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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
 

 

FORM 10-Q

 

(Mark one)

 

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

 

For the Quarterly Period Ended March 31, 2014

 

Or

 

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

 

Commission File Number 333-153829

 

GENSPERA, 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.)

 

2511 N Loop 1604 W, Suite 204    
San Antonio, TX   78258
(Address of principal executive offices)   (Zip Code)

  

Registrant’s telephone number, including area code (210) 479-8112 

 

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 Web site, 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).  x  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 ¨ (Do not check if a small 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   

 

As of May 9, 2014 Registrant had 27,392,100 common shares, $0.0001 par value, issued and outstanding. 

 

 
 

 

 

Table of Contents

      Page
PART I   FINANCIAL INFORMATION  
       
Item 1.   Condensed Financial Statements (unaudited). 4
       
    Condensed Balance Sheets as of March 31, 2014 and December 31, 2013. 4
       
    Condensed Statements of Operations  
    Three months ended March 31, 2014 and 2013 and for the period from November 21, 2003 (inception) to March 31, 2014. 5
       
    Condensed Statement of Changes in Stockholders' Equity (Deficit)  
    For the period from November 21, 2003 (inception) to March 31, 2014. 6
       
    Condensed Statements of Cash Flows  
    For the three months ended March 31, 2014 and 2013 and for the period from November 21, 2003 (inception) to March 31, 2014. 10
       
    Notes to Unaudited Condensed Financial Statements. 11
       
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations. 17
       
Item 3.   Quantitative and Qualitative Disclosures about Market Risk. 20
       
Item 4.   Controls and Procedures. 20
       
PART II   OTHER INFORMATION  
       
Item 1.   Legal Proceedings. 21
       
Item 1A.   Risk Factors. 21
       
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds. 36
       
Item 3.   Defaults Upon Senior Securities. 36
       
Item 4.   Mine Safety Disclosure. 36
       
Item 5.   Other Information. 36
       
Item 6.   Exhibits. 36

 

2
 

 

ADVISEMENT

 

We urge you to read this entire Quarterly Report, including the financial statements and related notes included herein as well as our Annual Report on Form 10-K for the year ended December 31, 2013, which also includes “Risk Factors”, filed with the United States Securities and Exchange Commission or SEC, on March 3, 2014. As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,” “our,” “the Company,” “GenSpera” and “registrant” refer to GenSpera, 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 (March 31, 2014), unless another date is specified.

 

We prepare our interim financial statements in accordance with United States generally accepted accounting principles. Our financials and results of operation for the three month period ended March 31, 2014 is not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2014. The interim financial statements and other information related to our company presented in this Quarterly Report should be read in conjunction and 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, 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) and 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, or industry results, 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, and our further development is highly dependent on market acceptance, which is 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, without limitation:

 

·our ability to manage the business despite continuing operating losses and cash outflows;

·our ability to obtain sufficient capital or a strategic business arrangement to fund our operations and expansion plans;
·our ability to build the management, human resources and infrastructure necessary to support the growth of our business;
·competitive factors and developments beyond our control;
·scientific and medical developments beyond our control;
·government regulation of our business;
·whether any of our current or future patent applications result in issued patents and our ability to obtain and maintain other rights to technology required or desirable for the conduct of our business;
·whether any potential strategic benefits of licensing transactions will be realized and whether any potential benefits from the acquisition of newly licensed technologies, if any, will be realized; and
·the other factors discussed in the “Risk Factors” section and elsewhere in this Quarterly Report.

 

In addition to the foregoing, other factors may influence our future performance including those factors discussed in the “Risk Factors” section of our 2013 Annual Report on Form 10-K, as well as those discussed in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors,” which are incorporated herein by reference. 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, 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. 

 

3
 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

  

GENSPERA, INC.

(A Development Stage Company)

 

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

 

   March 31,   December 31, 
   2014   2013 
  (unaudited)     
ASSETS        
           
Current assets:          
Cash and cash equivalents  $2,576   $3,587 
Prepaid expenses   147    163 
Total current assets   2,723    3,750 
Office equipment, net of accumulated depreciation of $18 and $16   15    14 
Intangible assets, net of accumulated amortization of $98 and $94   114    118 
Other assets   3    3 
Total assets  $2,855   $3,885 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $1,366   $1,270 
Accrued expenses   762    1,250 
Convertible notes – stockholder   105    105 
Total current liabilities   2,233    2,625 
Total liabilities   2,233    2,625 
           
Commitments and contingencies          
           
Stockholders’ equity:          
           
Preferred stock, par value $0.0001 per share; 30,000,000 shares authorized, none issued and outstanding        
Common stock, par value $0.0001 per share; 150,000,000 shares authorized, 27,392,100 and 27,252,966 shares issued and outstanding, respectively   3    3 
Additional paid-in capital   34,944    33,642 
Deficit accumulated during the development-stage   (34,325)   (32,385)
           
Total stockholders’ equity   622    1,260 
           
Total liabilities and stockholders’ equity  $2,855   $3,885 

 

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

 

4
 

 

GENSPERA, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 

           Cumulative Period from 
           November 21, 2003 
   Three Months Ended March 31,   (date of inception) to 
   2014   2013   March 31, 2014 
             
Operating expenses:               
General and administrative  $836   $741   $16,481 
Research and development   1,104    790    17,936 
Research and development grant received           (489)
                
Total operating expenses   1,940    1,531    33,928 
                
Loss from operations   (1,940)   (1,531)   (33,928)
                
Financing cost           (519)
Gain on change in fair value of warrant derivative liability       235    86 
Interest (expense) income, net       (1)   36 
                
Loss before provision for income taxes   (1,940)   (1,297)   (34,325)
                
Provision for income taxes            
                
Net loss  $(1,940)  $(1,297)  $(34,325)
                
Net loss per common share, basic and diluted  $(0.07)  $(0.06)     
                
Weighted average shares outstanding   27,325,378    22,834,538      

 

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

 

5
 

 

GENSPERA, INC.

(A Development Stage Company)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO MARCH 31, 2014

(in thousands, except share and per share data)

                   Deficit     
                   Accumulated     
           Additional   Common   During the   Stockholders' 
   Common Stock   Paid-in   Stock   Development   Equity 
   Shares   Amount   Capital   Subscribed   Stage   (Deficit) 
                         
Balance, November 21, 2003      $   $   $   $   $ 
                               
Sale of common stock to founders at $0.0001 per share in November, 2003   6,100,000    1    (1)            
                               
Contributed services           120            120 
                               
Net loss                   (125)   (125)
                               
Balance, December 31, 2003   6,100,000    1    119        (125)   (5)
                               
Contributed services           193            193 
                               
Stock-based compensation           24            24 
                               
Net loss                   (254)   (254)
                               
Balance, December 31, 2004   6,100,000    1    336        (379)   (42)
                               
Contributed services           48            48 
                               
Stock-based compensation           24            24 
                               
Net loss                   (127)   (127)
                               
Balance, December 31, 2005   6,100,000    1    408        (506)   (97)
                               
Contributed services           144            144 
                               
Stock-based compensation           42            42 
                               
Net loss                   (245)   (245)
                               
Balance, December 31, 2006   6,100,000    1    594        (751)   (156)
                               
Sale of common stock at $0.50 per share   1,300,000        650            650 
                               
Shares issued for services   735,000        367            367 
                               
Contributed services           220            220 
                               
Stock-based compensation           24            24 
                               
Exercise of options   900,000        3            3 
                               
Net loss                   (691)   (691)
                               
Balance, December 31, 2007   9,035,000    1    1,858        (1,442)   417 

 

6
 

 

GENSPERA, INC.

(A Development Stage Company)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO MARCH 31, 2014

(in thousands, except share and per share data)

                   Deficit     
                   Accumulated     
           Additional   Common   During the   Stockholders' 
   Common Stock   Paid-in   Stock   Development   Equity 
   Shares   Amount   Capital   Subscribed   Stage   (Deficit) 
                         
Exercise of options   1,000,000        500            500 
                               
Sale of common stock and warrants at $1.00 per share   2,320,000        2,320            2,320 
                               
Cost of sale of common stock and warrants           (206)           (206)
                               
Shares issued for accrued interest   31,718        16            16 
                               
Shares issued for services   100,000        50            50 
                               
Stock-based compensation           314            314 
                               
Contributed services           50            50 
                               
Beneficial conversion feature of convertible debt           20            20 
                               
Net loss                   (3,326)   (3,326)
                               
Balance, December 31, 2008   12,486,718    1    4,922        (4,768)   155 
                               
Cumulative effect of change in accounting principle           (444)       (290)   (734)
                               
Warrants issued for extension of debt maturities           52            52 
                               
Stock-based compensation           1,531            1,531 
                               
Common stock issued for services   86,875        104            104 
                               
Sale of common stock and warrants at $1.50 per share   2,665,354    1    3,797            3,798 
                               
Common stock and warrants issued as payment of placement fees   53,334                     
                               
Common stock and warrants issued upon conversion of note and accrued interest   174,165        174            174 
                               
Net loss                   (5,134)   (5,134)
                               
Balance, December 31, 2009   15,466,446    2    10,136        (10,192)   (54)

 

7
 

 

GENSPERA, INC.

