UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: SEPTEMBER 30, 2015

 

[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to __________

 

Commission file number: 333-198110

 

SIGNPATH PHARMA INC.

(Exact name of Registrant as specified in its charter)

 

Delaware		20-5079533
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

 

3477 Corporate Parkway, Suite 100

Center Valley, PA 18034

(Address of principal executive offices)

 

(215) 538-9996

(Registrant’s telephone number, including Area Code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

The reporter filed the report voluntarily.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [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 file” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of November 13, 2015, the Company had 14,163,887 shares of the Registrant’s common stock, par value $0.001 per share, issued and outstanding.

 

 

 

 SignPath Pharma Inc.
Quarterly Report on Form 10-Q
Period Ended September 30, 2015

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item1. Financial Statements: (unaudited)	3
Condensed Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 (audited)	3
Condensed Statements of Operations for the three and nine months ended September 30, 2015 and 2014	4
Condensed Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	5
Notes to Condensed Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations & Plan of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1.1. Legal Proceedings	15
Item 1.1A. Risk Factors – Not Applicable	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Mine Safety Disclosures	15
Item 5. Other Information	15
Item 6. Exhibits	16
SIGNATURES	17
Exhibits	18

  

 

SIGNPATH PHARMA, INC.

Condensed Balance Sheets

(unaudited)

 

		September 30, 2015				December 31, 2014
ASSETS
CURRENT ASSETS
Cash		$	498,101			$	716,193
Prepaid expenses			7,152				-
Total Current Assets			505,253				716,193
TOTAL ASSETS		$	505,253			$	716,193
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	303,462			$	447,999
Total Current Liabilities			303,462				447,999
STOCKHOLDERS’ EQUITY
Convertible Preferred Stock, 5,000,000 shares authorized, $0.10 par value
Series A; 5,000 shares authorized 3,256 shares issued and outstanding, respectively			326				326
Series B; 3,000 shares authorized 2,146 shares issued and outstanding, respectively			215				215
Series C; 6,000 shares authorized 5,001 and 5,001 shares issued and outstanding, respectively			500				500
Series D; 6,000 shares authorized 1,589 and 320 shares issued and outstanding, respectively			160				32
Common stock; $0.001 par value, 50,000,000 shares authorized; 14,163,887 and 14,123,887 shares issued and outstanding, respectively			14,164				14,124
Accrued dividends			1,530,429				969,230
Additional paid-in capital			13,435,837				12,700,365
Accumulated deficit			(14,779,840	)			(13,416,598	)
Total Stockholders’ Equity			201,791				268,194
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	505,253			$	716,193

 

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

 

 

SIGNPATH PHARMA, INC.

Condensed Statements of Operations

(unaudited)

 

		For the Three Months Ended,								For the Nine Months Ended,
		September 30,								September 30,
		2015				2014				2015				2014
REVENUES
		$	-			$	-			$	-			$	-
OPERATING EXPENSES
General and administrative			36,914				45,852				157,181				60,041
Professional fees			45,811				88,204				266,472				320,176
Research and development			274,157				799,965				683,802				1,546,500
Salaries and wages			118,794				45,207				268,063				209,527
Total Operating Expenses			(475,676	)			(978,958	)			(1,375,518	)			(2,136,244	)
OPERATING LOSS			(475,676	)			(978,958	)			(1,375,518	)			(2,136,244	)
OTHER INCOME (EXPENSE)
Other Income			-				-				23,641				-
Foreign currency loss			(1,436	)			(4,003	)			(11,420	)			(4,003	)
Interest income			16				171				55				568
Total Other Income (Expense)			(1,420	)			(3,832	)			12,276				(3,435	)
NET LOSS BEFORE INCOME TAXES			(477,096	)			(982,790	)			(1,363,242	)			(2,139,679	)
Provision for income taxes			-				-				-				-
NET LOSS		$	(477,096	)		$	(980,790	)		$	(1,363,242	)		$	(2,139,679	)
PREFERRED STOCK DIVIDEND			(194,794	)			(141,427	)		$	(561,199	)			(467,624	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(671,890	)		$	(1,124,217	)		$	(1,924,441	)		$	(2,607,303	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.05	)		$	(0.09	)		$	(0.14	)		$	(0.20	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			14,163,887				12,877,500				14,163,887				12,877,500

