Attached files
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EX-32.1 - SignPath Pharma, Inc. | v203157_ex32-1.htm |
EX-31.1 - SignPath Pharma, Inc. | v203157_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE
ACT OF 1934
|
For
the quarterly period ended: SEPTEMBER
30,
2010
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE
ACT OF 1934
|
For
the transition period from _________ to __________
Commission
file number: 333-158474
SIGNPATH
PHARMA INC.
(Exact
name of Registrant as specified in its charter)
Delaware
|
20-5079533
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
1375
California Road
Quakertown,
PA 18951
(Address
of principal executive offices)
(215)
538-9996
(Registrant’s
telephone number, including Area Code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
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. x Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). xYes ¨ No The
Registrant has not yet transitioned into this requirement.
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 file” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do not check if a smaller
reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. x Yes ¨ No
APPLICABLE
ONLY TO CORPORATE ISSUERS
As of November 16, 2010, the Company
had authorized 45,000,000 shares, $.001 par value, common stock, of which
11,740,000 shares of common stock were issued and outstanding.
SignPath
Pharma Inc.
Quarterly
Report on Form 10-Q
Period
Ended September 30, 2010
Table
of Contents
Page
|
||
PART
I . FINANCIAL INFORMATION
|
||
Item
1. Financial Statements:
|
||
Condensed
Balance Sheets as of September 30, 2010 (unaudited) and
December 31, 2009 (audited) (restated)
|
3
|
|
Condensed
Statements of Operations for the three and nine months ended September 30,
2010 and 2009 (restated) and for the period from Inception on May 15, 2006
through September 30, 2010 (unaudited)
|
4
|
|
Condensed
Statements of Stockholders’ Equity (Deficit) for the period from Inception
on May 15, 2006 through September 30,
2010 (unaudited)
|
5
|
|
Condensed
Statements of Cash Flows for the nine months ended September
30, 2010 and 2009 (restated) and for the period from Inception
on May 15, 2006 through September 30, 2010 (unaudited)
|
7
|
|
Notes
to Condensed Financial Statements (unaudited)
|
8 - 18
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
19 - 25
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
25
|
|
Item
4T. Evaluation of Disclosure Controls and
Procedures
|
26
|
|
PART
II . OTHER INFORMATION
|
||
Item
1. Legal Proceedings
|
27
|
|
Item
1A. Risk Factors – Not Applicable
|
27
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
27
|
|
Item
3. Defaults Upon Senior Securities
|
27
|
|
Item
4. (Removed and Reserved)
|
28
|
|
Item
5. Other Information
|
28
|
|
Item
6. Exhibits
|
28
|
|
SIGNATURES
|
29
|
|
EXHIBIT
INDEX
|
|
30
|
2
PART I
. FINANCIAL INFORMATION
Item
1. Financial Statements:
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Balance
Sheets
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Restated)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 101,573 | $ | 295,418 | ||||
Total
Current Assets
|
101,573 | 295,418 | ||||||
EQUIPMENT,
net
|
2,990 | 2,400 | ||||||
TOTAL
ASSETS
|
$ | 104,563 | $ | 297,818 | ||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 365,459 | $ | 117,967 | ||||
Derivative
liability
|
3,822,919 | 2,824,603 | ||||||
Total
Current Liabilities
|
4,188,378 | 2,942,570 | ||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Preferred
stock; $0.10 par value, 5,000,000 shares Authorized 2,612
and 2,262 shares issued and outstanding,
respectively
|
261 | 226 | ||||||
Common
stock; $0.001 par value, 45,000,000 shares Authorized; 11,740,000 and
11,340,000 shares issued and outstanding, respectively
|
11,741 | 11,341 | ||||||
Additional
paid-in capital
|
465,024 | 340,831 | ||||||
Deficit
accumulated during the development stage
|
(4,560,841 | ) | (2,997,150 | ) | ||||
Total
Stockholders' Deficit
|
(4,083,815 | ) | (2,644,752 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 104,563 | $ | 297,818 |
The
accompanying notes are an integral part of these financial
statements.
3
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Statements
of Operations
(Unaudited)
From Inception
|
||||||||||||||||||||
on May 15, 2006
|
||||||||||||||||||||
For the Three Months Ended
|
For the Nine Months Ended
|
Through
|
||||||||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||||||
REVENUES
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
OPERATING
EXPENSES
|
||||||||||||||||||||
General
and administrative
|
92,443 | 41,345 | 218,772 | 301,984 | 1,144,845 | |||||||||||||||
Consulting
expense
|
- | - | 340,000 | - | 422,263 | |||||||||||||||
Financing
expense
|
- | - | - | - | 1,063,401 | |||||||||||||||
Research
and development
|
342,097 | 23,623 | 566,183 | 208,880 | 1,265,148 | |||||||||||||||
Total
Operating Expenses
|
434,540 | 64,968 | 1,124,955 | 510,864 | 3,895,657 | |||||||||||||||
OPERATING
LOSS
|
(434,540 | ) | (64,968 | ) | (1,124,955 | ) | (510,864 | ) | (3,895,657 | ) | ||||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||||||
Gain
(loss) on derivative liability
|
(341,960 | ) | (87,174 | ) | (479,520 | ) | (202,754 | ) | (682,746 | ) | ||||||||||
Grant
income
|
- | - | 40,784 | - | 81,557 | |||||||||||||||
Interest
expense
|
- | - | - | - | (63,995 | ) | ||||||||||||||
Total
Other Income (Expense)
|
(341,960 | ) | (87,174 | ) | (438,736 | ) | (202,754 | ) | (665,184 | ) | ||||||||||
NET
LOSS BEFORE INCOME TAXES
|
(776,500 | ) | (152,142 | ) | (1,563,691 | ) | (713,618 | ) | (4,560,841 | ) | ||||||||||
PROVISION
FOR INCOME TAXES
|
- | - | - | - | - | |||||||||||||||
NET
LOSS
|
$ | (776,500 | ) | $ | (152,142 | ) | $ | (1,563,691 | ) | $ | (713,618 | ) | $ | (4,560,841 | ) | |||||
BASIC
AND DILUTED LOSS PER SHARE
|
$ | (0.07 | ) | $ | (0.01 | ) | $ | (0.14 | ) | $ | (0.06 | ) | ||||||||
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
11,740,000 | 11,340,000 | 11,496,777 | 11,340,000 |
The
accompanying notes are an integral part of these financial
statements.