(A Development Stage Company)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO MARCH 31, 2014

(in thousands, except share and per share data)

                   Deficit     
                   Accumulated     
           Additional   Common   During the   Stockholders' 
   Common Stock   Paid-in   Stock   Development   Equity 
   Shares   Amount   Capital   Subscribed   Stage   (Deficit) 
                         
Stock-based compensation           1,165            1,165 
                               
Sale of common stock and warrants at $1.65 per share   533,407        806            806 
                               
Sale of common stock and warrants at $2.00 per share   1,347,500        2,656            2,656 
                               
Common stock and warrants issued as payment of placement fees   43,632                     
                               
Common stock issued as payment for patents and license   20,000        47            47 
                               
Common stock and warrants subscribed               612        612 
                               
Salaries paid with common stock   43,479        100            100 
                               
Exercise of options and warrants   150,001        125            125 
                               
Reclassification of derivative liability upon exercise of warrants           86            86 
                               
Net loss                   (4,257)   (4,257)
                               
Balance, December 31, 2010   17,604,465    2    15,121    612    (14,449)   1,286 
                               
Stock-based compensation           1,290            1,290 
                               
Sale of common stock and warrants at $1.80 per share   2,241,605        4,035    (612)       3,423 
                               
Sale of common stock and warrants at $1.65 per share   1,363,622        2,250            2,250 
                               
Common stock and warrants issued as payment of placement fees   61,498                     
                               
Common stock and warrants issued as payment of accrued consulting fees   33,334        60            60 
                               
Common stock and warrants issued as payment of consulting fees   152,895        533            533 
                               
Cost of sales of common stock and warrants           (74)           (74)
Net loss                   (5,714)   (5,714)
                               
Balance, December 31, 2011   21,457,419   $2   $23,215   $   $(20,163)  $3,054 

 

8
 

 

GENSPERA, INC.

(A Development Stage Company)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO MARCH 31, 2014

(in thousands, except share and per share data)

                   Deficit     
                   Accumulated     
           Additional   Common   During the   Stockholders' 
   Common Stock   Paid-in   Stock   Development   Equity 
   Shares   Amount   Capital   Subscribed   Stage   (Deficit) 
                         
Stock-based compensation           513            513 
                               
Common stock and warrants issued as payment of consulting fees           674            674 
                               
Exercise of options and warrants   544,639        691            691 
                               
Reclassification of derivative liability upon exercise of warrants           608            608 
                               
Sale of common stock and warrants at $2.20 per share   296,366        652            652 
                               
Net loss                   (6,920)   (6,920)
                               
Balance, December 31, 2012   22,298,424   $2   $26,353   $   $(27,083)  $(728)
 
Stock-based compensation
           1,254            1,254 
                               
Exercise of warrants   863,392        404            404 
                               
Reclassification of derivative liability upon exercise of warrants           80            80 
                               
Sale of common stock and warrants at $1.773 per share   757,794        1,217            1,217 
                               
Sale of common stock and warrants at $1.50 per share   3,333,356    1    4,999            5,000 
                               
Issuance cost of sales of common stock and warrants           (665)           (665)
                               
Net loss                   (5,302)   (5,302)
                               
Balance, December 31, 2013   27,252,966   $3   $33,642   $   $(32,385)  $1,260 
 
Stock-based compensation
           1,069            1,069 
                               
Common stock and warrants issued as payment of services and consulting fees   139,134        233            233 
                               
Net loss                   (1,940)   (1,940)
                               
Balance, March 31, 2014 (unaudited)   27,392,100   $3   $34,944   $   $(34,325)  $622 

 

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

 

9
 

 

GENSPERA, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

   Three Months Ended March 31,  

Cumulative Period
from November 21,

2003,
(date of inception)

 
   2014   2013   to March 31, 2014 
Cash flows from operating activities:               
Net loss  $(1,940)  $(1,297)  $(34,325)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   6    5    117 
Stock-based compensation   339    119    6,716 
Common stock issued for acquisition of license           29 
Warrants issued for financing costs           468 
Change in fair value of derivative liability       (235)   (86)
Contributed services           774 
Amortization of debt discount           21 
Increase in operating assets:               
Prepaid expenses   16    (78)   (147)
Other assets           (3)
Increase in operating liabilities:               
Accounts payable and accrued expenses   570    476    4,808 
Cash used in operating activities   (1,009)   (1,010)   (21,628)
                
Cash flows from investing activities:               
Acquisition of office equipment   (2)   (1)   (33)
Acquisition of intangibles           (194)
Cash used in investing activities   (2)   (1)   (227)
                
Cash flows from financing activities:               
Proceeds from sale of common stock and warrants       1,217    23,844 
Proceeds from exercise of warrants       95    1,221 
Cost of common stock and warrants sold       (93)   (739)
Proceeds from convertible notes – stockholder           155 
Repayments of convertible notes – stockholder           (50)
Cash provided by financing activities       1,219    24,431 
                
Net increase (decrease) in cash   (1,011)   208    2,576 
Cash, beginning of period   3,587    2,345     
Cash, end of period  $2,576   $2,553   $2,576 

 

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

 

10
 

 

GENSPERA, INC.

(A Development Stage Company)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 – BACKGROUND

 

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

 

Our primary focus at the present time is the clinical development of our lead compound, G-202, a novel therapeutic agent with a unique mechanism of action. We have completed a Phase Ia/Ib dose escalation, safety, tolerability and dose refinement study of G-202, in which we treated a total of 44 patients (includes Phase Ia and Ib), including two patients with hepatocellular carcinoma (HCC), or liver cancer, who experienced prolonged stabilization of disease up to eleven months after initiation of treatment. We are conducting a Phase II clinical trial of G-202 in patients with liver cancer, in which seventeen patients have been treated as of April 26, 2014. We are also conducting a Phase II clinical trial in Glioblastoma (a kind of brain cancer), in which four patients have been treated as of April 26, 2014.

 

NOTE 2 – MANAGEMENT’S PLANS TO CONTINUE AS A GOING CONCERN

 

Basis of Presentation

 

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. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. We have incurred losses since inception and have a deficit accumulated of $34.3 million as of March 31, 2014. We anticipate incurring additional losses for the foreseeable future and until such time, if ever, that we can generate significant sales from our therapeutic product candidates currently in development or enter into cash flow positive business development transactions.

 

Development Stage Risks

 

We are a development stage entity. To date, we have generated no sales revenues, have incurred losses and expect to incur significant additional losses as we advance G-202 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 research and development of pharmaceutical compounds.

 

Our cash and cash equivalents balance at March 31, 2014 was $2.6 million, representing 90% of our total assets. Based upon our current expected level of operating expenditures, we expect to be able to fund our operations for the next six to nine months. We will require additional cash to fund and continue our operations beyond that point. This period could be shortened if there are any unanticipated significant increases in planned spending on development programs or other unforeseen events. We anticipate raising additional funds through collaborative arrangements, public or private sales of debt or equity securities, or some combination thereof. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available when needed to allow us to continue our operations, or if available, on terms acceptable to us.

 

In the event financing is not obtained, the Company 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 development programs, 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 in existence.

 

11
 

 

NOTE 3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND 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. 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 manufacturing, clinical trials, employee compensation and consulting costs and expenses.

 

We incurred research and development expenses of approximately $1.1 million, $0.8 million and $17.9 million for the three months ended March 31, 2014 and 2013, and from November 21, 2003 (inception) through March 31, 2014, respectively.

 

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 March 31, 2014 and 2013, as they would be anti-dilutive:

 

   Three months ended March 31, 
   2014   2013 
Shares underlying options outstanding   8,334,895    6,023,641 
Shares underlying warrants outstanding   10,001,591    8,171,088 
Shares underlying convertible notes outstanding   263,695    254,873 
    18,600,181    14,449,602 

 

Fair Value of Financial Instruments

 

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

 

Warrant derivative liability consists of certain of our warrants with anti-dilution provisions. We use the Black-Scholes option-pricing model to value our warrant derivative liability which incorporates our stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life. 

 

Fair Value Measurements

 

Valuation Hierarchy - GAAP 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: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: 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: 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. We previously recorded a warrant derivative liability for warrants with non-standard anti-dilution provisions. These warrants were either exercised or expired as of March 31, 2014.

 

12
 

 

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 standard as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for awards granted to non-employees is re-measured each accounting period.

 

Determining the appropriate fair value of the stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based compensation and stock price volatility. 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.

 

Reclassifications

 

Certain prior year balances have been reclassified to conform to current year presentation.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC, did not, or are not believed by management, to have a material impact on the Company’s present or future financial statements.

 

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

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

 

   Three months ended March 31, 
   2014   2013 
Non-cash financial activities:          
Common stock options issued as payment of accrued compensation  $962   $999 
Derivative liability reclassified to equity upon exercise of warrants       15 

 

There was no cash paid for interest and income taxes for the three months ended March 31, 2014 and 2013.

