2 million related to the change in fair value of the derivative liabilities during the periods. 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, 2018 are as follows:

 

   2018 
Volatility   237%
Expected term (years)   11 months 
Risk-free interest rate   2.57%
Dividend yield   None 

 

As of September 30, 2018 and December 31, 2017, the derivative liability recognized in the financial statements was approximately $4.7 million and $2.9 million, respectively.

 

As disclosed above, in Note 3, the Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company's previously issued financial statements were required for the retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11. As a result our financial instruments (such as warrants and convertible instruments) with down round features that required fair value measurement of the entire instrument or conversion option have been retroactively reclassified to remove their classification as derivative instruments.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.19.2
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

Inspyr currently does not have any ongoing leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.

 

There was no rent expense for the three and nine months ended September 30, 2018 and 2017.

  

Employment Agreements

 

We employ our Chief Executive Officer pursuant to a written employment agreement. The employment agreement contains severance provisions and indemnification clauses. The indemnification agreement provides for the indemnification and defense of the executive officer, in the event of litigation, to the fullest extent permitted by law.

 

On February 28, 2017, Russell Richerson, PhD, resigned as chief operating officer of the Company, effective immediately. Dr. Richerson entered into a separation release of claims agreement ("Separation Agreement") pursuant to which the Company: (i) issued Dr. Richerson a warrant to purchase 76,726 shares of Common Stock with an exercise price of $0.75 per share and a term of three and a half (3.5) years, (ii) agreed to make the vested portion of any options held by Dr. Richerson, exercisable at any time during their remaining term regardless of any termination provisions contained in the applicable equity compensation plans pursuant to which such awards were made (collectively, the "Awards") and (iii) agreed to reduce the exercise prices of such Awards to $0.75 per share for the duration of their respective terms. In consideration of the foregoing, Dr. Richerson agreed to release the Company from any and all claims, including any rights or obligations as contained in his prior employment agreement, as amended.

 

Severance provisions are not applicable to any other executive officer employment agreements until such time as they have each been employed for at least 6 months and the Company has raised $25 million in gross proceeds from capital raising transactions. Severance provisions pursuant to a termination within 12 months of a Sale Event occurring are not applicable as of September 30, 2018, as no Sale Event has occurred prior to such date.

 

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. 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.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.19.2
CAPITAL STOCK AND STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 30, 2018
Stockholders' Equity Note [Abstract]  
CAPITAL STOCK AND STOCKHOLDER'S EQUITY

NOTE 8 – CAPITAL STOCK AND STOCKHOLDERS' EQUITY

 

Preferred Stock

 

In March and April, 2017, we sold 290.4 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 387,251 shares of the Company's common stock, subject to certain beneficial ownership limitations, at a conversion price equal to $0.75, 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.

 

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 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 (collectively, the "Exchange"). In connection with the Exchange, such Series A Shares and Series B Shares have been cancelled and terminated.

  

As of September 30, 2018 and December 31, 2017, there were outstanding 133.8 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, and 290.4 shares of Series C Preferred Stock.

 

As a result of recent equity financings and conversions of debentures, the conversion prices of our Series A Preferred Stock has been reduced to $0.53 per share, the conversion price of 200 shares of our Series C preferred stock has been reduced to $0.02 per share, and our Series B Preferred Stock and 90.4 shares of our Series C preferred stock has been reduced to $0.01 per share at September 30, 2018.

 

Common Stock

 

During the nine months ended September 30, 2018, we issued a total of 10,500,000 shares of common stock, valued at $173,850, upon the conversion of $123,878 principal amount of our convertible debentures.

 

Between January 1 and September 30, 2017, we issued a total of 223,585 shares of common stock upon the conversion of 79.5 shares of Series A Preferred Stock and 39 shares of Series B Preferred Stock.

  

During September 2017, we issued a total of 331,000 shares of common stock upon the conversion of $37,995 principal amount of our convertible debentures.

 

Effective July 31, 2017 we issued 7,122,172 shares of common stock to acquire 100% of the capital stock of Lewis & Clark, Pharmaceuticals, Inc., a Virginia Corporation, pursuant to the terms of a share exchange agreement dated July 31, 2017.

 

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 $0.53 per share, the conversion price of 200 shares of our Series C preferred stock has been reduced to $0.02 per share, and our Series B Preferred Stock and 90.4 shares of our Series C preferred stock has been reduced to $0.01 per share. The exercise prices of the warrants issued in conjunction with the Series B and Series C preferred stock have also been reduced to $0.02 and $0.01 per share.

 

As a result of the reductions of the conversion prices of our preferred stock and warrants, we have recorded deemed dividends of approximately $0 and $110,000 during the three and nine months ended September 30, 2018.

 

As a result of the reductions of the conversion prices of our preferred stock and warrants, we have recorded deemed dividends of approximately $435,000 and $1,703,000 during the three and nine months ended September 30, 2017, respectively.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.19.2
STOCK OPTIONS
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK OPTIONS

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 consolidated statement of losses (in thousands):

 

   Nine Months Ended
September 30,
 
   2018   2017 
Research and development  $62   $111 
General and administrative   28    63 
Total stock-based compensation expense  $90   $174 

 

During the nine months ended September 30, 2018, we accelerated the vesting of all unvested employee options. As of September 30, 2018, there was no unrecognized compensation cost related to non-vested stock options.

  

The following table summarizes stock option activity for the nine months ended September 30, 2018:

 

   Number of
shares
   Weighted-
average
exercise
price
   Weighted-average
remaining
contractual term
(in years)
   Aggregate
intrinsic
value (in
thousands)
 
Outstanding at December 31, 2017   356,280   $7.45                                
Granted      $           
Forfeited   (30,947)  $18.09           
Outstanding at September 30, 2018   325,333   $6.44    4.0   $ 
                     
Exercisable at September 30, 2018   325,333   $6.44    4.0   $ 

 

No options were exercised during the nine months ended September 30, 2018 and 2017.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.19.2
WARRANTS
9 Months Ended
Sep. 30, 2018
Warrants  
WARRANTS

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, 2017   3,045,740   $5.39                               
Issued                  
Expired   (532,810)  $15.87           
Outstanding at September 30, 2018   2,512,930   $3.16    2.9   $ 
                     
Exercisable at September 30, 2018   2,512,930   $3.16    2.9   $ 

 

No warrants were exercised during the nine months ended September 30, 2018 and 2017.