4
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity (Deficit)
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Additional
|
During the
|
Total
|
||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-in
|
Development
|
Stockholders'
|
||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity (Deficit)
|
||||||||||||||
Balance,
May 15, 2006
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Common
stock issued to founders for cash at $0.001 per share
|
-
|
-
|
10,000,000
|
10,000
|
-
|
-
|
10,000
|
|||||||||||||
Net
loss for the year ended December 31, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
Balance,
December 31, 2006
|
-
|
-
|
10,000,000
|
10,000
|
-
|
-
|
10,000
|
|||||||||||||
Common
stock issued for bridge debt at $0.85 per share
|
-
|
-
|
257,500
|
258
|
218,617
|
-
|
218,875
|
|||||||||||||
Net
loss for the year ended December 31, 2007
|
-
|
-
|
-
|
-
|
-
|
(526,833
|
) |
(526,833
|
) | |||||||||||
Balance,
December 31, 2007
|
-
|
-
|
10,257,500
|
10,258
|
218,617
|
(526,833
|
) |
(297,958
|
)
|
|||||||||||
Preferred
stock issued for bridge debt at $1,000 per share
|
890
|
89
|
-
|
-
|
889,786
|
-
|
889,875
|
|||||||||||||
Preferred
stock issued for cash at $1,000 per share
|
562
|
56
|
-
|
-
|
561,944
|
-
|
562,000
|
|||||||||||||
Common
stock issued for bridge debt at $0.85 per share
|
-
|
-
|
1,082,500
|
1,083
|
919,043
|
-
|
920,126
|
|||||||||||||
Stock
offering costs
|
-
|
-
|
-
|
-
|
(270,948
|
) |
-
|
(270,948
|
)
|
|||||||||||
Net
loss for the year ended December 31, 2008
|
-
|
-
|
-
|
-
|
-
|
(1,695,766
|
) |
(1,695,766
|
) | |||||||||||
Balance,
December 31, 2008
|
1,452
|
145
|
11,340,000
|
11,341
|
2,318,442
|
(2,222,599
|
) |
107,329
|
The
accompanying notes are an integral part of these financial
statements.
5
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity (Deficit)
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Additional
|
During the
|
Total
|
||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-in
|
Development
|
Stockholders'
|
||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity (Deficit)
|
||||||||||||||
Balance,
December 31, 2008
|
1,452
|
145
|
11,340,000
|
11,341
|
2,318,442
|
(2,222,599
|
) |
107,329
|
||||||||||||
Cumulative
effect of adoption of ASC 815
|
-
|
-
|
-
|
-
|
(1,632,825
|
) |
(43,808
|
) |
(1,676,633
|
) | ||||||||||
Preferred
stock issued for cash at $1,000 per share
|
810
|
81
|
-
|
-
|
(178,632
|
) |
-
|
(178,551
|
) | |||||||||||
Stock
offering costs
|
-
|
-
|
-
|
-
|
(166,154
|
) |
-
|
(166,154
|
)
|
|||||||||||
Net
loss for the year ended December 31, 2009
|
-
|
-
|
-
|
-
|
-
|
(730,743
|
) |
(730,743
|
) | |||||||||||
Balance,
December 31, 2009 (restated)
|
2,262
|
226
|
11,340,000
|
11,341
|
340,831
|
(2,997,150
|
) |
(2,644,752
|
)
|
|||||||||||
Preferred
stock issued for cash at $1,000 per share (unaudited)
|
350
|
35
|
-
|
-
|
(168,831
|
) |
-
|
(168,796
|
) | |||||||||||
Stock
offering costs (unaudited)
|
-
|
-
|
-
|
-
|
(79,944
|
) |
-
|
(79,944
|
)
|
|||||||||||
Common
stock issued for services (unaudited)
|
-
|
-
|
400,000
|
400
|
339,600
|
-
|
340,000
|
|||||||||||||
Warrants
issued for services (unaudited)
|
-
|
-
|
-
|
-
|
33,368
|
-
|
33,368
|
|||||||||||||
Net
loss for the nine months ended September 30, 2010
(unaudited)
|
-
|
-
|
-
|
-
|
-
|
(1,563,691
|
) |
(1,563,691
|
) | |||||||||||
Balance,
September 30, 2010 (unaudited)
|
2,612
|
$
|
261
|
11,740,000
|
$
|
11,741
|
$
|
465,024
|
$
|
(4,560,841
|
)
|
$
|
(4,083,815
|
)
|
The
accompanying notes are an integral part of these financial
statements.
6
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Statements
of Cash Flows
(Unaudited)
From Inception
|
||||||||||||
on May 15, 2006
|
||||||||||||
For the Nine Months Ended
|
Through
|
|||||||||||
September 30,
|
September 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
(Restated)
|
||||||||||||
OPERATING
ACTIVITIES
|
||||||||||||
Net
loss
|
$ | (1,563,691 | ) | $ | (713,618 | ) | $ | (4,560,841 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Common
stock issued for services
|
340,000 | - | 340,000 | |||||||||
Amortization
of options
|
33,368 | - | 33,368 | |||||||||
Common
stock issued with bridge financing
|
- | - | 1,139,001 | |||||||||
Depreciation
expense
|
800 | 600 | 2,400 | |||||||||
Change
in derivative liability, net of bifurcation
|
479,520 | 202,754 | 682,746 | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Accounts
payable and accrued expenses
|
247,492 | 88,273 | 365,460 | |||||||||
Net
Cash Used in Operating Activities
|
(462,511 | ) | (421,991 | ) | (1,997,866 | ) | ||||||
INVESTING
ACTIVITIES
|
||||||||||||
Purchase
of equipment
|
(1,390 | ) | - | (5,390 | ) | |||||||
Net
Cash Used in Investing Activities
|
(1,390 | ) | - | (5,390 | ) | |||||||
FINANCING
ACTIVITIES
|
||||||||||||
Proceeds
from notes payable
|
- | - | 889,875 | |||||||||
Preferred
stock issued for cash
|
350,000 | 810,000 | 1,722,000 | |||||||||
Stock
offering costs paid
|
(79,944 | ) | (166,154 | ) | (517,046 | ) | ||||||
Common
stock issued for cash
|
- | - | 10,000 | |||||||||
Net
Cash Provided by Financing Activities
|
270,056 | 643,846 | 2,104,829 | |||||||||
NET
INCREASE (DECREASE) IN CASH
|
(193,845 | ) | 221,855 | 101,573 | ||||||||
CASH
AT BEGINNING OF PERIOD
|
295,418 | 181,128 | - | |||||||||
CASH
AT END OF PERIOD
|
$ | 101,573 | $ | 402,983 | $ | 101,573 | ||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||||||
CASH
PAID FOR:
|
||||||||||||
Interest
|
$ | - | $ | - | $ | - | ||||||
Income
taxes
|
$ | - | $ | - | $ | - | ||||||
NON
CASH FINANCING ACTIVITIES:
|
||||||||||||
Preferred
stock issued for bridge financing
|
$ | - | $ | - | $ | 889,875 | ||||||
Derivative
liability
|
518,796 | - | 3,140,173 |
The
accompanying notes are an integral part of these financial
statements.
7
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
1 - CONDENSED FINANCIAL STATEMENTS
The
accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows at September 30, 2010, and for
all periods presented herein, have been made.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's December
31, 2009 audited financial statements. The results of operations for
the period ended September 30, 2010 is not necessarily indicative of the
operating results for the full year.
NOTE
2 - GOING CONCERN
The
Company's financial statements are prepared using generally accepted accounting
principles in the United States of America applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has not yet established an ongoing source
of revenues sufficient to cover its operating costs and allow it to continue as
a going concern. The ability of the Company to continue as a going concern is
dependent on the Company obtaining adequate capital to fund operating losses
until it becomes profitable. If the Company is unable to obtain adequate
capital, it could be forced to cease operations.