 

NOTE 5 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

   March 31,   December 31, 
   2014   2013 
Accrued compensation and benefits  $318   $1,040 
Accrued research and development   190    82 
Accrued other   254    128 
Total accrued expenses  $762   $1,250 

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

We previously entered into convertible notes with our chief executive officer pursuant to which we borrowed an aggregate of $0.2 million, with $0.1 million principal balance outstanding at March 31, 2014. The notes, which bear interest at a rate of 4.2% per annum and matured at various dates through December 6, 2011, are now considered due on demand. As of March 31, 2014, our chief executive officer has not demanded the payment of the outstanding principal and accrued interest. Accrued interest at March 31, 2014 and December 31, 2013 was approximately $27,000 and $26,000, respectively. The notes and accrued interest are convertible, at the option of the holder, into shares of our common stock at a conversion price of $0.50 per share.

 

13
 

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

On March 12, 2012, GenSpera instituted a declaratory judgment action against Annastasiah Mhaka (“Mhaka”) in the United States District Court for the District of Maryland: GenSpera, Inc. v. Mhaka, Civil Action No. MJG-12-772 (D. Md.). In that complaint, GenSpera, as the licensee of the inventions described and claimed in the U.S. Patent No. 7,468,354 (“the ‘354 patent”) and U.S. Patent No. 7,767,648 (“the ‘648 patent”), sought a declaratory judgment that Mhaka (a former doctoral student at Johns Hopkins University) should not be added to either the ‘354 patent or the ‘648 patent as an inventor. On April 2, 2012, Mhaka filed and served her answer and counterclaim, in which she sought to be added as an inventor to the ‘354 patent and the ‘648 patent pursuant to 35 U.S.C. sec. 256. Between April 26, 2012 and October 1, 2012, the parties conducted fact discovery. Between October 1, 2012 and December 1, 2012, the parties conducted limited expert discovery. On November 1, 2012, Mhaka filed a separate complaint in the State Circuit Court for Baltimore County, Maryland, naming GenSpera as a defendant along with Dr. Samuel Denmeade and Dr. John Isaacs (the named inventors on the ‘354 patent and the ‘648 patent). In the complaint, Mhaka alleged that the defendants are liable under various state law tort theories for the same alleged conduct that formed the basis for her prior inventorship claim. In her prayer for relief, Mhaka sought unspecified damages from the defendants but did not seek to alter the inventorship or ownership of the ‘354 patent or ‘648 patent. On November 8, 2012, the defendants removed this second action to the United States District Court for the District of Maryland, and on November 16, 2012, the defendants moved to dismiss all claims in the complaint, asserting (among other things) that the claims were preempted by federal patent law.

 

On January 24, 2013, the Court heard GenSpera’s motion for summary judgment in the original case and the defendants’ motion to dismiss in the second case. On May 1, 2013, the Court granted GenSpera’s motion for summary judgment in the original case. In its order, the Court stated that it would proceed to issue a declaratory judgment establishing that Mhaka should not be added to the two patents at issue as an additional inventor pursuant to 35 U.S.C. § 256. Reserving any ruling on the issue of whether Mhaka’s state law tort claims are preempted by federal patent law, the Court denied defendants’ motion to dismiss Mhaka’s complaint and directed Mhaka to re-file her claims as counterclaims in the original action. On May 14, 2013, Mhaka filed an amended answer and counterclaims in the consolidated action, re-pleading her tort claims as counterclaims. On June 3, 2013, GenSpera (along with Drs. Denmeade and Isaacs) filed a reply to the counterclaims, denying their allegations and raising a number of affirmative defenses. Fact discovery was completed on December 13, 2013, and expert discovery was completed on March 28, 2014. On January 2, 2014, Drs. Isaacs and Denmeade moved for summary judgment on the grounds that Mhaka’s claims are barred by the applicable statute of limitations, and GenSpera joined in the motion. The briefing on that motion is now complete. GenSpera filed a separate motion for summary judgment on May 6, 2014. Mhaka’s opposition to that motion is due to be filed on or before May 28, 2014. GenSpera’s reply brief in support of the motion is due on June 4, 2014. Further scheduling, as appropriate, is to be set after resolution of summary judgment motions.

 

NOTE 8 – CAPITAL STOCK AND STOCKHOLDER’S EQUITY

 

Common Stock

 

In February 2014, we entered into an agreement with H.C. Wainwright to serve as our exclusive placement agent, advisor and underwriter for a proposed offering of our securities. We agreed to pay the placement agent a placement fee equal to 8% of the aggregate gross proceeds received by us from our sale of the securities in the offering and to issue the placement agent warrants to purchase shares of common stock equal to 8% of the common stock sold to investors.

 

In February 2014, we entered into an agreement for method development by a contract manufacturer and issued an aggregate of 91,334 shares of common stock, valued at approximately $127,000, as compensation. In February 2014, we entered into an agreement to grant an aggregate of 47,800 shares of common stock, valued at approximately $67,000, to a consultant for business advisory services to be provided to the Company.

 

During the three months ended March 31, 2014, no warrants were exercised into common shares. During the three months ended March 31, 2013, 119,100 warrants were exercised into an equivalent number of common shares for which we received proceeds of approximately $95,000 and one million warrants were exercised on a cashless basis into 537,722 common shares.

 

NOTE 9 – STOCK OPTIONS

 

The terms of our 2009 Executive Compensation Plan (“2009 Plan”) and our 2007 Equity Compensation Plan (“2007 Plan”) allow for the issuance of up to 6,000,000 shares of common stock each. Collectively, the 2009 Plan and 2007 Plan are referred to as “the Plans.” Total stock-based compensation expense recognized for stock options and warrants issued using the straight-line method in the statement of operations for the three months ended March 31, 2014 and 2013 was $1,069,000 and $1,077,000, respectively, of which $962,000 and $958,000 was accrued as of December 31, 2013 and 2012, respectively.

 

14
 

 

The following table summarizes stock option activity under the Plans:

 

   Number of
shares
   Weighted-
Average
Exercise
price
   Weighted-average
Remaining
contractual term
(in years)
   Aggregate
Intrinsic
value (in
thousands)
 
Outstanding at December 31, 2013   6,050,623   $1.82           
Granted   2,284,272   $1.36           
Exercised                  
Forfeited                  
Outstanding at March 31, 2014   8,334,895   $1.70    4.5   $283 
                     
Exercisable at March 31, 2014   8,132,015   $1.70    4.5   $280 

 

As of March 31, 2014, there was $0.1 million of total unrecognized compensation cost related to non-vested stock options which vest over time. That cost is expected to be recognized over a weighted-average period of approximately one year. As of March 31, 2014, there was no unrecognized compensation expense related to performance-based, non-vested employee stock options.

 

During the three months ended March 31, 2014, we issued options to purchase 1,948,902 and 38,000 shares of common stock to employees and non-employee directors, respectively, under the Plans. Additionally, we issued options to purchase 297,370 shares of common stock to consultants. During the three months ended March 31, 2013, we issued options to purchase 1,221,972 and 38,000 shares of common stock to employees and non-employee directors, respectively, under the Plans. Additionally, we issued options to purchase 89,041 shares of common stock to consultants. During the three months ended March 31, 2014 and 2013, no options were exercised.

 

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued during the three months ended March 31, 2014 and 2013:

   Three months ended March 31, 
   2014   2013 
Volatility   56.0%   59.1%
Expected term (years)   3.4    3.6 
Risk-free interest rate   0.5%   0.5%
Dividend yield   0%   0%

 

NOTE 10 – WARRANTS AND DERIVATIVE WARRANT LIABILITY

 

We account for common stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Warrants are accounted for as derivative liabilities if the warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of common stock by the Company are at a lower price per share than the then-current warrant exercise price. We classify derivative warrant 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 warrant. At March 31, 2014, all outstanding liability-classified warrants were either exercised or had expired.

 

Transactions involving our equity-classified 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, 2013   10,216,597   $2.56           
Granted   96,000   $3.00           
Exercised                  
Forfeited   (311,006)  $2.71           
Outstanding at March 31, 2014   10,001,591   $2.56    2.8   $48 
                     
Exercisable at March 31, 2014   10,001,591   $2.56    2.8   $48 

 

15
 

 

During the three months ended March 31, 2014, no warrants were exercised. During the three months ended March 31, 2013, 119,100 warrants were exercised into an equivalent number of common shares and 1,000,000 warrants were exercised on a cashless basis into 537,722 common shares.

 

The following table summarizes outstanding common stock purchase warrants as of March 31, 2014:

 

   Number of
shares
   Weighted-
average
exercise
price
   Expiration 
Equity–classified warrants               
Issued to consultants   1,163,759   $2.36    July 2014 through February 2019 
Issued pursuant to 2009 financings   1,205,510   $3.00    June 2014 through September 2014 
Issued pursuant to 2010 financings   1,022,943   $3.38    January 2015 through May 2015 
Issued pursuant to 2011 financings   1,936,785   $3.24    January 2016 through April 2016 
Issued pursuant to 2012 financings   296,366   $3.00    December 2017 
Issued pursuant to 2013 financings   4,376,228   $1.97    December 2017 through August 2023 
    10,001,591           

 

Equity-classified Warrants

 

During the three months ended March 31, 2014, we issued warrants to consultants to purchase 96,000 shares of common stock. The per share weighted-average fair value of the warrants granted to consultants during 2014 was estimated at $0.41 per share on the date of grant. During the three months ended March 31, 2013, no warrants were issued to consultants. Total stock-based compensation expense of approximately $40,000 and $4,000 was recognized for warrants and included in the statement of operations for the three months ended March 31, 2014 and 2013, respectively.