 

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 $0.02 and $0.01 per share.

 

The following table summarizes outstanding common stock purchase warrants as of September 30, 2018:

 

   Number of
shares
   Weighted-
average
exercise
price
   Expiration
Issued to consultants   102,213   $7.09   February 2019 through August 2023
Issued pursuant to 2014 financings   96,412   $34.50   June 2019
Issued pursuant to 2015 financings   460,384   $8.40   July 2020 through December 2020
Issued pursuant to 2016 financings   1,466,670   $0.01   December 2021
Issued pursuant to 2017 financings   387,251   $0.02   March 2022 through April 2022
    2,512,930         
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.19.2
CONVERTIBLE DEBENTURES
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
CONVERTIBLE DEBENTURES

NOTE 11 – CONVERTIBLE DEBENTURES

 

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) $0.33 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 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) $0.33 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 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 July 5, 2019.

 

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 July 5, 2019.

 

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, 2018, we issued a total of 10,500,000 shares of common stock, valued at $173,850, upon the conversion of $123,878 principal amount of our convertible debentures.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.19.2
ACQUISITION
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
ACQUISITION

NOTE 12 – ACQUISITION

 

On July 31, 2017, we acquired 100% of the capital stock of Lewis & Clark, Pharmaceuticals, Inc., a Virginia Corporation ("L&C"), pursuant to the terms of a share exchange agreement ("Agreement") dated July 31, 2017 ("Closing Date"), by and among, the Company, L&C, certain principals of L&C (the "Principals") and all of the existing shareholders of L&C ("Shareholders"). As consideration for the acquisition of L&C, the Company agreed to issue an aggregate of 7,122,172 shares of the Company's common stock ("Payment Shares") to the Shareholders, accounting for, subsequent to the closing of the transaction, the Shareholders owning 50% of the issue and outstanding capital stock of the Company (including common shares issuable upon conversion of the Company's outstanding preferred stock). The shares issued for the acquisition of L&C have been valued at $2,492,760.

 

The Principals have agreed to establish escrow accounts with respect to an aggregate of 973,251 of the Payment Shares pursuant to a share escrow agreement ("Escrow Agreement") in order to satisfy certain indemnification obligations to the extent such may arise under the Agreement for the benefit of the Company, its shareholders, and its personnel. The Agreement contains certain customary indemnification provisions with respect to the Company one on hand and L&C and the Principals, on the other hand.

  

Additionally, pursuant to the Agreement, all Shareholders that receive at least 5% of the Payment Shares (at least 356,109 shares) (including any shares held in escrow) agree to vote such shares in accordance with the recommendation of the Company's board of directors ("Board") with respect to any matter to be voted upon by shareholders of the Company for a period of eighteen (18) months from the Closing Date.

 

Furthermore, each Shareholder agrees that for a period of eighteen (18) months from the Closing Date, it will not sell or transfer any of the Payment Shares it receives pursuant to the Agreement, except that if a Shareholder is employed by the Company, it may sell up to five percent (5%) of Payment Shares it receives on each ninety (90) day period following the one (1) year anniversary of the Closing Date.

 

The allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows (in thousands):

 

Cash  $23 
Prepaid expenses   3 
Equipment   353 
Goodwill   2,159 
Total assets acquired   2,538 
Accounts payable and other liabilities   (45)
Total  $2,493 

 

Due to the curtailment of business activity in February 2018, the Company determined that the goodwill assigned to the Lewis & Clark, Pharmaceuticals, Inc. acquisition had become fully impaired as of December 31, 2017. Accordingly, we recorded a goodwill impairment charge of $2.2 million during the year ended December 31, 2017. The Company also determined that the office and lab equipment acquired pursuant to the Lewis & Clark, Pharmaceuticals, Inc. acquisition had become fully impaired as of December 31, 2017. Accordingly, we recorded an impairment charge of $0.3 million during the year ended December 31, 2017.

 

Pro forma results

 

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of L&C had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

 

   Three Months
September 30,
   Nine Months
September 30,
 
   2017   2017 
Revenue  $   $ 
Net loss attributable to common shareholders   (6,329)   (9,759)
Net loss per share   (0.72)   (1.12)

  

The amounts of revenue and loss of L&C since the acquisition date included in the consolidated statement of operations for the nine months ended September 30, 2017 are approximately $0 and ($149,000), respectively.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.19.2
SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2018
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 13 – SUBSEQUENT EVENTS

 

No material events have occurred after September 30, 2018 that requires recognition or disclosure in the financial statements except as follows:

 

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.

 

From October 1, 2018 through January 22, 2019, we issued a total of 128,611,071 shares of common stock upon the conversion of $441,599 principal amount of our convertible debentures.

 

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 30,001 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 $0.005 per share.

 

During January 2019, we issued the 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000.

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim 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 financial statements as of and for the three and nine months ended September 30, 2018 and 2017 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, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any future period. All references to September 30, 2018 and 2017 in these footnotes are unaudited.

 

These unaudited condensed financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended December 31, 2017, included in the Company's annual report on Form 10-K filed with the SEC on April 26, 2019.

 

The condensed balance sheet as of December 31, 2017 has been derived from the audited 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.

Use of Estimates

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

 

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 $0.4 million for the three months ended September 30, 2018 and 2017, respectively. We incurred research and development expenses of approximately $0.2 million and $1.3 million for the nine months ended September 30, 2018 and 2017, respectively.

Cash Equivalents

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

 

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.