In order
to continue as a going concern, the Company will need, among other things,
additional capital resources. Management's plan is to obtain such resources for
the Company by obtaining capital from management and significant shareholders
sufficient to meet its minimal operating expenses and seeking equity and/or debt
financing. However management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Derivative Financial
Instruments
The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow risks or market-risks that may affect the fair values of
its financial instruments. The Company utilizes various types of financing to
fund our business needs, including preferred stock with warrants attached and
other instruments not indexed to our stock. The Company is required to record
its derivative instruments at their fair value. Changes in the fair value of
derivatives are recognized in earnings in accordance with ASC 815.
Recent Accounting
Pronouncements
The
Company has evaluated recent accounting pronouncements and their adoption has
not had or is not expected to have a material impact on the Company’s financial
position, or statements.
8
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
4 – ACCRUED LIABILITIES
Pursuant
to the applicable Codification literature, the Company has concluded it is
probable that it will pay $85,738 in liquidated damages pursuant to the
registration rights clause in certain of the securities sold in fiscal years
2008 and 2009, the Company was required to file a registration statement by
January 27, 2009. The Company failed to do so until April 7, 2009,
resulting in liquidated damages of 2% per month of the gross proceeds, which
approximated $1.8 million as of that date. During the year ended
December 31, 2009, the Company’s registration statement covering the securities
was declared effective by the SEC. Each holder is entitled to $47.32
per share owned. The Company has resolved to pay the liquidated
damages in shares of Common Stock valued at $1.00 per share, pursuant to the
terms and provisions of the Certificate of Designation, Preferences and Rights
of Series A Convertible Preferred Stock.
NOTE
5 – WARRANTS
A summary
of the status of the Company's warrants as of September 30, 2010 and
changes during the periods ended September 30, 2010 and December 31, 2009 and
2008 are presented below:
Date of
|
Warrant
|
Exercise
|
Value if
|
Expiration
|
|||||
Issuance
|
Shares
|
Price
|
Exercised
|
Date
|
|||||
11/25/2008
|
1,259,639
|
1.27
|
$
|
1,599,742
|
8/10/14
|
||||
11/25/2008
|
530,314
|
0.85
|
450,767
|
8/10/14
|
|||||
11/26/2008
|
449,220
|
1.27
|
570,509
|
8/10/14
|
|||||
Outstanding
|
|||||||||
at
12/31/2008
|
2,239,173
|
2,621,018
|
|||||||
3/5/2009
|
347,215
|
1.27
|
440,963
|
8/10/14
|
|||||
3/5/2009
|
104,165
|
0.85
|
88,540
|
8/10/14
|
|||||
4/1/2009
|
17,655
|
1.27
|
22,422
|
8/10/14
|
|||||
4/1/2009
|
5,296
|
0.85
|
44,502
|
8/10/14
|
|||||
6/17/2009
|
235,400
|
1.27
|
298,958
|
8/10/14
|
|||||
6/17/2009
|
70,620
|
0.85
|
60,027
|
8/10/14
|
|||||
7/23/2009
|
58,850
|
1.27
|
74,740
|
8/10/14
|
|||||
7/23/2009
|
35,310
|
0.85
|
30,014
|
8/10/14
|
|||||
8/20/2009
|
58,850
|
1.27
|
74,740
|
10/14/15
|
|||||
9/9/2009
|
235,400
|
1.27
|
298,958
|
10/14/15
|
|||||
9/9/2009
|
70,620
|
0.85
|
60,027
|
10/14/15
|
|||||
Outstanding
|
|||||||||
at
12/31/2009
|
3,478,554
|
4,119,909
|
|||||||
2/11/2010
|
29,425
|
1.27
|
37,370
|
10/14/15
|
|||||
2/11/2010
|
17,655
|
0.85
|
15,007
|
10/14/15
|
|||||
5/21/2010
|
29,425
|
1.27
|
37,370
|
10/14/15
|
|||||
5/21/2010
|
17,655
|
0.85
|
15,007
|
10/14/15
|
|||||
8/10/2010
|
88,275
|
1.27
|
112,109
|
10/14/15
|
|||||
8/10/2010
|
52,965
|
0.85
|
45,020
|
10/14/15
|
|||||
9/15/2010
|
264,825
|
1.27
|
336,328
|
10/14/15
|
|||||
9/15/2010
|
52,965
|
0.85
|
45,020
|
10/14/15
|
|||||
9/24/2010
|
105,930
|
0.85
|
90,041
|
10/14/15
|
|||||
Outstanding
at 9/30/2010 |
4,137,647
|
$
|
4,848,181
|
9
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
5 – WARRANTS (CONTINUED)
The
warrants were issued in connection with the Preferred Stock Offering and were
valued using the Black-Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 0.90% to 2.16%, depending on date of issuance; 5 year term; and
volatility of 160% to 377%, depending on date of
issuance.
NOTE
6 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS
The
Company’s only asset or liability measured at fair value on a recurring basis is
its derivative liability associated with its preferred stock and associated
warrants to purchase common stock. On January 1, 2009, the Company adopted new
guidance which determines whether an instrument is indexed to an entity’s own
stock. As a result, some of the Company’s outstanding warrants that were
previously classified in equity were reclassified to liabilities as these
warrants contain exercise price reset features and are no longer deemed to be
indexed to the Company’s stock.
Therefore,
on January 1, 2009, 3,572,714 outstanding warrants of the Company containing
exercise price reset provisions, classified in equity, were reclassified to
derivative liability. These warrants had exercise prices ranging from $0.85 -
$1.27 and expire starting in December 2013. As of January 1, 2009, the fair
value of these warrants of $1,676,633 was recognized and resulted in a
cumulative effect adjustment to retained earnings of $43,808. The change in fair
value during the nine months ended September 30, 2010 and 2009 of $(479,520) and
(202,754), respectively, is recorded as a derivative loss in the accompanying
Statements of Operations.
The
Company classifies the fair value of these warrants under level three. The fair
value of the derivative liability was calculated using a lattice model that
values the compound embedded derivatives based on a probability weighted
discounted cash flow model. This model is based on future projections of the
various potential outcomes. The embedded derivatives that were analyzed and
incorporated into the model included the conversion feature with the full
ratchet reset, and the redemption options.
The
Series A Preferred Derivatives were valued using the following
assumptions:
|
·
|
The
Company was 12 months from being publicly traded and the Company/Holder
would convert the Preferred Stock based on 200% of the adjusted conversion
price;
|
|
·
|
The
Preferred maturity date used was 5 years following the Company being
publically traded (rolling 6 years from the Valuation
Date);
|
|
·
|
The
stock price of $0.85 was used as the fair value of the common stock based
on the previous common stock
transaction;
|
|
·
|
The
projected volatility curve was based on the average of 17 comparable
biotech companies historical
volatility:
|
|
·
|
The
Holder would automatically convert at a stock price of $1.70 if the
Company was not in default;
|
|
·
|
The
Holder would convert on a quarterly basis in equal amounts to maturity if
in the money; and
|
|
·
|
Capital
raising events would occur annually, generating reset events based on
pricing not greater than 100% of
market.