 

During the three months ended March 31, 2013, in connection with the offering of our securities, we issued an aggregate of 776,204 common stock purchase warrants, including: 686,420 pursuant to closings in January 2013 and March 2013; 18,410 to the placement agent; and 71,374 additional warrants issued to investors that participated in the December 2012 closing. All warrants were issued with an exercise price of $3.00 per share.

 

Liability-classified Warrants

 

We have assessed our outstanding equity-linked financial instruments and have concluded that certain of our warrants are subject to derivative accounting as a result of certain non-standard anti-dilution provisions contained in the warrants. The fair value of these warrants 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. At March 31, 2014, all outstanding liability-classified warrants were either exercised or had expired.

 

We did not record a gain or loss during the three months ended March 31, 2014, as the outstanding liability-classified warrants were either exercised or had expired. We recorded a gain of $0.2 million during the three months ended March 31, 2013, related to the change in fair value of the warrant derivative liability during that period. The following table summarizes the calculated aggregate fair values for the warrant derivative liability using the Black-Scholes method based on the following assumptions:

 

   Fair value as of
March 31, 2013
 
     
Calculated aggregate value (in thousands)  $1,010 
Exercise price per share of warrant  $1.50 
Closing price per share of common stock  $2.15 
Volatility   50.0%
Expected term (years)   0.3 
Risk-free interest rate   0.07%
Dividend yield   0%

 

16
 

 

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, 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 a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “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, 2013, filed with the SEC on March 3, 2014.

 

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.

 

Company Overview

 

Business

 

We are a development stage pharmaceutical company focused on the development of prodrug cancer therapeutics for the treatment of solid tumors including prostate, liver, brain and other cancers. A prodrug is an inactive precursor of a drug that is converted into its active form only at the site of the tumor. Our technology platform combines a powerful, plant-derived cytotoxin with a prodrug delivery system that targets release of the drug within the tumor. We believe that, if successfully developed, our cancer prodrug therapies have the potential to provide a targeted therapeutic approach to a broad range of solid tumors with fewer side effects than those related to current chemotherapy treatments. 

 

We are currently focused on the clinical development of G-202. Our major focus for the next twelve months will be the ongoing Phase II clinical trial of G-202 in patients with liver cancer, and the ongoing Phase II clinical trial in patients with glioblastoma. As of April 26, 2014, we have treated seventeen patients in our Phase II liver cancer trial and four patients in our Phase II glioblastoma trial. Assuming positive indications from our Phase II trials, we will develop subsequent randomized studies to further develop G-202 with a goal of seeking FDA approval for marketing.

 

Financial

 

To date, we have devoted a substantial portion of our efforts and financial resources to the development of G-202. G-202 is the only product candidate for which we have conducted clinical trials, and we have not marketed, distributed or sold any products. As a result, since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through private sales of our equity securities. We have never been profitable and, as of March 31, 2014, we had an accumulated deficit of approximately $34.3 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 balance at March 31, 2014 was approximately $2.6 million, representing 90% of total assets. Based on our current expected level of operating expenditures, we expect to be able to fund our operation for the next six to nine months. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events. We anticipate raising the additional cash needed through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof, to continue to fund 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 clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source nor are in negotiations with regard to a collaborative arrangement.

 

Product Development of G-202

 

Our ability to execute our product development 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 product development plan, our priority is the continuation and completion of our Phase II clinical study in liver cancer. We believe we have sufficient working capital to fund the Phase II clinical trial in liver cancer to the point where we can determine if such trial will have a positive or negative outcome. Notwithstanding, depending on the rate of enrollment, and the duration of the trial, we may not have sufficient capital to fund the trial through completion.

 

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Our current product development plan of G-202 contemplates the following major initiatives:

 

·Conducting a Phase II clinical study in patients with liver cancer.

 

·In the first quarter of 2014, we entered into a collaborative arrangement and initiated our Phase II clinical trial in patients with glioblastoma (a form of brain cancer). This trial is being conducted at a single site in the U.S. and is expected to enroll up to 34 patients.

 

·Initiation of a Phase II clinical study in patients with prostate cancer via a collaborative agreement with a single site in the U.S.

 

Phase II Clinical Development of G-202

 

We are conducting a Phase II clinical trial in patients with advanced liver cancer. This trial is being conducted at multiple sites in the U.S. As of April 26, 2014, seventeen patients were treated in the study.

 

In the first quarter of 2014, we entered into a collaborative arrangement and initiated our Phase II clinical trial in patients with glioblastoma. This trial is being initially conducted at a single site in the U.S. As of April 26, 2014, four patients have been treated in the study.

 

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 2013 Annual Report on Form 10-K.

 

Result of Operations

 

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

 

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 March 31, 2014 and 2013. We do not anticipate generating any revenues during 2014. Net loss for the three months ending March 31, 2014 and 2013 were approximately $1.9 million and $1.3 million, respectively, resulting from the operational activities described below. 

 

Operating Expenses

 

Operating expense totaled approximately $1.9 million and $1.5 million during the three months ended March 31, 2014 and 2013, respectively. The increase in operating expenses is the result of the following factors.

 

   Three months ended March 31,   Change in 2014 versus 2013 
   2014   2013   $   % 
  (amount in thousands)         
Operating Expenses            
General and administrative  $836   $741   $95    13%
Research and development   1,104    790    314    40%
Total operating expenses  $1,940   $1,531   $409    27%

 

General and Administrative

 

General and administrative expenses totaled approximately $0.8 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. The increase of approximately $95,000, or 13%, for the three months ended March 31, 2014 compared to the same period in 2013 was primarily attributable to an increase in stock-based compensation, professional fees and consulting expenses, partially offset by a decrease in personnel-related costs.

 

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Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

 

Research and Development Expenses

 

Research and development expenses totaled approximately $1.1 million and $0.8 million for the three months ended March 31, 2014 and 2013, respectively. The increase of approximately $314,000, or 40%, for the three months ended March 31, 2014 compared to the same period in 2013 was primarily attributable to increases related to manufacturing of approximately $200,000, as well as an increase in legal and patent costs of $135,000, which were partially offset by a decrease in personnel-related costs.

 

Our research and development expenses consist primarily of expenditures related to manufacturing, clinical trials, employee compensation and consulting costs, and patent related costs.

 

Gain (loss) on change in fair value of warrant derivative liability

 

There was no gain (loss) on change in fair value of warrant derivative liability during the three months ended March 31, 2014 compared to an approximately $0.2 million loss during the three months ended March 31, 2013. The change in the fair value of warrant derivative liability in the prior year resulted primarily from the reduction in the expected term and from changes in our stock price during the reported periods. Refer to our Notes to Unaudited Condensed Financial Statements for further discussion on our warrant liability.

 

Liquidity and Capital Resources

   

We have incurred losses since our inception in 2003 as a result of significant expenditures for operations and research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of approximately $34.3 million as of March 31, 2014 and anticipate that we will continue to incur additional losses for the foreseeable future. To date, we have funded our operations primarily through the sale of our equity securities and the exercise of warrants, resulting in gross proceeds of approximately $25.1 million and net proceeds of approximately $24.3 million. Cash and cash equivalents at March 31, 2014 was approximately $2.6 million.

 

Based on our current level of expected operating expenditures, we expect to be able to fund our operations for the next six to nine months. This assumes that we spend minimally on general operations and only continue conducting our ongoing Phase II clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period.

 

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of 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 or enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our product candidates, or cease operations altogether.

 

   Three months ended March 31,   Change in 2014 versus 2013 
   2014   2013   $   % 
   (amount in thousands)         
Cash at beginning of period  $3,587   $2,345   $1,242    53%
Net cash used in operating activities   (1,009)   (1,010)   1    %
Cash used in investing activities   (2)   (1)   (1)   (100)%
Net cash provided by financing activities       1,219    (1,219)   (100)%
Cash at end of period  $2,576   $2,553   $23    1%

 

Cash totaled approximately $2.6 million as of March 31, 2014 and 2013, respectively. The increase of approximately $23,000 at March 31, 2014 compared to the same period in 2013 was primarily attributable to approximately $1.2 million less cash at the beginning of 2014 compared to the beginning of 2013 offset by an increase in 2013 provided by financing activities of approximately $1.2 million.

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was approximately $1.0 million for each of the three months ended March 31, 2014 and 2013, respectively. The small decrease in cash used for operations during the three months ended March 31, 2014, compared to the same period in 2013, was primarily attributable to an increase in our net loss compared to prior year as a result of increases in research and development related costs, partially offset by increases in stock-based compensation, changes in the derivative liability and other accrued expenses.