 

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

 

  

Condensed Statements of Cash Flows

Condensed Statements of Cash Flows

(unaudited)

 

		For the Nine Months Ended,
		September 30,
		2015				2014
OPERATING ACTIVITIES
Net loss		$	(1,363,242	)		$	(2,139,679	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services			-				51,000
Stock options compensation			143,488				186,384
Stock issued for compensation			16,000				-
Loss on equity modification			29,610				13,132
Changes in operating assets and liabilities
Change in prepaid expenses			(7,152	)			-
Accounts payable and accrued expenses			(110,535	)			452,999
Net Cash Used in Operating Activities			(1,291,831	)			(1,436,164	)
FINANCING ACTIVITIES
Preferred stock issued for cash, net of stock offering costs			1,073,739				1,372,536
Net Cash Provided by Financing Activities			1,073,739				1,372,536
NET INCREASE (DECREASE) IN CASH			(218,092	)			(63,628	)
CASH AT BEGINNING OF PERIOD			716,193				1,241,397
CASH AT END OF PERIOD		$	498,101			$	1,177,769
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NON CASH FINANCING ACTIVITIES:
Common stock issued for dividends		$	-			$	1,025,404
Issuance of shares for accrued fees		$	34,000			$	-
Preferred dividend accrual		$	561,199			$	467,624

 

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

 

  

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Basis of Presentation

 

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.

 

The accompanying unaudited condensed financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2015, and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2014 audited financial statements filed with the SEC on April 9, 2015. The results of operations for the period ended September 30, 2015 are not necessarily indicative of the operating results for the full year.

 

Description of Business

 

Throughout this report, the terms “we,” “us,” “our,” “registrant,” “Company” refer to SignPath Pharma Inc.

 

Business

 

SignPath is a clinical stage biotechnology company founded in May 2006 to develop synthesized proprietary formulations of curcumin, a naturally occurring compound found in the root of the Curcuma longa Linn (turmeric) plant, for applications in human diseases Good Manufacturing Practice (GMP) synthesis renders the curcumin active pharmaceutical ingredient (API) 99.2% pure. The Company is a publicly held non-traded Delaware corporation.

 

During the nine months ended September 30, 2015 and 2014, the Company expended $683,802 and $1,546,500 respectively, for net research and development. None of these expenses were borne by customers as the final products are not commercially available. They consisted primarily of payments made to commercial and academic institutions.

 

NOTE 2 – GOING CONCERN

 

The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. During the nine months ended September 30, 2015, the Company recognized sales revenue of $-0- and incurred a net loss of $1,363,242. As of September 30, 2015, the Company had an accumulated deficit of $14,779,840. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s planned business. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing from third parties. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents as of September 30, 2015 or December 31, 2014.

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States.

 

The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had $248,101 and $466,193 of cash balances in excess of federally insured limits at September 30, 2015 and December 31, 2014, respectively.

 

Fair Value of Financial Instruments

 

In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.

 

Research and Development Costs

 

The Company expenses the costs of the development of its pharmaceutical products during the period incurred. The Company incurred research and development expenses of $683,802 and $1,546,500 during the nine months ended September 30, 2015 and 2014, respectively.

 

Stock-Based Compensation

 

The Company follows the provisions of ASC 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.

 

Equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier.

 

  

Related Party Transactions

 

For the period ended September 30, 2015 the Company had an employee payable in the amount of $5,554 related to reimbursable company expenses due to Kai Larson, Vice President of Corporate Development, Chief Operating Officer, and Secretary to the Company.

 

For the period ended September 30, 2015 the Company had a payable due to Dr. Larry Helson related to Medicare coverage for the time he has been employed by the Company. The total amount due is $30,000 to be paid out at a rate of $2,900 per annum.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

In July, 2006, the FASB issued ASC 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. ASC 740 became effective as of January 1, 2007 and had no impact on the Company’s financial statements.

 

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Basic and Diluted Net income (Loss) per Share

 

The Company computes net income (loss) per share in accordance with ASC 260 which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

For the nine months ended September 30, 2015 and 2014, all of the Company’s potentially dilutive securities (warrants, options, convertible preferred stock) were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive Common Shares that were excluded were 25,685,789 and 20,675,814 at September 30, 2015 and 2014, respectively.