|
The
warrants were valued at issuance and marked to market quarterly for the period
2009 through September 2010. The five-year warrants are options to purchase
shares of common stock at an exercise price of $0.85 per share and $1.27,
subject to adjustments. The following assumptions were used for the valuation of
the derivative:
|
·
|
The
stock price of $0.85 was used as the fair value of the common stock based
on the previous common stock
transaction;
|
|
·
|
The
projected volatility curve was based on the average of comparable
companies as provided in the Preferred assumptions
above;
|
|
·
|
The
Holder would exercise the warrant at maturity if the stock price was above
the exercise price;
|
|
·
|
The
Holder would exercise the warrant at target prices starting at $1.58 for
the Investor Warrants and $1.40 for the Placement Agent Warrants, and
lowering such target as the warrants approached
maturity.
|
10
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
6 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS (CONTINUED)
|
·
|
The
Holder would automatically convert all of the shares at a stock price of
$1.58 for the Investor Warrants and $1.40 for the Placement Agent
Warrants;
|
|
·
|
The
Holder would convert on a quarterly basis in amounts not to exceed the
average quarters trading volume based on historical performance, assuming
the volume would increase by 5% each quarter;
and
|
|
·
|
Capital
raising events would occur annually, generating reset events based on
pricing not greater than 100% of market for the Placement Agent Warrants
and for the Investor Warrants the reset would be 150% of the
Preferred.
|
The
Company determined the fair value of the preferred stock to be $2,371,937 and
$1,642,409 and the fair value of the warrants to be $1,450,982 and $1,182,194 at
September 30, 2010 and December 31, 2009, respectively.
The
following shows the changes in the level three liability measured on a recurring
basis for the nine months ended September 30, 2010:
Balance,
January 1, 2010
|
$ | 2,824,603 | ||
Derivative
liability for preferred stock and warrants issued during the
period
|
518,796 | |||
Derivative
loss
|
479,520 | |||
Balance,
September 30, 2010
|
$ | 3,822,919 |
NOTE
7 – CAPITAL STOCK
On
February 11, 2010, the Company issued 25 shares of its par value $0.10
convertible preferred stock for cash at $1,000 per share.
Attached
to the 25 units of convertible preferred stock sold was a warrant, giving the
owners rights to purchase up to a total of 29,425 (or 1,177 common share per
warrant) shares of the Company’s common stock at strike price of
$1.27 per share for a five year period.
The
warrants were valued using the Black Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 0.91%; 5 year term; and volatility of 104%. The
Company attributed $10,384 of the total $24,997 of Additional Paid-in Capital
associated with the transaction to the warrants based on the relative fair value
of the warrants.
On May
21, 2010, the Company issued 25 shares of its par value $0.10 convertible
preferred stock for cash at $1,000 per share.
Attached
to the 25 units of convertible preferred stock sold was a warrant, giving the
owners rights to purchase up to a total of 29,425 (or 1,177 common share per
warrant) shares of the Company’s common stock at strike price of
$1.27 per share for a five year period.
The
warrants were valued using the Black-Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 2.16%; 5 year term; and volatility of 106%. The
Company attributed $10,526 of the total $24,997 of Additional Paid-in Capital
associated with the transaction to the warrants based on the relative fair value
of the warrants.
11
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
7 – CAPITAL STOCK (CONTINUED)
On June
16, 2010 the Company issued 400,000 shares of common stock to officers and
consultants of the Company in exchange for services provided. The
shares were valued based on the market price of $0.85 per share and the Company
recognized $340,000 in consulting expense.
On August
10, 2010, the Company issued 75 shares of its par value $0.10 convertible
preferred stock for cash at $1,000 per share.
Attached
to the 75 units of convertible preferred stock sold was a warrant, giving the
owners rights to purchase up to a total of 88,275 (or 1,177 common share per
warrant) shares of the Company’s common stock at strike price of
$1.27 per share for a five year period.
The
warrants were valued using the Black-Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 1.46%; 5 year term; and volatility of 263%. The
Company attributed $37,435 of the total $74,993 of Additional Paid-in Capital
associated with the transaction to the warrants based on the relative fair value
of the warrants.
On
September 15, 2010, the Company issued 75 shares of its par value $0.10
convertible preferred stock for cash at $1,000 per share.
Attached
to the 75 units of convertible preferred stock sold was a warrant, giving the
owners rights to purchase up to a total of 88,275 (or 1,177 common share per
warrant) shares of the Company’s common stock at strike price of
$1.27 per share for a five year period.
The
warrants were valued using the Black-Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 1.46%; 5 year term; and volatility of 263%. The
Company attributed $37,435 of the total $74,993 of Additional Paid-in Capital
associated with the transaction to the warrants based on the relative fair value
of the warrants.
On
September 24, 2010, the Company issued 150 shares of its par value $0.10
convertible preferred stock for cash at $1,000 per share.
Attached
to the 150 units of convertible preferred stock sold was a warrant, giving the
owners rights to purchase up to a total of 176,550 (or 1,177 common share per
warrant) shares of the Company’s common stock at strike price of
$1.27 per share for a five year period.
The
warrants were valued using the Black-Scholes model using the following
assumptions: stock price at valuation, $0.85; strike price, $1.27;
risk free rate 1.46%; 5 year term; and volatility of 263%. The
Company attributed $74,869 of the total $149,985 of Additional Paid-in Capital
associated with the transaction to the warrants based on the relative fair value
of the warrants.
NOTE
8 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10 Company management reviewed all material events
through the date of this report and there are no additional subsequent events to
report.
12
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
September
30, 2010 and December 31, 2009
NOTE
9 – RESTATEMENT OF FINANCIAL STATEMENTS
On or
about August 2, 2010, the Company determined that it had improperly classified
its preferred stock and related warrants as permanent equity when, due to
certain provisions of the preferred stock and warrants, these instruments should
have been classified as derivative liabilities under ASC 815. The
error resulted in an overstatement of the Company’s additional paid-in capital
account, an understatement of its current liabilities, and an overstatement of
the Company’s net income.
Under ASC
815, derivative instruments are to be revalued at each reporting period with any
change in the fair value of the instruments being recorded in the Company’s
income statement. The cumulative effect of the error through June 30,
2010 is a $340,786 reduction to the Company’s net income, a $3,027,055 increase
in current liabilities, and a $2,686,269 decrease in additional paid-in
capital. Tables detailing the effect of the error on the Company’s
previously filed financial statements for the year end December 31, 2009 and for
all reporting periods from March 31, 2009 through March 31, 2010 have been
included in the Company’s Form 10Q filed on August 23, 2010.