Loss per Share

Loss per Share

 

Basic loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of September 30, 2018 and 2017, as they would be anti-dilutive:

 

   Nine Months Ended
September 30,
 
   2018   2017 
Shares underlying options outstanding   325,333    364,516 
Shares underlying warrants outstanding   2,512,930    4,511,914 
Shares underlying convertible notes outstanding   572,882,313    34,835,228 
Shares underlying convertible preferred stock outstanding   26,395,624    4,770,370 
    376,916,512    44,482,028 
Derivative Liability

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

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

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, 2018. The tables below summarize the fair values of our financial liabilities as of September 30, 2018 (in thousands):

 

   Fair Value at
September 30,
   Fair Value Measurement Using 
   2018   Level 1   Level 2   Level 3 
                     
Derivative liability  $4,724   $   $   $4,724 

  

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,
 
   2018   2017 
         
Balance at beginning of year  $2,934   $ 
Additions to derivative instruments   577    2,953 
Reclassification on conversion   (133)   (44)
Loss (gain) on change in fair value of derivative liability   1,346    (201)
Balance at end of period  $4,724   $2,708 
Stock-Based Compensation

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.

Effect of ASU No. 2017-11 on Previously Issued Financial Statements

Effect of ASU No. 2017-11 on Previously Issued Financial Statements

 

In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception ("ASU No. 2017-11"). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company's previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

September 30, 2017

 

   As reported   Adjustments   Adjusted 
             
ASSETS            
             
Current assets:            
Cash and cash equivalents  $18   $   $18 
Prepaid expenses   16        16 
Total current assets   34        34 
Office and lab equipment, net of accumulated depreciation of $10   350        350 
Intangible assets, net of accumulated amortization of $158   54        54 
Goodwill   2,159        2,159 
Other assets   3        3 
Total assets  $2,600   $   $2,600 
                
LIABILITIES AND STOCKHOLDERS' DEFICIT               
                
Current liabilities:               
Accounts payable  $1,724   $   $1,724 
Accrued expenses   1,093        1,093 
Convertible debentures, net of unamortized discount of $307   2,480        2,480 
Derivative liability   3,338    (630)   2,708 
Total current liabilities   8,635    (630)   8,005 
Total liabilities   8,635    (630)   8,005 
                
Commitments and contingencies            
                
Stockholders' deficit:               
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued  and outstanding            
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding   1        1 
Additional paid-in capital   48,425    2,321    50,746 
Accumulated deficit   (54,461)   (1,691)   (56,152)
                
Total stockholders' deficit   (6,035)   630    (5,405)
                
Total liabilities and stockholders' deficit  $2,600   $   $2,600 

 

CONDENSED STATEMENTS OF LOSSES

(unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
September 30, 2017
   Nine Months Ended
September 30, 2017
 
   Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted 
                         
Operating expenses:                        
Research and development  $384       $384   $1,349   $   $1,349 
General and administrative   474        474    1,255        1,255 
Total operating expenses   858        858    2,604        2,604 
                               
Loss from operations   (858)       (858)   (2,604)       (2,604)
                               
Other income (expense):                              
Gain on change in fair value of derivative liability   1,405    (1,204)   201    3,403    (3,202)   201 
Gain on conversion of debt   39        39    39        39 
Interest income (expense), net   (5,017)   (137)   (5,154)   (6,479)   1,325    (5,154)
                               
Loss before provision for income taxes   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
                               
Provision for income taxes                        
                               
Net loss   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
Deemed dividend       (435)   (435)       (1,703)   (1,703)
                               
Net loss attributable to common shareholders  $(4,431)  $(1,776)  $(6,207)  $(5,641)  $(3,580)  $(9,221)
                               
Net loss per common share, basic and diluted  $(0.69)       $(0.96)  $(1.77)       $(2.90)
                               
Weighted average shares outstanding   6,440,802         6,440,802    3,183,289         3,183,289 

  

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine Months Ended September 30, 2017

 

   Reported   Adjustments   Adjusted 
Cash flows from operating activities:            
Net loss  $(5,641)  $(1,877)  $(7,518)
Adjustments to reconcile net loss to net cash used in  operating activities:               
Depreciation and amortization   23         23 
Stock-based compensation   179         179 
Gain on change in fair value of derivative liability   (3,403)   3,202    (201)
Gain on conversion of debt   (39)        (39)
Amortization of debt discount   13         13 
Finance cost   6,463    (1,325)   5,138 
Increase in operating assets:               
Prepaid expenses   100         100 
Increase in operating liabilities:               
Accounts payable and accrued expenses   1,221         1,221 
Cash used in operating activities   (1,084)       (1,084)
                
Cash flows from investing activities:               
Cash from acquisition   23         23 
Acquisition of office equipment   (3)        (3)
Cash provided by investing activities   20        20 
                
Cash flows from financing activities:               
Proceeds from convertible notes   250         250 
Proceeds from sale of stock and warrants   285         285 
Cash provided by financing activities   535        535 
                
Net decrease in cash   (529)        (529)
Cash, beginning of period   547         547 
                
Cash, end of period  $18   $   $18 
Recent Accounting Pronouncements

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, 2018 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 Company does not expect any impact from the adoption of this standard on its 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.

 

In May 2017, the FASB issued ASU 2017-09, "Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting", which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The adoption of this standard did not have a material impact on its consolidated financial statements.

 

In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception ("ASU No. 2017-11"). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

The Company has early adopted the guidance under ASU 2017-11 for the year end December 31, 2017. Adjustments to the Company's previously issued financial statements were required for the full retrospective application of this standard. As such the financial statements for the three and nine months ended September 30, 2017 have been adjusted to reflect the adoption of ASU 2017-11.

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Tables)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Schedule of weighted average shares outstanding
   Nine Months Ended
September 30,
 
   2018   2017 
Shares underlying options outstanding   325,333    364,516 
Shares underlying warrants outstanding   2,512,930    4,511,914 
Shares underlying convertible notes outstanding   572,882,313    34,835,228 
Shares underlying convertible preferred stock outstanding   26,395,624    4,770,370 
    376,916,512    44,482,028 
Schedule of fair values of financial liabilities
   Fair Value at
September 30,
   Fair Value Measurement Using 
   2018   Level 1   Level 2   Level 3 
                     
Derivative liability  $4,724   $   $   $4,724 
Schedule of fair value of derivative liability on recurring basis
   Nine months ended
September 30,
 
   2018   2017 
         
Balance at beginning of year  $2,934   $ 
Additions to derivative instruments   577    2,953 
Reclassification on conversion   (133)   (44)
Loss (gain) on change in fair value of derivative liability   1,346    (201)
Balance at end of period  $4,724   $2,708 
Schedule of financial statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