 

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Net Cash Provided by Financing Activities

 

There was no cash provided by financing activities for the three months ended March 31, 2014, compared to cash provided by financing activities of approximately $1.2 million for the three months ended March 31, 2013. Cash provided by financing activities for the three months ended March 31, 2013 is attributed to the sale of common stock and warrants and the exercise of outstanding warrants during the prior year. 

 

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 Chief Executive Officer and Principal Accounting Officer (who is also our CEO), 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 March 31, 2014. 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 March 31, 2014 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. 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. 

 

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 first three months of 2014 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

Except as described below, as of the date of this Report, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

 

On March 12, 2012, GenSpera instituted a declaratory judgment action against Annastasiah Mhaka (“Mhaka”) in the United States District Court for the District of Maryland: GenSpera, Inc. v. Mhaka, Civil Action No. MJG-12-772 (D. Md.). In that complaint, GenSpera, as the licensee of the inventions described and claimed in the U.S. Patent No. 7,468,354 (“the ‘354 patent”) and U.S. Patent No. 7,767,648 (“the ‘648 patent”), sought a declaratory judgment that Mhaka (a former doctoral student at Johns Hopkins University) should not be added to either the ‘354 patent or the ‘648 patent as an inventor. On April 2, 2012, Mhaka filed and served her answer and counterclaim, in which she sought to be added as an inventor to the ‘354 patent and the ‘648 patent pursuant to 35 U.S.C. sec. 256. Between April 26, 2012 and October 1, 2012, the parties conducted fact discovery. Between October 1, 2012 and December 1, 2012, the parties conducted limited expert discovery. On November 1, 2012, Mhaka filed a separate complaint in the State Circuit Court for Baltimore County, Maryland, naming GenSpera as a defendant along with Dr. Samuel Denmeade and Dr. John Isaacs (the named inventors on the ‘354 patent and the ‘648 patent). In the complaint, Mhaka alleged that the defendants are liable under various state law tort theories for the same alleged conduct that formed the basis for her prior inventorship claim. In her prayer for relief, Mhaka sought unspecified damages from the defendants but did not seek to alter the inventorship or ownership of the ‘354 patent or ‘648 patent. On November 8, 2012, the defendants removed this second action to the United States District Court for the District of Maryland, and on November 16, 2012, the defendants moved to dismiss all claims in the complaint, asserting (among other things) that the claims were preempted by federal patent law.

 

On January 24, 2013, the Court heard GenSpera’s motion for summary judgment in the original case and the defendants’ motion to dismiss in the second case. On May 1, 2013, the Court granted GenSpera’s motion for summary judgment in the original case. In its order, the Court stated that it would proceed to issue a declaratory judgment establishing that Mhaka should not be added to the two patents at issue as an additional inventor pursuant to 35 U.S.C. § 256. Reserving any ruling on the issue of whether Mhaka’s state law tort claims are preempted by federal patent law, the Court denied defendants’ motion to dismiss Mhaka’s complaint and directed Mhaka to re-file her claims as counterclaims in the original action. On May 14, 2013, Mhaka filed an amended answer and counterclaims in the consolidated action, re-pleading her tort claims as counterclaims. On June 3, 2013, GenSpera (along with Drs. Denmeade and Isaacs) filed a reply to the counterclaims, denying their allegations and raising a number of affirmative defenses. Fact discovery was completed on December 13, 2013, and expert discovery was completed by March 28, 2014. On January 2, 2014, Drs. Isaacs and Denmeade moved for summary judgment on the grounds that Mhaka’s claims are barred by the applicable statute of limitations, and GenSpera joined in the motion. The briefing on that motion is now complete. Any remaining motions for summary judgment are to be filed by May 6, 2014. Further scheduling, as appropriate, is to be set after resolution of summary judgment motions.

 

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.

 

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

 

We may not be able to continue as a going concern if we do not obtain additional financing by September 2014.

 

Our cash and cash equivalents balance at March 31, 2014 was $2.6 million. Based on our current expected level of operating expenditures, we expect to be able to fund our operations for the next six to nine months from that date. Our ability to continue as a going concern is wholly dependent upon obtaining sufficient financing 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, there is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms or even at all. In the event that we are not able to secure financing, we may be forced to curtail operations, delay or stop ongoing clinical trials, or cease operations altogether or file for bankruptcy. Any such change may materially harm our business, financial condition, and operations.  

 

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

 

Our auditors’ report on our December 31, 2013 financial statements expressed an opinion that our Company’s capital resources as of the date of their Audit Report are not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raise additional funds. These conditions raise substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds there is the distinct possibility that we will no longer be a going concern and will cease operation which means that our shareholders will lose their entire investment in our Company.

 

Risks Relating to Our Stage of Development and Business

 

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

 

Since inception through March 31, 2014, we have raised approximately $24.3 million through the sale of our securities. During this same period, we have recorded accumulated deficit totaling approximately $34.3 million. Our net losses for the two most recent fiscal years ended December 31, 2013 and 2012 were $5.3 million and $6.9 million, respectively. None of our products in development have received approval from the FDA or other regulatory authorities; we have no sales and have never generated product revenues nor expect to for years, if at all. Currently, our only product candidate in development is G-202 which is being tested in two Phase II clinical trials. We expect to incur significant operating losses for the foreseeable future as we continue the research and clinical development of our product candidates. Accordingly, we need additional capital to fund our continuing operations. Since we do not generate any revenue, the most likely sources of such additional capital include the sale of our securities or funds from a potential strategic licensing or collaboration transaction 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, which may be significant. If we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some or all rights to our technologies, product candidates, or grant licenses on terms that are not favorable to us. If we raise additional funds 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.

  

All of our product candidates are at an early stage of development and we may never succeed in developing and/or commercializing them. If we are unable to commercialize G-202 or any of our other product candidates, or if we experience significant delays in doing so, our business may fail.

 

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 date, we have invested substantially all of our efforts and financial resources in the development of G-202 and depend heavily on its success. We will need to devote significant additional 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 G-202 and our other product candidates. Although initial data from our clinical trials appear promising, the outcome of the trials is uncertain and these trials or future trials may ultimately be unsuccessful. There are many reasons that we may not succeed in our efforts to develop our product candidates, including the possibility that:

 

·we may be unable to enroll sufficient subjects to complete our clinical studies in a timely manner;

 

·unexpected safety issues may occur and additional studies or analyses may be required to characterize and understand those issues, or our studies may be terminated by the institutional review boards or the FDA;

 

·our product candidates may be deemed ineffective, unsafe or will not receive regulatory approvals;

 

·our product candidates may be too expensive to manufacture or market or will not achieve broad market acceptance;

 

·others may claim proprietary rights that may prevent us from marketing our product candidates; or

 

·our competitors may market products that are perceived as equivalent or superior.

 

If we fail to develop and successfully commercialize our product candidates, our business may be materially harmed and could fail.

  

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We have only two full-time employees and a limited operating history 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 in our ability to:

 

·develop and commercialize our technologies and proposed products;

 

·obtain regulatory approval to commence marketing our products;

 

·identify, hire and retain any needed additional management or scientific personnel to develop and implement our product development plans and conduct pre-clinical and clinical testing;

 

·manage potential rapid growth with our current limited managerial, operational and financial resources;

 

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

 

·respond to competition; or

 

·operate the business, as management has not previously undertaken such actions as a company.

 

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 products candidates.

 

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

 

When making investment decisions, investors typically look at a company’s earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses and limited operating history 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. New drugs and treatments, which may be developed by others, could impair our ability to maintain and grow our business and remain competitive.

 

The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. 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. Technological 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 development stage company, our resources are limited and we may experience technical 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 drugs that are safer, more effective and less costly than our proposed products and, therefore, present a serious competitive threat to us.

 

The potential widespread 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 drugs may limit the potential for our proposed products, even if commercialized.

 

Our proposed products may not be accepted by the health care community.

 

Our proposed products, if approved for marketing, may not achieve market acceptance 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 manufactured and marketed by major pharmaceutical companies. It is too early in the development cycle of our proposed products for us to accurately predict our major competitors.

 

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The degree of market acceptance of any 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 alternatives currently on the market;

·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.

 

There can be no assurance that such reimbursement would be available at all or without substantial delay, or if such reimbursement is provided, that the approved reimbursement amounts would be sufficient to support demand for our proposed products at a level that would be profitable. If the health care community does not accept our products, our business could be materially harmed.

 

Our competitors in the biotechnology and pharmaceutical industries have significantly greater operating histories and financial resources than we have.

 

We compete against numerous companies, many of which have substantially greater financial and other resources than we have. Several such competitors have research programs and/or efforts to treat the same diseases we target. Companies such as Merck & Co., Inc., Ipsen, Johnson & Johnson, and Sanofi S.A., as well as others, have substantially greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing operations than we have and are better situated to compete with us. As a result, our competitors may bring competing products to market that would result in a decrease in demand for our product, if developed, which could have a materially adverse effect on the viability of the company.

 

Risks Related to Manufacturing 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. 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 procure third party suppliers for raw materials. In the event 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 would 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 specifications.