Balance
Sheets
September 30, 2009
|
||||||||||||
Restated
|
Adjustments
|
As Filed
|
||||||||||
ASSETS
|
||||||||||||
Cash
|
$ | 402,983 | $ | - | $ | 402,983 | ||||||
Equipment,
net
|
2,600 | - | 2,600 | |||||||||
TOTAL
ASSETS
|
$ | 405,583 | $ | - | $ | 405,583 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||
Accounts
payable and accrued expenses
|
$ | 165,272 | $ | - | $ | 165,272 | ||||||
Derivative
liability - preferred stock
|
1,693,941 | (1,693,941 | ) | - | ||||||||
Derivative
liability - warrants
|
1,173,998 | (1,173,998 | ) | - | ||||||||
TOTAL
LIABILITIES
|
3,033,211 | (2,867,939 | ) | 165,272 | ||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||||||
Preferred
stock
|
226 | - | 226 | |||||||||
Common
stock
|
11,341 | - | 11,341 | |||||||||
Additional
paid-in capital
|
340,830 | 2,402,719 | 2,743,549 | |||||||||
Deficit
accumulated during the development stage
|
(2,980,025 | ) | 465,220 | (2,514,805 | ) | |||||||
Total
Stockholders' Equity (Deficit)
|
(2,627,628 | ) | 2,867,939 | 240,311 |
13
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
June 30,
2010 and December 31, 2009
NOTE
9 – RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
Income
Statements
For the Three Months Ended
|
||||||||||||
September 30, 2009
|
||||||||||||
Restated
|
Adjustments
|
As Filed
|
||||||||||
REVENUES
|
$ | - | $ | - | $ | - | ||||||
OPERATING
EXPENSES
|
64,968 | - | 64,968 | |||||||||
OPERATING
LOSS
|
(64,968 | ) | - | (64,968 | ) | |||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||
Gain
on derivative liability
|
(87,174 | ) | (87,174 | ) | - | |||||||
Grant
income
|
- | - | - | |||||||||
Interest
expense
|
- | - | - | |||||||||
Total
Other Income (Expense)
|
(87,174 | ) | (87,174 | ) | - | |||||||
NET
LOSS BEFORE INCOME TAXES
|
(152,142 | ) | (87,174 | ) | (64,968 | ) | ||||||
PROVISION
FOR INCOME TAXES
|
- | - | - | |||||||||
NET
LOSS
|
$ | (152,142 | ) | $ | (87,174 | ) | $ | (64,968 | ) | |||
BASIC
LOSS PER SHARE
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
WEIGHTED
AVERAGE NUMBER NUMBER OF SHARES
OUTSTANDING
|
11,340,000 | 32,500 | 11,307,500 |
For the Nine Months Ended
|
||||||||||||
September 30, 2009
|
||||||||||||
Restated
|
Adjustments
|
As Filed
|
||||||||||
REVENUES
|
$ | - | $ | - | $ | - | ||||||
OPERATING
EXPENSES
|
510,864 | - | 510,864 | |||||||||
OPERATING
LOSS
|
(510,864 | ) | - | (510,864 | ) | |||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||
Gain
(loss) on derivative liability
|
(202,754 | ) | (202,754 | ) | - | |||||||
Grant
income
|
- | - | - | |||||||||
Interest
expense
|
- | - | - | |||||||||
Total
Other Income (Expense)
|
(202,754 | ) | (202,754 | ) | - | |||||||
NET
LOSS BEFORE INCOME TAXES
|
(713,618 | ) | (202,754 | ) | (510,864 | ) | ||||||
PROVISION
FOR INCOME TAXES
|
- | - | - | |||||||||
NET
LOSS
|
$ | (713,618 | ) | $ | (202,754 | ) | $ | (510,864 | ) | |||
BASIC
LOSS PER SHARE
|
$ | (0.06 | ) | $ | (0.02 | ) | $ | (0.05 | ) | |||
WEIGHTED
AVERAGE NUMBER NUMBER OF SHARES OUTSTANDING
|
11,340,000 | 32,500 | 11,307,500 |
14
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
June 30,
2010 and December 31, 2009
NOTE
9 – RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
Statements
of Cash Flow
For the Nine Months Ended
|
||||||||||||
September 30, 2009
|
||||||||||||
Restated
|
Adjustment
|
As Filed
|
||||||||||
OPERATING
ACTIVITIES
|
||||||||||||
Net
loss
|
$ | (713,618 | ) | $ | (202,754 | ) | $ | (510,864 | ) | |||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||||||
Common
stock issued with bridge financing
|
- | - | - | |||||||||
Depreciation
expense
|
600 | - | 600 | |||||||||
Change
in derivative liability
|
202,754 | 202,754 | - | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Accounts
payable and accrued expenses
|
88,273 | - | 88,273 | |||||||||
Net
Cash Used in Operating Activities
|
(421,991 | ) | - | (421,991 | ) | |||||||
INVESTING
ACTIVITIES
|
||||||||||||
Purchase
of equipment
|
- | - | - | |||||||||
Net
Cash Used in Investing Activities
|
- | - | - | |||||||||
FINANCING
ACTIVITIES
|
||||||||||||
Proceeds
from notes payable
|
- | - | - | |||||||||
Stock
offering costs paid
|
(166,154 | ) | - | (166,154 | ) | |||||||
Preferred
stock issued for cash
|
810,000 | - | 810,000 | |||||||||
Common
stock issued for cash
|
- | - | - | |||||||||
Net
Cash Provided by Financing Activities
|
643,846 | - | 643,846 | |||||||||
NET
INCREASE (DECREASE) IN CASH
|
221,855 | - | 221,855 | |||||||||
CASH
AT BEGINNING OF PERIOD
|
181,128 | - | 181,128 | |||||||||
CASH
AT END OF PERIOD
|
$ | 402,983 | $ | - | $ | 402,983 |
15
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
June 30,
2010 and December 31, 2009
NOTE
9 – RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
Balance
Sheets
December 31, 2009
|
||||||||||||
Restated
|
Adjustments
|
As Filed
|
||||||||||
ASSETS
|
||||||||||||
Cash
|
$ | 295,418 | $ | - | $ | 295,418 | ||||||
Equipment,
net
|
2,400 | - | 2,400 | |||||||||
TOTAL
ASSETS
|
$ | 297,818 | $ | - | $ | 297,818 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||
Accounts
payable and accrued expenses
|
$ | 117,967 | $ | - | $ | 117,967 | ||||||
Derivative
liability - preferred stock
|
1,642,409 | (1,642,409 | ) | - | ||||||||
Derivative
liability - warrants
|
1,182,194 | (1,182,194 | ) | - | ||||||||
TOTAL
LIABILITIES
|
2,942,570 | (2,824,603 | ) | 117,967 | ||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||||||
Preferred
stock
|
226 | - | 226 | |||||||||
Common
stock
|
11,341 | - | 11,341 | |||||||||
Additional
paid-in capital
|
340,831 | 2,621,376 | 2,962,207 | |||||||||
Deficit
accumulated during the development stage
|
(2,997,150 | ) | 203,227 | (2,793,923 | ) | |||||||
Total
Stockholders' Equity (Deficit)
|
(2,644,752 | ) | 2,824,603 | 179,851 |
16
SIGNPATH
PHARMA, INC.