 

NOTE 4 – ACCRUED LIABILITIES

 

The Company has concluded it is probable that it will pay $85,738 in liquidated damages pursuant to the registration rights clause in certain of the securities sold in fiscal years 2008 and 2009, the Company was required to file a registration statement by January 27, 2009. The Company failed to do so until April 7, 2009, resulting in liquidated damages of 2% per month of the gross proceeds, which approximated $1.8 million as of that date. During the year ended December 31, 2009, the Company’s registration statement covering the securities was declared effective by the SEC. Each holder is entitled to $47.32 per share owned.

 

NOTE 5 – PREFERRED STOCK

 

The Company has authorized 5,000,000 shares of Preferred Stock, $.10 par value, of which, as of September 30, 2015, an aggregate of 11,992 shares were issued and outstanding consisting of (i) 5,000 shares of Series A Convertible Preferred Stock authorized and 3,256 shares issued and outstanding, (ii) 3,000 shares of Series B Convertible Preferred Stock authorized and 2,146 shares were issued and outstanding, (iii) 6,000 shares of Series C Convertible Preferred Stock authorized and 5,001 shares were issued and outstanding, and (iv) 6,000 shares of Series D Convertible Preferred Stock are authorized, 1,589 of which were issued and outstanding.

 

  

For the nine months that ended September 30, 2015 the Company issued 1,269 shares of Series D Preferred Stock. Gross proceeds received for these shares was $1,269,076 offset by stock offering costs of $195,337 issued to the placement agent, a related party.

 

NOTE 6 – COMMON STOCK

 

On January 1, 2015, the Company granted 40,000 shares of common stock to Jack Levine, Audit Committee Chair, for services rendered during 2014. These shares were issued at a fair value of $1.25 per share. The stock payable amount recorded year ended December 31, 2014 was valued at a stock price of $0.85. The excess of the fair value of the shares over the amount accrued at December 31, 2014 was recognized as compensation expense during the quarter ended September 30, 2015. For the nine months ended September 30, 2015, $16,000 was recognized as salaries and wages.

 

NOTE 7 – WARRANTS AND OPTIONS

 

Warrants

 

A summary of the status of the Company’s warrants as of September 30, 2015 and December 31, 2014 are presented below:

 

		Number of Warrants				Weighted Average Exercise Price				Remaining Term (years)
Outstanding as of December 31, 2014			12,550,062				1.25				4.60
Granted			2,939,123				1.36				5.63
Cancelled			(2,621,851	)			(1.09	)			-
Outstanding as of September 30, 2015			12,867,334			$	1.30				3.96

 

On January 30, 2015 the Company issued 23,750 Class D warrants. The warrants were not deemed to be derivative instruments because they do not have a reset feature, and therefore no liability was booked related to the warrants. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, $3.00 exercise price, 7 years to maturity, 137% volatility, and 1.49% risk free rate.

 

On February 27, 2015 the Company issued 75,657 Class D warrants. The warrants were not deemed to be derivative instruments because they do not have a reset feature, and therefore no liability was booked related to the warrants. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, $3.00 exercise price, 7 years to maturity, 136% volatility, and 1.82% risk free rate.

 

 

On March 31, 2015 the Company issued 18,750 Class D warrants. The warrants were not deemed to be derivative instruments because they do not have a reset feature, and therefore no liability was booked related to the warrants. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, $3.00 exercise price, 7 years to maturity, 135% volatility, and 1.71% risk free rate.

 

On July 29, 2015 the Company issued 40,480 Class D warrants. The warrants were not deemed to be derivative instruments because they do not have a reset feature, and therefore no liability was booked related to the warrants. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, $3.00 exercise price, 7 years to maturity, 168.60% volatility, and 2.02% risk free rate.

 

On January 14, 2015, the Company voided and replaced 2,621,851.22 placement agent warrants that were issued to a related party. Of those warrants, 40,000 had an exercise price of $2.00 and 2,581,851 had an exercise price of $1.25, which will expire on the seventh anniversary of the effective date of a registration statement concerning the underlying common stock. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, $1.25 and $2.00 exercise price, 7 years to maturity, 144.70% volatility, 1.62% risk free rate. As a result of the modification, the Company recognized a loss on warrant modification of $29,610.