 

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

 

Our business plan relies heavily on third party collaborators, partners, licensees, clinical research organizations or other third parties to support our discovery efforts, and to conduct clinical trials for all or some of our product candidates. We cannot guarantee that we are able to successfully negotiate agreements for or maintain relationships with collaborators, partners, licensees, clinical investigators, vendors or other 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 a major pharmaceutical partner. Our ability to successfully negotiate such agreements depends on, among other things, potential partners’ evaluation of our technology over competing technologies and the quality of the pre-clinical and clinical data that we have generated, and the perceived risks specific to generating our product candidates. If we fail to establish such third-party relationships as anticipated, we could experience delays in the commercialization of our products.

 

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Our business is dependent upon securing and importing sufficient quantities of seeds from the plant, Thapsia garganica, which currently grows in very specific locations outside of the United States.

 

The therapeutic component of our products, including our lead compound G-202, is referred to as 12ADT. 12ADT is derived from a material called thapsigargin. Thapsigargin is derived from the seeds of a plant referred to as Thapsia garganica, which grows along the coastal regions of the Mediterranean Sea. We currently secure the seeds from Thapsibiza, SL, a third-party supplier. There can be no assurances that Thapsia garganica will continue to grow in sufficient quantities to produce an adequate supply of seeds for the production of sufficient quantities of thapsigargin, or that the countries from which we can secure Thapsia garganica continue to allow Thapsibiza, SL, to collect such seeds and/or export the seeds derived from Thapsia garganica to the United States. The process of importing Thapsia garganica seeds is subject to U.S. import and export laws and controls. Our supply agreement with Thapsibiza, SL (our sole supplier) expires on April 6, 2017. The agreement also provides that either party may extend the agreement for an additional 5 years by providing the other party 30 days’ written notice prior to its expiration. In the event we are no longer able to obtain these seeds in the future, we may not be able to produce our proposed drug and our business could be adversely affected.

  

We may be required to locate, secure and finance land for cultivation and harvesting of Thapsia garganica to satisfy our needs for clinical development of our therapies.

 

We believe that we can satisfy our needs for the clinical development of G-202, through completion of Phase III clinical studies, from Thapsia garganica that grows naturally in the wild. In the event G-202 is approved for commercial marketing, our current supply of Thapsia garganica may not be sufficient for the anticipated demand. In order to secure sufficient quantities of Thapsia garganica for the commercialization of G-202, we would need to secure adequate acreage of land to cultivate and grow Thapsia garganica. We have not yet fully assessed the amount of land or other costs that would be associated with a full-scale farming operation. There can be no assurances that we would be able to secure adequate acres of land, or that even if we are able to do so, that we could grow sufficient quantities of Thapsia garganica to satisfy any commercial objectives that involve G-202. Our inability to secure adequate seeds could adversely impact our business.

 

The synthesis of 12ADT must be conducted in special facilities.

 

We are required to manufacture the 12ADT that is to be used in our clinical trials in FDA approved facilities. There are a limited number of manufacturing facilities qualified to handle and manufacture toxic therapeutic agents and compounds. This limits the potential number of possible manufacturing sites for our therapeutic compounds derived from Thapsia garganica. No assurances can be provided that these facilities will be available for the manufacture of our therapeutic compounds under our time schedules or within the parameters of our manufacturing budget. In the event facilities are not available for the manufacturing of our therapeutic compounds, we may not be able to complete our clinical trials and our business and future prospects would be adversely affected.

 

Our therapeutic compounds have not been subjected to large scale manufacturing procedures and may not be able to be manufactured profitably on a large enough scale to support late stage clinical trials or commercialization.

 

To date, our proposed products 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 current procedures used to manufacture our proposed products would work at a scale which is adequate for commercial needs. In the event our therapeutic compounds cannot be manufactured in sufficient quantities for late stage clinical trials or 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 products may be infringing upon existing patents that we are currently unaware of. As the number of participants in the market place 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. In addition, during the course of patent litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. 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. The occurrence of any of the foregoing could materially impact our business.

 

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We are the subject of litigation related to our intellectual property.

 

We instituted a declaratory judgment action in the United States District Court of Maryland on March 12, 2012. We, as the licensee, are seeking a declaratory judgment that the current named inventors on U.S. Patent Nos. 7,468,354 and 7,767,648 are the only inventors of the underlying inventions. On November 1, 2012, the defendant in the case filed a complaint in the State Circuit Court for Baltimore County, Maryland, naming GenSpera as a defendant along with Dr. Samuel Denmeade and Dr. John Isaacs (the named inventors on the ‘354 patent and the ‘648 patent). The complaint alleges certain common-law torts. The outcome of the above mentioned litigation could materially and adversely affect our business. However, because this litigation is in its early stages, and due to the inherent uncertainty surrounding the litigation process, we are unable to reasonably estimate the ultimate outcome or the impact of such outcome at this time. See the section of this Quarterly Report entitled “Legal Proceedings”.

 

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 refuses to stop the other party on the ground that such other party’s activities do not infringe our rights in these patents.

 

Furthermore, a third party may claim that we are using inventions covered by the third party’s 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 affect our results of operations 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 treble 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.

 

If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity in the United Sates, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

 

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 funds necessary to continue our operations.

 

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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.

  

Our failure to secure trademark registration could adversely affect our ability to market our product candidates and our business.

 

Our trademark applications in the United States, when filed, and any other jurisdictions where we may file, may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our ability to market our product candidates and our business.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could impede our ability to compete.

 

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. 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 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.

 

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 industry, 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 us 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.

 

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

 

Considerable research with regard to our technologies has been performed in countries outside of the United States. The laws in some of those countries may not provide protection for our trade secrets and intellectual property. If our trade secrets or intellectual property are misappropriated in those countries, we may be without adequate remedies to address the issue. Additionally, we also rely on confidentiality and assignment of invention agreements to protect our intellectual property. These agreements provide for contractual remedies in the event of misappropriation. We do not know to what extent, if any, these agreements and any remedies for their breach would be enforced by a foreign or domestic court. In the event our intellectual property is misappropriated or infringed upon and an adequate remedy is not available, our future prospects would greatly diminish.

 

Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors. We do not know whether legal and government fees would increase substantially and therefore are unable to predict whether cost may factor into our intellectual property strategy.   

 

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Risks Relating to Marketing Approval and Government Regulations

 

Thapsia garganica and thapsigargin are highly toxic and we may be liable for any contamination or injury we may cause or any environmental and safety law we may violate.

 

The therapeutic component of our products, including our lead product G-202, is derived from the natural product, thapsigargin, which is isolated from the seeds of the plant Thapsia garganica. Both thapsigargin, as well as seeds of Thapsia garganica, are highly toxic. As a consequence, we are subject to numerous environmental and safety laws and regulations, including those governing laboratory procedures and the handling of toxic materials. We may be required to incur significant costs to comply with current or future environmental laws and regulations and may be adversely affected by the cost of compliance with these laws and regulations. Although we believe that our safety procedures for using, handling, storing and disposing of hazardous materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, state or federal authorities could curtail our use of these materials and we could be liable for any civil damages that result, the cost of which could be substantial. Further, any failure by us to control the use, disposal, removal or storage, or to adequately restrict the discharge, or assist in the clean-up of toxic substances could subject us to significant liabilities, including joint and several liabilities under certain statutes. Although we feel this risk may be minimized through our use of third parties, it is possible that the employees of such contractors could suffer medical issues related to the handling of these toxic agents and subsequently seek compensation from us via, for example, litigation. Any such liability could exceed our resources and could have a material adverse effect on our business, financial condition and results of operations. No assurances can be given, despite our contractual relationship with the third-party contractor, that we would not be the subject of litigation related to the handling of Thapsia garganica and the natural product thapsigargin. Additional federal, state and local laws and regulations affecting us may be adopted in the future. We may incur substantial costs to comply with these laws and regulations and substantial fines or penalties if we violate any of these laws or regulations, which would adversely affect our business.

  

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 trials under agreements with us. 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.

 

Data obtained from clinical trials are susceptible to varying interpretations and may not be sufficient to support approval by the FDA, which could delay, limit or prevent regulatory clearances.

 

The design of our clinical trials is based on many assumptions about the expected effect of our product candidate and if those assumptions are incorrect, our 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 pre-clinical studies and clinical 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 industry 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. The resulting delays to commercialization could materially harm our business. Our clinical trials may 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.

 

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial protocols, informed consents and study budgets, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of the clinical trial or product development.

 

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which, we may need to amend clinical trial protocols, informed consents and study budgets. If we experience delays in initiation, conduct or completion of, or if we terminate, any clinical trials due to changes in regulatory requirements/guidance or other unanticipated events, we may incur additional costs, have difficulty enrolling subjects or achieving medical investigator or institutional review board acceptance of the changes and the successful completion of the trial and, ultimately, the commercial prospects for our products may be harmed and our ability to generate product revenue could be delayed, possibly materially.

 

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The process to obtain FDA approval for a new drug is very costly and time consuming and if we cannot complete our clinical trials in a timely or cost-effective manner, our results of operations may be adversely affected.