(A
Development Stage Company)
Notes to
the Financial Statements
June 30,
2010 and December 31, 2009
NOTE
9 – RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
Income
Statements
For the Year ended
|
||||||||||||
December 31, 2009
|
||||||||||||
Restated
|
Adjustments
|
As Filed
|
||||||||||
REVENUES
|
$ | - | $ | - | $ | - | ||||||
OPERATING
EXPENSES
|
612,097 | - | 612,097 | |||||||||
OPERATING
LOSS
|
(612,097 | ) | - | (612,097 | ) | |||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||
Gain
on derivative liability
|
(159,418 | ) | (159,418 | ) | - | |||||||
Grant
income
|
40,773 | - | 40,773 | |||||||||
Interest
expense
|
- | - | - | |||||||||
Total
Other Income (Expense)
|
(118,645 | ) | (159,418 | ) | 40,773 | |||||||
NET
LOSS BEFORE INCOME TAXES
|
(730,742 | ) | (159,418 | ) | (571,324 | ) | ||||||
PROVISION
FOR INCOME TAXES
|
- | - | - | |||||||||
NET
LOSS
|
$ | (730,742 | ) | $ | (159,418 | ) | $ | (571,324 | ) | |||
BASIC
LOSS PER SHARE
|
$ | (0.06 | ) | $ | (0.01 | ) | $ | (0.05 | ) | |||
WEIGHTED
AVERAGE NUMBER NUMBER OF SHARES OUTSTANDING
|
11,340,000 | - | 11,340,000 |
17
Statements
of Cash Flow
For the Year Ended
|
||||||||||||
December 31, 2009
|
||||||||||||
Restated
|
Adjustment
|
As Filed
|
||||||||||
OPERATING
ACTIVITIES
|
||||||||||||
Net
loss
|
$ | (730,742 | ) | $ | (159,418 | ) | $ | (571,324 | ) | |||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||||||
Common
stock issued with bridge financing
|
- | - | - | |||||||||
Depreciation
expense
|
800 | - | 800 | |||||||||
Change
in derivative liability
|
159,418 | 159,418 | - | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Accounts
payable and accrued expenses
|
40,968 | - | 40,968 | |||||||||
Net
Cash Used in Operating Activities
|
(529,556 | ) | - | (529,556 | ) | |||||||
INVESTING
ACTIVITIES
|
||||||||||||
Purchase
of equipment
|
- | - | - | |||||||||
Net
Cash Used in Investing Activities
|
- | - | - | |||||||||
FINANCING
ACTIVITIES
|
||||||||||||
Proceeds
from notes payable
|
- | - | - | |||||||||
Stock
offering costs paid
|
(166,154 | ) | - | (166,154 | ) | |||||||
Preferred
stock issued for cash
|
810,000 | - | 810,000 | |||||||||
Common
stock issued for cash
|
- | - | - | |||||||||
Net
Cash Provided by Financing Activities
|
643,846 | - | 643,846 | |||||||||
NET
INCREASE (DECREASE) IN CASH
|
114,290 | - | 114,290 | |||||||||
CASH
AT BEGINNING OF PERIOD
|
181,128 | - | 181,128 | |||||||||
CASH
AT END OF PERIOD
|
$ | 295,418 | $ | - | $ | 295,418 |
18
PART
I Item 2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Statements
Statements
contained in this Item 2. “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations” and elsewhere in this report that are not
historical or current facts may constitute “forward-looking statements” within
the meaning of such term in Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). These statements relate to
future events or future predictions, including events or predictions relating to
our future financial performance, and are generally identifiable by use of the
words "may," "will," “forecast,” "should," "expect," "plan," "anticipate,"
"believe," "feel," "confident," "estimate," "intend," "predict," "potential" or
"continue" or the negative of such terms or other variations on these words or
comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors that may cause
the Company's or its industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. Important factors to consider and
evaluate that could cause actual results to differ materially from those
predicted in any such forward-looking statements include: (i) the general
economic recession and changes in the external competitive market factors which
might impact the Company's results of operations; (ii) unanticipated working
capital or other cash requirements including those created by the failure of the
Company to adequately anticipate the costs associated with clinical trials,
manufacturing and other critical activities; (iii) changes in the Company's
business strategy or an inability to execute its strategy due to unanticipated
changes in the therapeutic drug industry; (iv) the inability or failure of the
Company's management to devote sufficient time and energy to the Company's
business; and (v) the failure of the Company to complete any or all of the
transactions described herein on the terms currently contemplated. In
light of these risks and uncertainties, many of which are described in greater
detail in the Risk Factors discussion contained in our registration statement
filed with the Securities and Exchange Commission (“SEC”), there can be no
assurance that the forward-looking statements contained in this prospectus will
in fact transpire.
Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Moreover, neither the
Company nor any other person assumes responsibility for the accuracy and
completeness of such statements. We do not undertake any duty to
update any of the forward-looking statements after the date of this report to
conform such statements to actual results or changes in our
expectations.
General
The
following discussion should be read in conjunction with the financial statements
and notes thereto included in this report. Except for the historical information
contained herein, the discussion in this report contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company’s plans, objectives, expectations and intentions as of the date of this
filing. The cautionary statements made above should be read as being applicable
to all related forward-looking statements wherever they appear in this
document.
19
Material
Changes in Financial Conditions
September
30, 2010 as Compared With December 31, 2009
As of
September 30, 2010 and December 31, 2009, the Company had $101,573 and $295,418,
respectively, of cash on hand. The Company’s working capital
decreased from $(2,647,152) at December 31, 2009 to a deficit of ($4,086,805),
as of September 30, 2010, as a result of a decrease in cash resulting
from a loss from operations and a $998,316 increase in derivative liability on
its preferred stock and warrants. SignPath had a deficit accumulated
during the development stage of $4,560,841, as of September 30,
2010.
Between
January 1, 2009 and December 31, 2009, SignPath sold 810 Units (the “2009
Private Placement”) consisting of its securities at a price of $1,000 per
Unit. Each Unit consists of (i) one share of 6.5% Series A
Convertible Preferred Stock convertible into 1,177 shares of common stock
(equivalent to $.85 per share of common stock) following the August 10, 2009
effective date of its Registration Statement (the “Effective Date”) subject to
adjustment, and (ii) one Warrant to purchase 1,177 shares of common stock at
$1.27 per share for a five-year period following the Effective
Date. The Company received gross proceeds of $810,000 and incurred
stock offering costs of $166,154 related to this offering. As part of
that offering, the Company attributed $737,584 of the total $2,261,649 of
additional paid-in capital associated with the transactions for both years to
the warrants based on the relative fair value of the warrants.
Between
January 1, 2010 and September 30, 2010 (the “2010 Private Placement”), SignPath
sold 350 Units consisting of the same securities sold in the 2009 Private
Placement. The Company received gross proceeds of $350,000 and
incurred stock offering costs of $79,944 related to this offering. As
part of this offering, the Company attributed $170,649 of the total $349,965 of
additional paid-in-capital associated with this transaction to the warrants
based on the relative fair market value of the warrants.
The
Company has no agreements, arrangements or understandings with any officer,
director or shareholder as to any future financing, either equity or
debt. The Company expects to continue to incur losses for the
foreseeable future and it is possible the Company may never reach
profitability. Therefore, the Company will require additional capital
resources and financing to implement its business plan and continue its
operations. The Company’s current burn rate for salaries, research
programs and professional fees averages about $50,000 per
month. Thus, it is expected that the Company currently does not have
sufficient cash on hand to operate through the end of the fiscal year ended
2011. Management believes it will have the ability to raise
additional funds to complete to complete its pre-clinical trials and
INDs. In view of general economic conditions, there can be no
assurance that any additional financing will be available to us, that any
affiliate will provide additional investments in the Company or that adequate
funds for our operations will otherwise be available when needed or on terms
acceptable to us.
20
Cash used
in operating activities during the nine months ended September 30, 2010 (“Fiscal
2010”) was $462,511 compared to cash used of $421,991 during the comparable
period in 2009 (“Fiscal 2009”). This resulted from a net loss of
$1,563,691 in Fiscal 2010, offset by an increase in accounts payable and accrued
expenses of $247,492, an increase in derivative liability of $479,500 and
$340,000 of stock issued for services. This compared to a loss of
$713,618 during Fiscal 2009 and an increase in accounts payable and accrued
expenses of $88,273 and an increase in derivative liability of
$202,754.