 

For the nine months ended September 30, 2015 the Company has issued a total of 158,635 Placement Agent warrants, of those 118,157 were related to stock offering costs issued to a related party. The warrants were not deemed to be derivative instruments because they do not have a reset feature, and therefore no liability was booked related to the warrants. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $1.25 stock price, exercise price from $2-$3, 7 years to maturity, 168.60% volatility, and 2.02% risk free rate.

 

Options

 

The Company has recorded stock compensation expense of $119,842 and $0 for the nine months ended September 30, 2015 and 2014, respectively.

 

On March 20, 2015 the Company issued 30,000 stock options to Arthur Bollon for services to be rendered during 2015. On the date granted, one-quarter of the issued options vested and became exercisable. The remainder will vest quarterly for the next three quarters. The Company valued these warrants using the Black-Scholes independent director options pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 years to maturity, 188% volatility, and 1.37% risk free rate.

 

On March 20, 2015 the Company issued 30,000 stock options to Jack Levine for services to be rendered during 2015. On the date granted, one-quarter of the issued options vested and became exercisable. The remainder will vest quarterly for the next three quarters. The Company valued these options using the Black-Scholes independent director option pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 years to maturity, 188% volatility, and 1.37% risk free rate.

 

On May 1, 2015 the Company issued 300,000 stock options to Kai Larson, Vice President of Corporate Development and Chief Operating Officer, as part of the Company’s incentive stock option plan. These options will vest in equal monthly installments for 72 months, or six years, and will be fully vested April 2021. The Company valued these options using the Black-Scholes independent director option pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 10 years to maturity, 105% volatility, and 1.50% risk free rate.

 

On May 1, 2015 the Company issued 450,000 stock options to Kai Larson for services to be rendered during 2015. These options will vest in equal monthly installments for 72 months, or six years, and will be fully vested April 2021.The Company valued these warrants using the Black-Scholes independent director option pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 10 years to maturity, 105% volatility, and 1.50% risk free rate.

 

On September 4, 2015, the Company issued 25,000 stock options to James McChesney, a member of the Company’s Scientific Advisory Board, as part of the Company’s incentive stock option plan. These options will vest in two equal installments, the first 12,500 options vesting on August 10, 2016, and the second 12,500 options vesting on August 10, 2017. The Company valued these options using the Black-Scholes independent director option pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 years to maturity, 162% volatility, and 1.47% risk free rate.

 

  

On September 4, 2015, the Company issued 25,000 stock options to Peter Sordillo, a member of the Company’s Scientific Advisory Board, as part of the Company’s incentive stock option plan. These options are fully vested as of the date of grant, reflecting past services rendered. The Company valued these options using the Black-Scholes independent director option pricing model under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 years to maturity, 162% volatility, and 1.47% risk free rate.

 

NOTE 8 – COMMITMENT AND CONTINGENCIES

 

SignPath is obligated to pay running royalties of 2.5% on net sales of less than $250 million for products covered by an issued patent licensed under the UTMDACC License Agreement. This royalty rate increases to 3% for sales equal to, or greater than, $250 million. A royalty of 1.5% of net sales is payable by SignPath for products covered under the license which are not protected by an issued patent. After sales to the public begin, SignPath must pay a minimum annual royalty $75,000 which can be deducted from the royalties on net sales due under the agreement. In addition, SignPath is obligated to pay 20% to 25% of all non-royalty consideration received under sublicensing agreements.

 

SignPath previously had a License Agreement with John Hopkins University that the Company terminated in December 2014. As part of the termination, the Company paid JHU $20,000.

 

On December 12, 2014, the Board of Directors authorized an amendment to Dr. Helson’s employment agreement to provide that: (A) upon successful completion of Phase I trials for anti-Ebola testing in Africa paid for by the United States Army Medical Research Institute of Infectious Diseases (“USAMRIID”), exclusive of the cost of drug products and shipping, Dr. Helson would receive options to purchase 300,000 shares of Common Stock exercisable at then current fair market value and a cash bonus of $75,000, and (B) upon successful completion of Phase I trials in Vienna, Austria for the lead anti-QT prolongation drugs (Moxifloxacin) for liposomes Dr. Helson would receive additional options to purchase 300,000 shares of Common Stock exercisable at then current fair market value and a cash bonus of $75,000.