 

The costs of clinical trials may vary significantly over the life of a project as a result of, but not limited, to the following:

 

the duration of the clinical trials;

 

the number of sites included in the trials;

 

the countries in which the trials are conducted;

 

the length of time required to enroll eligible patients;

 

the number of patients that participate in the trials;

 

the number of doses that patients receive;

 

the drop-out or discontinuation rates of patients;

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

the duration of patient follow-up;

 

the efficacy and safety profile of the product candidate; and

 

the costs and timing of obtaining regulatory approvals. 

 

If we are unable to control the costs of our clinical trials and conduct our trials in a cost-effective manner, our results of operations may be adversely affected.

 

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 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 require governmental approval before they can be commercialized. If we are unable to obtain regulatory approvals for our products at all or in a timely manner, we may not be able to grow as quickly as expected, or at all, and the loss of anticipated revenues could reduce our ability to fully fund our operations and to otherwise execute our business plan. Our failure to receive the regulatory approvals in the United States would likely cause us to cease operations and go out of business.

 

As we develop additional new products, we are required to determine what regulatory requirements, if any, we must comply with in order to market and sell such proposed products in the United States and worldwide. The process of obtaining regulatory approval could take years and be very costly, if approval can be obtained at all. If we fail to comply with these requirements, we could be subjected to enforcement actions such as an injunction to stop us from marketing the product at issue or a possible seizure of our assets. We intend to work diligently to assure compliance with all applicable regulations that impact our business. We can give no assurance, however, that we will be able to obtain regulatory approval for our products. We also cannot assure that additional regulations will not be enacted in the future that would be costly or difficult to satisfy. Our failure to receive regulatory approvals in the United States in a timely manner or comply with newly enacted additional regulation could cause us to cease operations and go out of business. Because our products are in various stages of development, we expect that significant research and development, financial resources, and personnel would be required to develop commercially-viable products that can obtain regulatory approval.

 

The regulatory process, which includes clinical validation of many of our proposed products to establish their safety and effectiveness, can take many years and require the expenditure of substantial financial and other resources. Data obtained from clinical validation activities are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. In addition, delays or rejection may be encountered based upon changes in, or additions to, regulatory policies for device marketing authorization during the period of product development and regulatory review. Delays in obtaining such approvals could adversely affect our marketing of products developed and our ability to generate commercial product revenues.

 

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In addition, if we desire to commercialize our proposed products worldwide, we are required to meet regulatory requirements in countries outside the United States, which can change rapidly with relatively short notice, resulting in our products being banned in certain countries and an associated loss of revenues and income. Foreign regulatory agencies can also introduce test format changes which, if we do not quickly address, can result in restrictions on sales of our products. Such changes are not uncommon due to advances in basic research.

 

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

 

Positive results from pre-clinical studies and our clinical trials of G-202 should not be relied upon as evidence that our clinical trials will succeed. Even if our proposed product achieves positive results in pre-clinical studies or during our Phase I and ongoing Phase II studies, we will be required to demonstrate through further 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 would experience potentially significant delays in, or be required to abandon, development of that product candidate. Although initial data from the trials appear promising, the outcome of the trials is uncertain and these trials or future trials may ultimately be unsuccessful. If we delay or abandon the development efforts of any of our product candidates, we may not be able to generate revenues.

 

We may be unable to complete our Phase II clinical trials of G-202 if we do not have adequate enrollment or capital to finance the studies.

 

We are conducting Phase II clinical trials in patients with liver cancer and glioblastoma. The continuation and completion of these trials are dependent on a number of factors, including adequate capital to fund the clinical trials and patient enrollment at the trial sites. At present, we have limited capital resources and require significant additional capital to complete any ongoing or future clinical trials that we may initiate. Our failure to enroll sufficient patients or to finance our clinical trials could materially harm our business.

 

Even if we complete clinical development, successfully submit applications for marketing and obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review and oversight. If we fail to comply with ongoing regulatory requirements, we could be subject to potential enforcement actions such as fines, seizures, operating restrictions, suspension or lose our approvals to market drugs and our business would be materially and adversely affected.

 

Following regulatory approval of any drugs or therapies we may develop, we remain subject to continuing regulatory review, including the review of adverse drug experiences and clinical results that are reported after our drug products are made available to patients. This would include results from any post marketing tests or vigilance required as a condition of approval. The manufacturer or manufacturing facilities we use to make any of our drug products are also be subject to periodic review and inspection by the FDA. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on the drug or manufacturer facility, including withdrawal of the drug from the market. We would continue to be subject to the FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and submission of safety and other post-market information for all of our product candidates, even those that the FDA has approved. If we fail to comply with the applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.

   

Even if we receive regulatory approval to market our proposed product candidates, they may not be accepted commercially, or be eligible for reimbursement under governmental or third-party payor insurance programs, which would prevent us from becoming profitable.

 

We have concentrated our research and development on our prodrug technologies. Our ability to generate revenue and operate profitably depends on us being able to develop these technologies for human applications. Our technologies are primarily directed toward the development of cancer therapeutic agents. We cannot guarantee that the results obtained in the pre-clinical and clinical evaluation of our therapeutic agents would be sufficient to warrant approval by the FDA. Even if our therapeutic agents are approved for use by the FDA, there is no guarantee that they exhibit an enhanced efficacy relative to competing therapeutic modalities such that they would be adopted by the medical community or that our proposed product candidates will be eligible for government or third-party payor insurance programs. Without significant adoption by the medical community and eligibility for reimbursement, our proposed products will have limited commercial potential which could harm our ability to generate revenues, operate profitably or remain a viable business.

 

Additional factors that we believe could materially affect market acceptance of our proposed products are:

 

timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained;

 

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safety, efficacy and ease of administration of our therapeutic agents;

 

advantages of our therapeutic agents over those of our competitors;

 

willingness of patients to accept new therapies;

 

success of our physician education programs;

 

availability of government and third-party payor reimbursement;

 

pricing of our products, particularly as compared to alternative treatments; and

 

availability of effective alternative treatments and the relative risks and/or benefits of the treatments.

 

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 of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Affordability Act of 2010, the comprehensive health care reform legislation passed by Congress in March 2010.

  

We need to obtain FDA approval of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.

 

A pharmaceutical product cannot be marketed in the United States or other countries until it has completed rigorous and extensive regulatory review processes, including approval of a brand name. Any brand names we intend to use for our product candidates requires approval from the FDA regardless of whether we have secured a formal trademark registration from the PTO. The FDA typically conducts a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product.

 

If we are unable to successfully complete clinical trials, we will be unable to seek regulatory approval to commercialize our proposed products which could significantly impair our viability.

 

The Phase II clinical trials of G-202 in patients with liver cancer and glioblastoma are ongoing and we plan to initiate additional Phase II clinical trials with G-202 for different indications when financial resources permit. Although our Phase II clinical trials are underway, the outcomes of these and future clinical trials are uncertain and, if we are unable to satisfactorily complete such trials, or if such trials yield unsatisfactory results, we would not be able to commercialize our proposed products. The failure of our trials could delay or prevent regulatory approval and could harm our ability to generate revenues, operate profitably or remain a viable business.

 

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 and, accordingly, 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 we become an accelerated filer, we would be required to expend substantial capital in connection with compliance.

 

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We do not have effective internal controls over our financial reporting, and if we cannot provide reliable financial and other information, investors may lose confidence in us and in our SEC reports.

 

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. To mitigate the current limited resources and limited number of employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we expand, we expect to increase our number of employees, which may enable us to implement adequate segregation of duties within the Committee of Sponsoring Organizations of the Treadway Commission internal control framework and accordingly, increase the effectiveness of our internal controls.  

 

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.

 

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 securities of biotechnology and pharmaceutical companies in general, and early-stage drug development companies in particular, 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:

 

the development status of our drug candidates, particularly the results of our clinical trials of G-202;

 

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.

 

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In addition, the market price for securities of pharmaceutical and biotechnology companies has historically been volatile, and the securities markets have, from time to time, experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These 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. Such issuances might dilute the net tangible book value per share of our common stock for existing stockholders.

 

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’ broad authority to determine voting, dividend, conversion, and other rights. As of March 31, 2014 we have issued and outstanding 27,392,100 shares of common stock and we have 22,095,286 shares of common stock reserved for future grants under our equity compensation plans and for issuances upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of March 31, 2014, we had no shares of preferred stock issued and outstanding.

  

Accordingly, we are entitled to issue up to 100,512,614 additional shares of common stock and 30,000,000 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 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.

 

It is likely that we will issue a large amount of additional securities to raise capital in order to further our development and marketing 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.

 

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 March 31, 2014, we had 27,392,100 shares of common stock issued and outstanding. Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. As of March 31, 2014, we had reserved for issuance (i) 263,695 shares of our common stock issuable upon the conversion of outstanding convertible notes; (ii) 10,001,591 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.56 per share; and (iii) 8,334,895 shares of our common stock issuable upon exercise of outstanding stock options under our equity compensation plans at a weighted average exercise price of $1.70 per share. Subject to applicable vesting requirements, upon conversion or exercise of the outstanding convertible notes, warrants and options, the underlying shares may be resold into the public market. 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.

 

The market for our common stock has been illiquid.