The
Company had net cash provided by financing activities of $270,056 in Fiscal 2010
as a result of the $350,000 received in the 2010 Private Placement described
above, reduced by $79,944 of offering costs. During the Fiscal 2009,
the Company had $643,846 of net cash provided by financing activities as a
result of the $810,000 received from the 2009 Private Placement of Preferred
Stock less the stock offering costs of $166,154.
As a
result of the foregoing, the Company’s cash decreased by $193,845 during Fiscal
2010 from $295,418 to $101,573.
The
financial statements included in this report have been prepared in conformity
with generally accepted accounting principles that contemplate our continuance
as a going concern. The Company has had no revenues and has generated
losses from operation. As set forth in Note 2 to the audited
Financial Statements, the continuation of the Company as a going concern is
dependent upon the Company obtaining adequate capital to fund operating losses
until it becomes profitable, if ever. The financial statements do not
include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Material
Changes in Results of Operations
Nine
months ended September 30, 2010, as compared with nine months ended September
30, 2009
The
Company does not expect to receive any revenues prior to 2012. Total
operating expenses during the nine months ended September 30, 2010 (the “2010
Period”) increased to $1,124,955, as compared with $510,864 during the nine
months ended September 30, 2009 (the “2009 Period”) primarily as a result of
$340,000 of consulting expenses related to Common Stock issuances and a $357,303
increase in research and development expenses. General and
administrative expenses decreased to $218,772 in the 2010 Period from $301,984
in the 2009 Period primarily as a result of a reduction in payroll
expenses.
A
research grant of approximately $80,000 from the Michael J. Fox Parkinson’s
Disease Foundation to measure parenteral liposomal curcumin passage across the
blood brain barrier and focal distributions in mice/rate brains in collaboration
with D.S. Chiou at the University of Western Ontario, Canada. Data,
to date, has revealed intravenous curcumin localized in specific brain regions
associated with Parkinson’s Disease and memory processing. As of
September 30, 2010, the Company has expended $76,353 to manufacture nanocucumin
for this study and is funding animal studies with Dr. Chiou with the remaining
funds. This is reflected on the Company’s Statement of Operations as
$40,784 of grant income during the 2010 Period.
21
The
Company paid an aggregate of $566,183 in research and development fees in the
2010 Period as compared to $208,880 in the 2009 Period. This included
$332,795 to University of Texas, MD Anderson Cancer Center (“UTMDACC”) for
non-clinical and mouse pre-clinical non-GLP studies of lipsomal
curcumin. Other research and development payments included $100,567
and $85,228 to Chemic Laboratories and Regulus Pharmaceutical, respectively, for
lab fees and other costs related to the Company’s research and development
efforts. Payments in the 2009 Period included $32,575 paid to
Surmodics Pharmaceuticals, Inc. (f/n/a Brookwood Pharmaceuticals, Inc.
(“Surmodics”) for polymer for the production of nanocurcumin under the Johns
Hopkins University Agreement (the “JHU Agreement”) and for the production of
clinical GMP grade curcumin under the UTMDACC agreement.
The
Company also paid Topaz Technology, Inc. (“Topaz”) an aggregate of $24,500
during the 2009 Period to provide FDA/EMEA Compliance and validation audits
relating to the synthetic curcumin manufacturing facility in India.
The
amount paid for research and development in the 2010 Period consisted of
payments for overhead and patent fees for non-clinical studies and pre-clinical
studies in the nanocurcumin compound and to produce polymer under the JHU
Agreement for animal studies of nanocurcumin. During the 2009 Period,
the Company paid UTMDACC for non-clinical and mouse pre-clinical pre-GLP studies
of lipomal curcumin. It also includes expenses relating to
development of depotcurcumin, a slow release
formulation. Depotcurcumin was originally made at UNT under non-GLP
conditions from curcumin extract (and PLGA, a chemical surrounding the curcumin)
originally purchased from a U.S. chemical supplier. Sigma Aldrich
Fine Chemicals (“SAFC”).
As a
result of the foregoing, the Company had a net loss of $1,563,691 in the 2010
Period as compared to a net loss of $713,618 in the 2009 period. This
translates to a loss per share of $0.14 in the 2010 Period compared to $0.06 in
the 2009 Period.
We have
identified the policies outlined below as critical to our business operations
and an understanding of our results of operations. The list is not intended to
be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the United States, with no need for
management’s judgment in their application. The impact and any associated risks
related to these policies on our business operations is discussed throughout
Management’s Discussion and Analysis of Financial Condition and Results of
Operations where such policies affect our reported and expected financial
results. Note that our preparation of the financial statements requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
Basis
of Presentation
These
consolidated financial statements and related notes are presented in accordance
with accounting principles generally accepted in the United States, and are
expressed in U.S. dollars. The Company’s fiscal year-end is December
31.
22
Use
of Estimates
The
preparation of these consolidated financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company regularly
evaluates estimates and assumptions related to valuation and amortization
policies on property and equipment and valuation allowances on deferred income
tax losses. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
Revenue
Recognition
As of the
date of this disclosure, the Company has yet to recognize
revenues. As the Company continues to develop and implement its
business plan, revenue from the performance of services or sale of products will
be recognized in accordance with FASB codification standards. Revenue will be
recognized only when the price is fixed or determinable, persuasive evidence of
an arrangement exists, the service is provided, and collectability is
assured.
Basic
and Diluted Net Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with FASB
codification standards. The standard requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In
computing Diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti-dilutive.
Income
Taxes
Potential
benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted FASB codification
regarding the required tax asset benefit computations for net operating losses
carry forward. The potential benefits of net operating losses have
not been recognized in these consolidated financial statements because the
Company cannot be assured it is more likely than not it will utilize the net
operating losses carried forward in future years.
23
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB codification
standards, using the fair value method. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. Equity instruments issued to employees and the cost of the services
received as consideration are measured and recognized based on the fair value of
the equity instruments issued.”
Plan
of Operations
The
Company's current focus is on the manufacture and preclinical development of its
lead curcumin formulations (intravenous liposomal curcumin, oral and intravenous
nanocurcumin) with a view toward filing two IND applications with the FDA. The
Company's product candidates are still in the preclinical development
phase.
The
Company believes that a novel pharmaceutical preparation with enhanced
absorption of the active compound with resistance to hepatic inactivation could
potentially have greater clinical efficacy than the oral versions. The
laboratory and oral administration studies by other researchers to date suggest
that curcumin has high potency. The Company believes that an alternate route for
administering this compound, such as the Company's parenteral (taken into the
body other than through the digestive canal) formulation, could be more
effective at lower dosages. SignPath intends to develop a parenteral liposomal
formulation, and a nanoparticle formulation, nanocurcumin, to overcome the
limitations of the oral form.