September 30, 2017

 

   As reported   Adjustments   Adjusted 
             
ASSETS            
             
Current assets:            
Cash and cash equivalents  $18   $   $18 
Prepaid expenses   16        16 
Total current assets   34        34 
Office and lab equipment, net of accumulated depreciation of $10   350        350 
Intangible assets, net of accumulated amortization of $158   54        54 
Goodwill   2,159        2,159 
Other assets   3        3 
Total assets  $2,600   $   $2,600 
                
LIABILITIES AND STOCKHOLDERS' DEFICIT               
                
Current liabilities:               
Accounts payable  $1,724   $   $1,724 
Accrued expenses   1,093        1,093 
Convertible debentures, net of unamortized discount of $307   2,480        2,480 
Derivative liability   3,338    (630)   2,708 
Total current liabilities   8,635    (630)   8,005 
Total liabilities   8,635    (630)   8,005 
                
Commitments and contingencies            
                
Stockholders' deficit:               
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued  and outstanding            
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding   1        1 
Additional paid-in capital   48,425    2,321    50,746 
Accumulated deficit   (54,461)   (1,691)   (56,152)
                
Total stockholders' deficit   (6,035)   630    (5,405)
                
Total liabilities and stockholders' deficit  $2,600   $   $2,600 

 

CONDENSED STATEMENTS OF LOSSES

(unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
September 30, 2017
   Nine Months Ended
September 30, 2017
 
   Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted 
                         
Operating expenses:                        
Research and development  $384       $384   $1,349   $   $1,349 
General and administrative   474        474    1,255        1,255 
Total operating expenses   858        858    2,604        2,604 
                               
Loss from operations   (858)       (858)   (2,604)       (2,604)
                               
Other income (expense):                              
Gain on change in fair value of derivative liability   1,405    (1,204)   201    3,403    (3,202)   201 
Gain on conversion of debt   39        39    39        39 
Interest income (expense), net   (5,017)   (137)   (5,154)   (6,479)   1,325    (5,154)
                               
Loss before provision for income taxes   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
                               
Provision for income taxes                        
                               
Net loss   (4,431)   (1,341)   (5,772)   (5,641)   (1,877)   (7,518)
Deemed dividend       (435)   (435)       (1,703)   (1,703)
                               
Net loss attributable to common shareholders  $(4,431)  $(1,776)  $(6,207)  $(5,641)  $(3,580)  $(9,221)
                               
Net loss per common share, basic and diluted  $(0.69)       $(0.96)  $(1.77)       $(2.90)
                               
Weighted average shares outstanding   6,440,802         6,440,802    3,183,289         3,183,289 

  

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine Months Ended September 30, 2017

 

   Reported   Adjustments   Adjusted 
Cash flows from operating activities:            
Net loss  $(5,641)  $(1,877)  $(7,518)
Adjustments to reconcile net loss to net cash used in  operating activities:               
Depreciation and amortization   23         23 
Stock-based compensation   179         179 
Gain on change in fair value of derivative liability   (3,403)   3,202    (201)
Gain on conversion of debt   (39)        (39)
Amortization of debt discount   13         13 
Finance cost   6,463    (1,325)   5,138 
Increase in operating assets:               
Prepaid expenses   100         100 
Increase in operating liabilities:               
Accounts payable and accrued expenses   1,221         1,221 
Cash used in operating activities   (1,084)       (1,084)
                
Cash flows from investing activities:               
Cash from acquisition   23         23 
Acquisition of office equipment   (3)        (3)
Cash provided by investing activities   20        20 
                
Cash flows from financing activities:               
Proceeds from convertible notes   250         250 
Proceeds from sale of stock and warrants   285         285 
Cash provided by financing activities   535        535 
                
Net decrease in cash   (529)        (529)
Cash, beginning of period   547         547 
                
Cash, end of period  $18   $   $18 
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.19.2
SUPPLEMENTAL CASH FLOW INFORMATION (Tables)
9 Months Ended
Sep. 30, 2018
Supplemental Cash Flow Information [Abstract]  
Schedule of additional information of cash flow
   Nine Months Ended
September 30,
 
   2018   2017 
Non-cash financial activities:        
Common  stock issued on conversion of notes payable and derivative liability  $174   $44 
Debentures converted to common stock   124    38 
Derivative liability extinguished upon conversion of notes payable   133    44 
Derivative liability issued   577    2,953 
Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc.       2,493 
Accounts payable paid through issuance of debentures   15    70 
Debentures issued to retire preferred stock       2,504 
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.19.2
ACCRUED EXPENSES (Tables)
9 Months Ended
Sep. 30, 2018
Accrued Liabilities, Current [Abstract]  
Schedule of accrued expenses
   September 30,
2018
   December 31,
2017
 
Accrued compensation and benefits  $1,326   $1,154 
Accrued research and development   177    144 
Accrued other   271    241 
Total accrued expenses  $1,774   $1,539 
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.19.2
DERIVATIVE LIABILITY (Tables)
9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of black scholes valuations of derivatives
   2018 
Volatility   237%
Expected term (years)   11 months 
Risk-free interest rate   2.57%
Dividend yield   None 
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.19.2
STOCK OPTIONS (Tables)
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of stock-based compensation expense
   Nine Months Ended
September 30,
 
   2018   2017 
Research and development  $62   $111 
General and administrative   28    63 
Total stock-based compensation expense  $90   $174 
Schedule of stock option activity
   Number of
shares
   Weighted-
average
exercise
price
   Weighted-average
remaining
contractual term
(in years)
   Aggregate
intrinsic
value (in
thousands)
 
Outstanding at December 31, 2017   356,280   $7.45                                
Granted      $           
Forfeited   (30,947)  $18.09           
Outstanding at September 30, 2018   325,333   $6.44    4.0   $ 
                     
Exercisable at September 30, 2018   325,333   $6.44    4.0   $ 
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.19.2
WARRANTS (Tables)
9 Months Ended
Sep. 30, 2018
Warrants  
Schedule of transactions involving of warrants
   Number of
shares
   Weighted-
average exercise
price
   Weighted-average
remaining contractual
term
(in years)
   Aggregate
intrinsic
value
(in thousands)
 