 

Our common stock trades with limited volume on the OTCQB tier 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. Any prospective investor in our securities should consider the limited market of our common stock when making an investment decision. 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.

 

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We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on your investment may be limited to increases in the market price of our common stock.

 

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.

 

Our officers and scientific advisors, by virtue of their ownership of our securities, may be able to control the Company.

 

As of March 31, 2014, our officers and scientific advisors owned approximately 23% of our issued and outstanding common stock. As a consequence of their level of stock ownership, the group retains substantial ability to influence the election or removal of members of our board of directors, and thereby control our management. This group of shareholders has the ability to significantly control the outcome of corporate actions requiring shareholder approval, including amending our certificate of incorporation and bylaws, approving mergers or other changes of corporate control, and approving going private transactions and other extraordinary transactions, any of which may be in opposition to the best interest of the other shareholders and may negatively impact the value of your investment.

  

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 of GenSpera 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.

 

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, the price of our common stock could decline.

 

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. We currently have limited research coverage by securities and industry analysts. 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. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that generally supports continuous sales without an adverse effect on share price. 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.

 

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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.

 

Other Risks

 

We depend on Craig A. Dionne, PhD, our Chief Executive Officer, to manage and drive the execution of our business plans, develop our products and core technologies and pursue collaborative relationships; the loss of Dr. Dionne would materially and adversely affect our business.

 

Although we have entered into an employment agreement with Dr. Dionne, there can be no assurance that he will continue to provide services to us. A voluntary or involuntary termination of employment by Dr. Dionne could have a materially adverse effect on our business.

 

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 employment agreements with members of management. In the event we terminate the employment of any of these executives, we experience a change in control or, in certain cases, if such executive terminates their employment with us, such executive will be entitled to receive certain severance and related payments. Additionally, in such instance, certain securities held by members of management 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.

 

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.

 

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.

 

We are exposed to product liability risks, which could place a financial burden upon us, should we be sued.

 

We have obtained limited product liability insurance coverage for our clinical trials. However, we may not be able to secure or maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against all losses we may incur. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business, financial condition and results of operations could be materially adversely affected.

 

35
 

 

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

 

The following information is given with regard to unregistered securities sold since January 1, 2014. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering. 

 

·In February 2014, we entered into an agreement for method development by a contract manufacturer and issued an aggregate of 91,334 shares of common stock as compensation.

 

·In February 2014, we entered into an agreement to grant an aggregate of 47,800 shares of common stock to a consultant, which shares vest at the rate of 7,800 shares upon execution of the agreement and 10,000 shares per month for four months. These shares are being granted for business advisory services to be provided to the Company. In addition, the consultant was issued a warrant to purchase 96,000 shares of common stock with an exercise price of $3.00 per share. The warrant is substantially similar to the warrants issued in our March 2013 offering.

 

ITEM 3.DEFAULT UPON SENIOR SECURITIES

 

None. 

 

ITEM 4.MINE SAFETY DISCLOSURES

 

None.

 

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.

 

36
 

 

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.

 

  GENSPERA, INC.
     
Date: May 12, 2014   /s/ Craig Dionne
    Chief Executive Officer
    (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

37
 

   

INDEX TO EXHIBITS

 

            Incorporated by Reference
Exhibit
No.
  Description   Filed/Furnished
Herewith
  Form   Exhibit
No.
  File
No.
  Filing
Date
                         
  3.01     Amended and Restated Certificate of Incorporation dated September 4, 2013       8-K   3.01   333-153829   9/4/13
                         
  3.02     Amended and Restated Bylaws       8-K   3.02   333-153829   1/11/10
                         
  4.01     Specimen of Common Stock certificate       S-1   4.01   333-153829   10/03/08
                         
  4.02**   Amended and Restated GenSpera 2007 Equity Compensation Plan amended January 2010       8-K   4.01   333-153829   1/11/10
                         
  4.03**   GenSpera Form of 2007 Equity Compensation Plan Grant and 2009 Executive Compensation Plan Grant       8-K   4.02   333-153829   9/09/09
                         
  4.04     Form of 4.0% convertible note issued to shareholder       S-1   4.05   333-153829   10/03/08
                         
  4.05     Form of Warrant - July and August 2008 private placements       S-1   4.10   333-153829   10/03/08
                         
  4.06     Form of 4.0% convertible debenture modification between GenSpera, Inc. and shareholder       8-K   10.02   333-153829   2/20/09
                         
  4.07     Form of Common Stock Purchase Warrant issued February 2009 to TR Winston & Company, LLC       8-K   10.05   333-153829   2/20/09
                         
  4.08     Form of Common Stock Purchase Warrant issued February 2009 to Craig Dionne       8-K   10.06   333-153829   2/20/09
                         
  4.09     Form of Common Stock Purchase Warrant issued February 2009       8-K   10.02   333-153829   2/20/09
                         
  4.10     Form of Common Stock Purchase Warrant issued June 2009       8-K   10.03   333-153829   7/06/09
                         
4.11**   Amended and Restated 2009 Executive       10-K   4.11   333-153829   3/29/13
    Compensation Plan amended on March 25, 2013                    
                         
  4.12     Form of Common Stock Purchase Warrant issued September 2009       8-K   10.02   333-153829   9/09/09
                         
  4.13     Form of Securities Purchase Agreement - Jan - Mar 2010 offering       10-K   4.27   333-153829   3/31/10
                         
  4.14     Form of Common Stock Purchase Warrant issued Jan - Mar 2010       10-K   4.28   333-153829   3/31/10
                         
  4.15     Form of Consultant Warrants issued in May 2010       10-Q   4.29   333-153829   5/14/10
                         
  4.16     Form of Securities Purchase Agreement - May 2010       8-K   10.01   333-153829   5/25/10
                         
  4.17     Form of Common Stock Purchase Warrant - May 18, 2010 offering, and June 2010 Consultant Warrants       8-K   10.02   333-153829   5/25/10
                         

 

38
 

 

  4.18**   Form of 2007 Equity Compensation Plan Restricted Stock Grant and 2009 Executive Compensation Plan Restricted Stock Grant       S-8   4.03   333-171783   1/20/11
                         
  4.19     Form of Securities Purchase Agreement - January and February of 2011       8-K   10.01   333-153829   1/27/11
                         
  4.20     Form of Common Stock Purchase Warrant dated January and February of 2011       8-K   10.02   333-153829   1/27/11
                         
  4.21**     Form of 2007 Equity Compensation Plan Restricted Stock Unit Agreement and 2009 Executive Compensation Plan Restricted Stock Unit Agreement       10-K   4.22   333-153829   3/30/11
                         
  4.22     Form of Securities Purchase Agreement dated April 2011       8-K   10.01   333-153829   5/03/11
                         
  4.23     Form of Common Stock Purchase Warrant dated April 2011       8-K   10.02   333-153829   5/03/11
                         
  4.24**   Form of Executive Deferred Compensation Plan       8-K   99.01   333-153829   7/08/11
                         
  4.25     Form of Common Stock Purchase Warrant issued to consultants in December of 2011       10-K   4.26   333-153829   3/06/12
                         
  4.26     Form of Common Stock Purchase Warrant issued to LifeTech on January 12, 2012       10-K   4.27   333-153829   3/06/12
                         
4.27    Form of Securities Purchase Agreement for December 2012 through March 2013 Offering       8-K   10.01   333-153829   3/28/13
                         
4.28   Form of Common Stock Purchase Warrant for December 2012 through March 2013 Offering; and February 2014 Consultant Warrant       8-K   4.01   333-153829   3/28/13
                         
4.29   Form of Registration Rights Agreement for December 2012 through March 2013 Offering       8-K   10.02   333-153829   3/28/13
                         
4.30   Form of Subscription Agreement or August 2013 Offering       8-K   10.01   333-153829   8/16/13
                         
4.31   Form of Securities Purchase Agreement for August 2013 Offering       8-K   10.02   333-153829   8/16/13
                         
4.32   Form of Registrants Rights Agreement for August 2013 Offering       8-K   10.03   333-153829   8/16/13
                         
4.33   Form of Warrant from August 2013 Offering       8-K   10.04   333-153829   8/16/13
                         
 10.01     Exclusive Supply Agreement between GenSpera and Thapsibiza dated April 2012       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**   Craig Dionne Proprietary Information, Inventions And Competition Agreement       8-K   10.06   333-153829   9/09/09

 

39
 

 

 10.06**   Form of Indemnification Agreement       8-K   10.07   333-153829   9/09/09
                         
 10.07**   Russell Richerson Employment Agreement       8-K   10.08   333-153829   9/09/09
                         
 10.08**   Amendment dated May 14, 2010 to the Employment Agreement of Russell Richerson       10-Q   10.08   333-153829   8/13/10
                         
 10.09**   Russell Richerson Proprietary Information, Inventions And Competition Agreement       8-K   10.09   333-153829   9/09/09
                         
 10.10**   Independent Director Agreement       8-K   10.01   333-153892   06/1/12
                         

31.1

 

Certification of the Principal Executive Officer Pursuant to Section 302 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    ***                 

 

To be filed by Amendment.
*Filed Herein
**Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
***Furnished herein

 

40