SignPath
believes that the dual development and comparison of liposomal curcumin and
nanocurcumin could expose potential differences in biological effects and
distribution to different tissues. The Company intends to manufacture good
manufacturing practice (GMP) grade of liposomal curcumin and nanocurcumin. Both
formulations will require outsourcing production to one or more commercial
facilities. Our initial goals are to obtain sufficient material for in vitro and
animal analysis and to develop these formulations in order to submit INDs to the
FDA. Determination of safety, dosage, and efficacy of these formulations in a
quantifiable manner will permit us to pursue clinical registration trials for a
variety of malignant diseases. Following submission of the INDs, the Company
plans to initially run Phase I studies with both of the parenteral formulations
in patients with treatment refractory malignant disease. Subsequently, if the
Phase I trials are successful, the Company plans to seek FDA authorization to
run Phase II trials in selected malignancies.
Liposomal
curcumin: The Company has agreements with contract manufacturers for the
manufacture, chemistry. and controls for supplies of the drugs to be tested.
Liposomal curcumin is manufactured by our contract manufacturer, Polymun, Inc.
Initial quantities of GMP grade liposomal curcumin to conduct preclinical
studies to corroborate previously published data from other researchers were
obtained from Sigma Aldrich Fine Chemicals ("SAFC") or from Sabinsa. Final
production of liposmal curcumin GMP was completed at Polymun in Vienna, Austria
during 2009. Using Iipocurc, anti-cancer activity without toxicity in human
colon and pancreatic cancer xenograft models were
published. Following the determination of safety and the optimum
dosage and schedule in the most sensitive of the three species, we will be able
to estimate starting dosages for Phase I trials in humans. We plan to outsource
corroborative studies of Iiposomal absorption, distribution, metabolism, and
excretion (ADME), and pharmacokinetics in rats with the aim of estimating
optimum dosage schedules, as well as dosage and safety in mice, rats and dogs to
satisfy IND regulations to GLP laboratories in M.D. Anderson Cancer Center in
Houston, Texas.
24
Nanocurcumin:
The Company intends to obtain commercial volumes of purified curcumin from third
party manufacturers, SAFC and/or Sabinsa, in quantities suitable to satisfy
preclinical and clinical demands. The Company believes that the manufacture of
Iiposomal curcumin and nanocurcumin can also be scaled up as necessary since
these additional substances are readily available from commercial sources
utilizing established production technologies. We plan to outsource nanocurcumin
pre-clinical development to M.D. Anderson. We will continue non-clinical and
preclinical analyses of nanocurcumin at the NCI Nanocharacterization Laboratory.
The nanocurcumin program will be managed by M.D. Anderson through the filing of
the Company's IND. However, we intend to develop direct injection nanocurc, a
new clinical entity at Johns Hopkins Cancer Center for preventive therapy of
inducted curcumin in situ in rats. Nanocurc, a parenteral formulation of
nanocurcumin in human pancreatic cancer xenografts in nude mice has demonstrated
anti-cancer effects. This formulation has activity against breast cancer-DCIS
and passes the blood brain barrier. During late 2010, we intend to conduct a
European Phase I dose funding in Parkinson's Disease for volunteers in
collaboration with Polymun, Vienna, Austria. Upon completion, we will also
continue studies of nanocurcumin, PLGA-nanocurcumin and lipsomal curcumin
against L-DOPA induced dyskinesias in dogs. We will measure inhibiting effects
of curcumin on disease progression in Parkinson's Disease patients at the
University of Western Ontario, Canada. Contracts with these institutions will be
initiated upon receipt of manufactured nanocurcumin.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
In the
normal course of business, our financial position is routinely subject to a
variety of risks, including market risk associated with interest rate movement.
We regularly assess these risks and have established policies and business
practices intended to protect against these and other exposures. As a result, we
do not anticipate material potential losses in these areas.
As of
September 30, 2010, we had cash and cash equivalents of
$101,573.
25
Item
4T. Controls and Procedures.
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, our management has
validated the effectiveness of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the
Exchange Act, as of September 30, 2010. Based on this evaluation, our
principal executive officer and principal financial officer have concluded that,
as of the end of such period, our disclosure controls and procedures were
ineffective to ensure that (i) information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms and (ii) our disclosure and controls are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. This conclusion is based on the fact
that due to limited resources, the Company is unable to maintain adequate
segregation of duties and does not have an audit committee.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls over financial
reporting that occurred during the period ended September 30, 2010, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
26
PART
II. OTHER
INFORMATION
|
Item
1. Legal
Proceedings.
|
As of the
date of this Quarterly Report on Form 10-Q, we are not a party to any legal
proceedings.
|
Item
1A. Risk Factors
|
In
accordance with the requirements of Form 10-Q, the Company, as a
smaller reporting company, is not required to make disclosure under this
item.
|
Item
2. Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
During
the three-month period between July 1, 2010 and September 30, 2010, Registrant
sold 300 units (the “Units”), of its securities at a price of $1,000 per Unit or
$300,000. Each Unit consists of (i) one share of 6.5% Series A
Convertible Preferred Stock convertible into 1,177 shares of common stock
(equivalent to $.85 per share of common stock) subject to adjustment, and (ii)
one Warrant to purchase 1,177 shares of common stock at $1.27 per share for a
five-year period following the Effective Date of its registration
statement. The Company received gross proceeds of $300,000 and paid
10% sales commissions of $30,000 to Meyers Associates, L.P. the Company’s
placement agent.
The Units
were sold to four different accredited investors who were customers of the
placement agent. The Company claimed an exemption from registration
pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder, based upon subscription agreements executed by each
investor.
The net
proceeds of the offering were used for working capital and research and
development towards filing an investigational new drug application to commence
clinical trials.
As
required by Rule 463 under the Securities Act, the Company did not receive any
proceeds under its initial registration statement (No. 333-158474) declared
effective by the SEC on August 10, 2009.
|
Item
3. Defaults
Upon Senior
Securities.
|
None.
27
|
Item
4. Removed
and Reserved
|
None.
|
Item
5. Other
Information.
|
|
Item
6. Exhibits.
|
Exhibits.
Set forth
below is a list of the exhibits to this quarterly report on Form
10-Q.
Exhibit
Number |
Description
|
|
3.1
|
Certificate
of Incorporation of the registrant (1)
|
|
3.2
|
Certificate
of Designation, Preferences and Rights of Series A Convertible Preferred
Stock (1)
|
|
3.3
|
By-Laws
of the registrant (1)
|
|
3.4
|
Amended
and Restated Certificate of Incorporation of the registrant dated August
2, 2006 (1)
|
|
3.5
|
Certificate
of Amendment of the registrant dated May 27, 2008 (1)
|
|
4.1
|
Form
of Common Stock Certificate (1)
|
|
4.2
|
Form
of Common Stock Purchase Warrant (1)
|
|
4.3
|
Form
of Bridge Note (1)
|
|
4.4
|
Form
of Registration Rights Agreement (1)
|
|
4.5
|
Form
of Subscription Agreement (1)
|
|
31.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|
(1) Incorporated
by reference to the Company’s Registration Statement on Form S-1 (Registration
No. 333-158474, declared effective on August 10, 2009.
28
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November
17, 2010
|
SIGNPATH
PHARMA INC.
|
|
By:
|
/s/ Lawrence Helson | |
Dr.
Lawrence Helson, Chief Executive
Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
29
SignPath
Pharma Inc.
Quarterly
Report on Form 10-Q
Quarter
Ended September 30, 2010
EXHIBITS
Exhibit
Number |
Description
|
|
31.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|
30