Outstanding at December 31, 2017   3,045,740   $5.39                               
Issued                  
Expired   (532,810)  $15.87           
Outstanding at September 30, 2018   2,512,930   $3.16    2.9   $ 
                     
Exercisable at September 30, 2018   2,512,930   $3.16    2.9   $ 
Schedule of outstanding warrants to purchase common stock
   Number of
shares
   Weighted-
average
exercise
price
   Expiration
Issued to consultants   102,213   $7.09   February 2019 through August 2023
Issued pursuant to 2014 financings   96,412   $34.50   June 2019
Issued pursuant to 2015 financings   460,384   $8.40   July 2020 through December 2020
Issued pursuant to 2016 financings   1,466,670   $0.01   December 2021
Issued pursuant to 2017 financings   387,251   $0.02   March 2022 through April 2022
    2,512,930         
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.19.2
ACQUISITION (Tables)
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Schedule of final accounting
Cash  $23 
Prepaid expenses   3 
Equipment   353 
Goodwill   2,159 
Total assets acquired   2,538 
Accounts payable and other liabilities   (45)
Total  $2,493 
Schedule of pro forma result of acquisition
   Three Months
September 30,
   Nine Months
September 30,
 
   2017   2017 
Revenue  $   $ 
Net loss attributable to common shareholders   (6,329)   (9,759)
Net loss per share   (0.72)   (1.12)
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.19.2
BACKGROUND (Details)
$ in Thousands
1 Months Ended
Jul. 31, 2018
USD ($)
Background (Textual)  
Proceeds from sale of debt securities $ 500
Proceeds from sale of notes $ 25
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.19.2
MANAGEMENT'S PLANS TO CONTINUE AS A GOING CONCERN (Details) - USD ($)
$ in Thousands
Dec. 31, 2018
Sep. 30, 2018
Jul. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Management's Plans to Continue as a Going Concern (Textual)            
Accumulated deficit   $ (61,943)   $ (59,734) $ (56,152)  
Cash and cash equivalents and restricted cash balances   $ 349   $ 10 $ 18 $ 547
Percentage of total assets   89.70%        
Amount raised $ 25,000   $ 500,000      
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details) - shares
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Shares underlying, outstanding 376,916,512 44,482,028
Shares underlying warrants outstanding [Member]    
Shares underlying, outstanding 2,512,930 4,511,914
Shares underlying convertible preferred stock outstanding [Member]    
Shares underlying, outstanding 26,395,624 4,770,370
Shares underlying convertible notes outstanding [Member]    
Shares underlying, outstanding 572,882,313 34,835,228
Shares underlying options outstanding [Member]    
Shares underlying, outstanding 325,333 364,516
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details 1) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Derivative liability $ 4,724 $ 2,900
Level 1 [Member]    
Derivative liability  
Level 2 [Member]    
Derivative liability  
Level 3 [Member]    
Derivative liability $ 4,724  
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details 2) - USD ($)
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Accounting Policies [Abstract]    
Balance at beginning of year $ 2,934,000
Additions to derivative instruments 577,000 2,953,000
Reclassification on conversion (133,000) (44,000)
Loss (gain) on change in fair value of derivative liability (1,346,000) (201,000)
Balance at end of period $ 4,724,000 $ 2,708,000
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details 3) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Current assets:        
Cash and cash equivalents $ 3 $ 10 $ 18 $ 547
Prepaid expenses 5 16  
Total current assets 349 15 34  
Office and lab equipment, net of accumulated depreciation of $10 3 4 350  
Intangible assets, net of accumulated amortization of $158 37 50 54  
Goodwill     2,159  
Other assets     3  
Total assets 389 69 2,600  
Current liabilities:        
Accounts payable 1,977 1,968 1,724  
Accrued expenses 1,774 1,539 1,093  
Convertible debentures, net of unamortized discount of $307 2,707 2,476 2,480  
Derivative liability 4,724 2,934 2,708  
Total current liabilities 11,182 8,917 8,005  
Total liabilities 11,182 8,917 8,005  
Commitments and contingencies  
Stockholders' deficit:        
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued and outstanding  
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding 2 1 1  
Additional paid-in capital 51,148 50,885 50,746  
Accumulated deficit (61,943) (59,734) (56,152)  
Total stockholders' deficit (10,793) (8,848) (5,405) (888)
Total liabilities and stockholders' deficit $ 389 $ 69 2,600  
As reported [Member]        
Current assets:        
Cash and cash equivalents     18 $ 547
Prepaid expenses     16  
Total current assets     34  
Office and lab equipment, net of accumulated depreciation of $10     350  
Intangible assets, net of accumulated amortization of $158     54  
Goodwill     2,159  
Other assets     3  
Total assets     2,600  
Current liabilities:        
Accounts payable     1,724  
Accrued expenses     1,093  
Convertible debentures, net of unamortized discount of $307     2,480  
Derivative liability     3,338  
Total current liabilities     8,635  
Total liabilities     8,635  
Commitments and contingencies      
Stockholders' deficit:        
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued and outstanding      
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding     1  
Additional paid-in capital     48,425  
Accumulated deficit     (54,461)  
Total stockholders' deficit     (6,035)  
Total liabilities and stockholders' deficit     2,600  
Adjustments [Member]        
Current assets:        
Cash and cash equivalents      
Prepaid expenses      
Total current assets      
Office and lab equipment, net of accumulated depreciation of $10      
Intangible assets, net of accumulated amortization of $158      
Goodwill      
Other assets      
Total assets      
Current liabilities:        
Accounts payable      
Accrued expenses      
Convertible debentures, net of unamortized discount of $307      
Derivative liability     (630)  
Total current liabilities     (630)  
Total liabilities     (630)  
Commitments and contingencies      
Stockholders' deficit:        
Convertible preferred stock, par value $.0001 per share; 30,000,000 shares authorized, 495 shares issued and outstanding      
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 9,075,589 shares issued and outstanding      
Additional paid-in capital     2,321  
Accumulated deficit     (1,691)  
Total stockholders' deficit     630  
Total liabilities and stockholders' deficit      
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details 4) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Operating expenses:        
Research and development $ 11 $ 384 $ 197 $ 1,349
General and administrative 94 474 331 1,255
Total operating expenses 105 858 528 2,604
Loss from operations (105) (858) (528) (2,604)
Other income (expense):        
Gain on change in fair value of derivative liability (2,329) 201 (1,346) 201
Gain on conversion of debt   39   39
Interest income (expense), net (258) (5,154) (418) (5,154)
Loss before provision for income taxes (2,671) (5,772) (2,209) (7,518)
Provision for income taxes
Net loss (2,671) (5,772) (2,209) (7,518)
Deemed dividend   (435)   (1,703)
Net loss attributable to common shareholders $ (2,671) $ (6,207) $ (2,319) $ (9,221)
Net loss per common share, basic and diluted (in dollars per share) $ (0.15) $ (0.96) $ (0.15) $ (2.9)
Weighted average shares outstanding (in shares) 18,163,331 6,440,802 15,180,156 3,183,289
As reported [Member]        
Operating expenses:        
Research and development   $ 384   $ 1,349
General and administrative   474   1,255
Total operating expenses   858   2,604
Loss from operations   (858)   (2,604)
Other income (expense):        
Gain on change in fair value of derivative liability   1,405   3,403
Gain on conversion of debt   39   39
Interest income (expense), net   (5,017)   (6,479)
Loss before provision for income taxes   (4,431)   (5,641)
Provision for income taxes    
Net loss   (4,431)   (5,641)
Deemed dividend    
Net loss attributable to common shareholders   $ (4,431)   $ (5,641)
Net loss per common share, basic and diluted (in dollars per share)   $ (0.69)   $ (1.77)
Weighted average shares outstanding (in shares)   6,440,802   3,183,289
Adjustments [Member]        
Operating expenses:        
Research and development    
General and administrative    
Total operating expenses    
Loss from operations    
Other income (expense):        
Gain on change in fair value of derivative liability   (1,204)   (3,202)
Gain on conversion of debt    
Interest income (expense), net   (137)   1,325
Loss before provision for income taxes   (1,341)   (1,877)
Provision for income taxes    
Net loss   (1,341)   (1,877)
Deemed dividend   (435)   (1,703)
Net loss attributable to common shareholders   $ (1,776)   $ (3,580)
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details 5) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:        
Net loss $ (2,671) $ (5,772) $ (2,209) $ (7,518)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization     14 23
Stock-based compensation     90 179
Gain on change in fair value of derivative liability       (201)
Gain on conversion of debt   (39)   (39)
Amortization of debt discount       13
Finance cost     63 5,138
Increase in operating assets:        
Prepaid expenses       100
Increase in operating liabilities:        
Accounts payable and accrued expenses     259 1,221
Cash used in operating activities     (161) (1,084)
Cash flows from investing activities:        
Cash from acquisition       23
Acquisition of office equipment     (3)
Cash provided by investing activities     20
Cash flows from financing activities:        
Proceeds from convertible notes       250
Proceeds from sale of stock and warrants     285
Cash provided by financing activities     500 535
Net decrease in cash     339 (529)
Cash, beginning of period     10 547
Cash, end of period $ 3 18 $ 3 18
As reported [Member]        
Cash flows from operating activities:        
Net loss   (4,431)   (5,641)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization       23
Stock-based compensation       179
Gain on change in fair value of derivative liability       (3,403)
Gain on conversion of debt   (39)   (39)
Amortization of debt discount       13
Finance cost       6,463
Increase in operating assets:        
Prepaid expenses       100
Increase in operating liabilities:        
Accounts payable and accrued expenses       1,221
Cash used in operating activities       (1,084)
Cash flows from investing activities:        
Cash from acquisition       23
Acquisition of office equipment       (3)
Cash provided by investing activities       20
Cash flows from financing activities:        
Proceeds from convertible notes       250
Proceeds from sale of stock and warrants       285
Cash provided by financing activities       535
Net decrease in cash       (529)
Cash, beginning of period       547
Cash, end of period   18   18
Adjustments [Member]        
Cash flows from operating activities:        
Net loss   (1,341)   (1,877)
Adjustments to reconcile net loss to net cash used in operating activities:        
Gain on change in fair value of derivative liability       3,202
Gain on conversion of debt    
Finance cost       (1,325)
Increase in operating liabilities:        
Cash used in operating activities      
Cash flows from investing activities:        
Cash provided by investing activities      
Cash flows from financing activities:        
Cash provided by financing activities      
Cash, end of period    
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.19.2
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Summary of Critical Accounting Policies and Use of Estimates (Textual)        
Research and development $ 11 $ 384 $ 197 $ 1,349
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.19.2
SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Non-cash financial activities:    
Common stock issued on conversion of notes payable and derivative liability $ 174 $ 44
Debentures converted to common stock 124 38
Derivative liability extinguished upon conversion of notes payable 133 44
Derivative liability issued 577 2,953
Net assets and liabilities recognized with the acquisition of Lewis and Clark Pharmaceuticals, Inc. 2,493
Accounts payable paid through issuance of debentures 15 70
Debentures issued to retire preferred stock $ 2,504
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.19.2
ACCRUED EXPENSES (Details) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Accrued Liabilities, Current [Abstract]      
Accrued compensation and benefits $ 1,326 $ 1,154  
Accrued research and development 177 144  
Accrued other 271 241  
Total accrued expenses $ 1,774 $ 1,539 $ 1,093
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.19.2
DERIVATIVE LIABILITY (Details)
Mar. 31, 2018
Volatility [Member]  
Derivative liability measurement input 2.37%
Expected term (years) [Member]  
Derivative liability term 11 months
Risk-free interest rate [Member]  
Derivative liability measurement input 2.57%
Dividend yield [Member]  
Derivative liability measurement input 0.00%
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.19.2
DERIVATIVE LIABILITY (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Derivative Liability (Textual)          
Gain on change in fair value of the derivative liability $ (2,300) $ 200 $ (1,300) $ 200  
Derivative Liability $ 4,724   $ 4,724   $ 2,900
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.19.2
COMMITMENTS AND CONTINGENCIES (Details) - USD ($)
9 Months Ended
Feb. 28, 2017
Sep. 30, 2018
Commitments and Contingencies (Textual)    
Gross proceeds from capital raising transactions   $ 25,000,000
Dr. Richerson [Member] | Separation Agreement [Member]    
Commitments and Contingencies (Textual)    
Warrants issued to purchase common stock 76,726  
Exercise price (in dollars per share) $ 0.75  
Option excersice price (in dollars per share) $ 0.75  
Warrant expiration period 3 years 6 months  
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.19.2
CAPITAL STOCK AND STOCKHOLDERS' EQUITY (Details) - USD ($)
1 Months Ended 2 Months Ended 3 Months Ended 9 Months Ended
Sep. 12, 2017
Jul. 31, 2017
Apr. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Capital Stock and Stockholders' Equity (Textual)                
Principal amount of senior convertible debentures       $ 123,878   $ 123,878    
Preferred stock, par value (in dollars per share)       $ 0.0001   $ 0.0001   $ 0.0001
Amount of conversion convertible debentures              
Preferred stock, outstanding       495   495   495
Convertible Preferred Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Amount of conversion convertible debentures              
Number of conversion convertible debentures (in shares)             (118)  
Common Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Amount of conversion convertible debentures              
Number of conversion convertible debentures (in shares)             223,585  
Series B Preferred Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Reduction in conversion price (in dollars per share)           $ 0.02    
Number of shares issued upon conversion       90.4 39 90.4 39  
Preferred stock, outstanding       71   71   71
Series A Preferred Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Conversion price (in dollars per share)           $ 0.53    
Number of shares issued upon conversion         79.5   79.5  
Preferred stock, outstanding       133.8   133.8   133.8
Series C 0% Convertible Preferred Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Stock issued during period, shares     290.4          
Conversion price (in dollars per share)     $ 0.75          
Number of shares issued upon conversion     387,251          
Preferred stock, par value (in dollars per share)     $ 1,000          
Preferred Stock And Warrants [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Deemed dividend       $ 0 $ 435,000 $ 110,000 $ 1,703,000  
Series C Preferred Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Reduction in conversion price (in dollars per share)           $ 0.01    
Number of shares issued upon conversion       200   200    
Preferred stock, outstanding       290.4   290.4   290.4
Common Stock [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Stock issued during period, shares           10,500,000 223,585  
Value of number of shares issued           $ 173,850    
Investors [Member] | Exchange Agreement [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Principal amount of senior convertible debentures $ 25,000              
Series B 0% Convertible Preferred Stock [Member] | Investors [Member] | Series B Preferred Stock [Member] | Exchange Agreement [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Value of number of shares issued $ 900,000              
Number of shares converted 890              
Series A Convertible Preferred Stock [Member] | Investors [Member] | Series A Preferred Stock [Member] | Exchange Agreement [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Number of shares converted 1,614.8125              
Amount of debentures converted $ 1,600,000              
Convertible Debentures [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Number of shares converted             331,000  
Amount of debentures converted             $ 37,995  
Lewis & Clark Pharmaceuticals, Inc. [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Stock issued during period, shares   7,122,172            
Percentage of shares acquired   100.00%            
Lewis & Clark Pharmaceuticals, Inc. [Member] | Share Exchange Agreement [Member]                
Capital Stock and Stockholders' Equity (Textual)                
Percentage of shares acquired   100.00%            
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.19.2
STOCK OPTIONS (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Total stock-based compensation expense $ 90 $ 174
Research and development [Member]    
Total stock-based compensation expense 62 111
General and administrative [Member]    
Total stock-based compensation expense $ 28 $ 63
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.19.2
STOCK OPTIONS (Details 1)
9 Months Ended
Sep. 30, 2018
USD ($)
$ / shares
shares
Number of shares  
Outstanding at beginning | shares 356,280
Granted | shares
Forfeited | shares (30,947)
Outstanding at ending | shares 325,333
Exercisable at ending | shares 325,333
Weighted-average exercise price  
Outstanding at beginning | $ / shares $ 7.45
Granted | $ / shares
Forfeited | $ / shares 18.09
Outstanding at ending | $ / shares 6.44
Exercisable at ending | $ / shares $ 6.44
Weighted-average remaining contractual term (in years)  
Outstanding at ending 4 years
Exercisable at ending 4 years
Outstanding at ending | $
Exercisable at ending | $
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.19.2
WARRANTS (Details)
9 Months Ended
Sep. 30, 2018
USD ($)
$ / shares
shares
Number of shares  
Exercisable at ending 4 years
Outstanding at ending | $
Exercisable at ending | $
Warrant [Member]  
Number of shares  
Outstanding at beginning | shares 3,045,740
Issued | shares
Expired | shares (532,810)
Outstanding at ending | shares 2,512,930
Exercisable at ending | shares 2,512,930
Outstanding at beginning | $ / shares $ 5.39
Issued | $ / shares
Expired | $ / shares 15.87
Outstanding at ending | $ / shares 3.16
Exercisable at ending | $ / shares $ 3.16
Outstanding at ending 2 years 10 months 25 days
Exercisable at ending 2 years 10 months 25 days
Outstanding at ending | $
Exercisable at ending | $
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.19.2
WARRANTS (Details 1) - Warrant [Member]
9 Months Ended
Sep. 30, 2018
$ / shares
shares
Number of shares 2,512,930
Consultant [Member]  
Number of shares 102,213
Weighted Average Exercise price | $ / shares $ 7.09
Expiration date begenning 2019-02
Expiration date ending 2023-08
Financing 2014 [Member]  
Number of shares 96,412
Weighted Average Exercise price | $ / shares $ 34.50
Expiration date ending 2019-06
Financing 2015 [Member]  
Number of shares 460,384
Weighted Average Exercise price | $ / shares $ 8.40
Expiration date begenning 2020-07
Expiration date ending 2020-12
Financing 2016 [Member]  
Number of shares 1,466,670
Weighted Average Exercise price | $ / shares $ 0.01
Expiration date ending 2021-12
Financings 2017 [Member]  
Number of shares 387,251
Weighted Average Exercise price | $ / shares $ 0.02
Expiration date begenning 2023-03
Expiration date ending 2022-04
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.19.2
WARRANTS (Details Textual) - $ / shares
Sep. 30, 2018
Feb. 28, 2017
Series B And Series C Preferred Stock [Member]    
Warrants (Details Textual)    
Exercise price (in dollars per share) $ 0.01  
Dr. Richerson [Member] | Separation Agreement [Member]    
Warrants (Details Textual)    
Exercise price (in dollars per share)   $ 0.75
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.19.2
CONVERTIBLE DEBENTURES (Details) - USD ($)
2 Months Ended 9 Months Ended
Jul. 03, 2018
Sep. 12, 2017
Apr. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Jan. 31, 2018
Convertible Debentures (Textual)            
Principal amount of senior convertible debentures       $ 123,878    
Proceeds from debt         $ 250,000  
Conversion price           $ 0.0001
Securities purchase agreements, description 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.          
Debentures, description (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) $0.33 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.          
Investors holding, description 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.          
Ownership percentage 50.10%          
Convertible debentures [Member]            
Convertible Debentures (Textual)            
Conversion price   $ 0.33        
Exchange Agreement [Member] | Investors [Member]            
Convertible Debentures (Textual)            
Principal amount of senior convertible debentures   $ 25,000        
Exchange Agreement [Member] | Convertible debentures [Member]            
Convertible Debentures (Textual)            
Payment or cancellation debt   70        
Proceeds from debt   320        
Received cash from debt   $ 250        
Maturity date   Sep. 12, 2018        
Discreiption of convertible debentures       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) $0.33 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.    
Percentage of outstanding debentures       67.00%    
Percentage of partial liquidated damages fee for each investor       2.00%    
Registration Rights Agreement [Member] | Convertible debentures [Member]            
Convertible Debentures (Textual)            
Percentage of partial liquidated damages fee for each investor       1.50%    
Percentage of securities issued investors       50.10%    
Common Stock [Member]            
Convertible Debentures (Textual)            
Common stock,issued       10,500,000 223,585  
Common stock,value       $ 173,850    
Series A Preferred Stock [Member] | Exchange Agreement [Member] | SeriesAConvertiblePreferredStockMember | Investors [Member]            
Convertible Debentures (Textual)            
Number of shares converted   1,614.8125        
Amount of shares converted   $ 1,600,000        
Series B Preferred Stock [Member] | Exchange Agreement [Member] | Series B 0% Convertible Preferred Stock [Member] | Investors [Member]            
Convertible Debentures (Textual)            
Common stock,value   $ 900,000        
Number of shares converted   890        
Series C 0% Convertible Preferred Stock [Member]            
Convertible Debentures (Textual)            
Common stock,issued     290.4      
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.19.2
ACQUISITION (Details) - USD ($)
$ in Thousands
Sep. 30, 2017
Jul. 31, 2017
Goodwill $ 2,159  
Lewis & Clark Pharmaceuticals, Inc. [Member] | Share Exchange Agreement [Member]    
Cash   $ 23
Prepaid expenses   3
Equipment   353
Goodwill   2,159
Total assets acquired   2,538
Accounts payable and other liabilities   (45)
Total   $ 2,493
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.19.2
ACQUISITION (Details 1) - Lewis & Clark Pharmaceuticals, Inc. [Member] - Share Exchange Agreement [Member] - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2017
Revenue
Net loss attributable to common shareholders $ (6,329) $ (9,759)
Net loss per share $ (0.72) $ (1.12)
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.19.2
ACQUISITION (Details Textual) - USD ($)
$ in Thousands
1 Months Ended 9 Months Ended
Jul. 31, 2017
Dec. 31, 2017
Sep. 30, 2017
Acquisition (Textual)      
Goodwill     $ 2,159
Lewis & Clark Pharmaceuticals, Inc. [Member]      
Acquisition (Textual)      
Percentage of ownership acquired 100.00%    
Value of revenue and loss     0
Value of revenue and loss     $ (149)
Goodwill impairment charge   $ 2,200  
Lewis & Clark Pharmaceuticals, Inc. [Member] | Escrow Agreement [Member]      
Acquisition (Textual)      
Number of shares held in escrow account $ 973,251    
Lewis & Clark Pharmaceuticals, Inc. [Member] | Share Exchange Agreement [Member]      
Acquisition (Textual)      
Percentage of ownership acquired 100.00%    
Number of shars issued upon acquistion (Purchase consideration) 7,122,172    
Number of shares issued upon acquistion, value (Purchase consideration) $ 2,492,760    
Number of shares received by shareholders (5% of the payment shares) 356,109    
Goodwill $ 2,159    
Lewis & Clark Pharmaceuticals, Inc. [Member] | Office And Lab Equipment [Member]      
Acquisition (Textual)      
Asset impairment charge   $ 300  
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.19.2
SUBSEQUENT EVENTS (Details) - USD ($)
1 Months Ended 4 Months Ended 9 Months Ended
Dec. 13, 2018
Jan. 31, 2019
Dec. 31, 2018
Jan. 22, 2019
Sep. 30, 2017
Sep. 30, 2018
Jan. 31, 2018
Dec. 31, 2017
Face amount           $ 123,878    
Number of common shares issued           21,388,929   10,888,929
Preferred stock, stated value           $ 0.0001   $ 0.0001
Conversion price             $ 0.0001  
Proceeds from convertible preferred stock         $ 250,000      
Subsequent Event [Member]                
Reverse stock split     Each share of Series D Preferred Stock held by a Holder, as such, shall be entitled to the whole number of votes equal to 30,001 shares of Common Stock.          
Shares issued   5,000            
Proceeds from convertible preferred stock   $ 5,000            
Subsequent Event [Member] | Series D 0% Convertible Preferred Stock [Member]                
Preferred stock, designated shares     5,000          
Preferred stock, par value     $ 0.0001          
Preferred stock, stated value     1.00          
Conversion price     $ 0.005          
Subsequent Event [Member] | 10% Convertible Promissory Notes [Member]                
Face amount $ 25,000              
Debt face amount in cash $ 25,000              
Interest rate 10.00%              
Maturity date, description 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”).              
Terms of conversion feature 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.              
Number of common shares issued       128,611,071        
Amount of debentures converted       $ 441,599        
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