 

On March 27, 2015, the Board of Directors authorized a bonus to Dr. Helson providing that: upon the closing of financing for $20 million or more with The Westbury Group, or any other financing, Dr. Helson would be awarded a discretionary bonus of up to 100% of his then current salary estimated to be $375,000 per annum.

 

On May 1, 2015 The Company entered into an employment agreement with Mr. Kai Larson and appointed him as Vice President of Corporate Development, Chief Operating Officer, and Secretary. Mr. Larson will have a salary of $200,000 per year, $150,000 of which is deferred until such time that the Company raises an aggregate of $10 million through either debt or equity financing, or licensing revenues. In addition, the Company granted Mr. Larson options to purchase 750,000 shares of common stock as noted in Note 7.

 

NOTE 9 – SUBSEQUENT EVENTS

 

In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and had no material subsequent events.

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion should be read in conjunction with the financial statements and notes thereto included in this report. Except for the historical information contained herein, the discussion in this report contains certain forward-looking statements that involve risk and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions as of the date of this filing. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. The Company’s actual results could differ materially from those discussed here. Factors that could cause differences include those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014 as well as discussed elsewhere herein.

 

Liquidity and Capital Resources

 

As of September 30, 2015 and December 31, 2014, the Company had $498,101 and $716,193, respectively, of cash on hand. The Company had positive working capital of $201,791 at September 30, 2015 compared to $268,194 as of December 31, 2014. SignPath had an accumulated deficit of $14,779,840 as of September 30, 2015.

 

During the nine months ended September 30, 2015, SignPath sold 1,269 units consisting of its securities at a price of $1,000 per Unit. The Units sold in 2015 consisted of Series D Convertible Preferred Stock Units. Each Unit consists of (i) one share of 6.5% Series D Convertible Preferred Stock convertible into 500 shares of common stock (equivalent to $2.00 per share of common stock) following the effective date of its Registration Statement (the “Effective Date”) subject to adjustment, and (ii) Warrants to purchase 125 shares of common stock at $3.00 per share for at anytime after issuance and prior to the seventh anniversary of the Effective Date of a registration statement including the underlying securities. The Company received gross proceeds of $1,269,076 and incurred stock offering costs of $195,337 related to such offerings paid to a related party, during the nine months ended September 30, 2015.

 

The Company has no agreements, arrangements or understandings with any officer, director or shareholder as to any future financing, either equity or debt. The Company expects to continue to incur losses for the foreseeable future and it is possible the Company may never reach profitability. Therefore, the Company will require additional capital resources and financing to implement its business plan and continue its operations. The Company’s current burn rate for salaries, research programs, patent filings, clinical trials, and professional fees averages about $160,000 per month. Thus, it is expected that the Company currently has sufficient cash on hand to operate through the next 3 months. In view of general economic conditions, there can be no assurance that any additional financing will be available to us, that any affiliate will provide additional investments in the Company or that adequate funds for our operations will otherwise be available when needed or on terms acceptable to us.

 

Cash used in operating activities decreased by $144,333 from ($1,436,164) for the nine months ended September 30, 2014 to ($1,291,831) for the nine months ended September 30, 2015. The $144,333 decrease is due to a decrease in common stock issued for services of $51,000, a decrease in stock options for compensation of $42,896, a decrease of $7,152 in prepaid expenses, and a decrease in accounts payable of $563,534. This was offset by a decrease in net loss of $776,436, increase in stock issued for compensation of $16,000, and increase in loss on equity modification of $16,478.

 

The Company had net cash provided by financing activities of $1,073,739 during the nine months ended September 30, 2015, as a result of the $1,269,076 received in a Private Placement, reduced by $195,337 of offering costs.

 

As a result of the foregoing, the Company’s cash decreased by $218,092 during the nine months ended September 30, 2015.

 

The financial statements included in this report have been prepared in conformity with generally accepted accounting principles that contemplate our continuance as a going concern. The Company has had no revenues and has generated losses from operation. As set forth in Note 2 to the audited Financial Statements, the continuation of the Company as a going concern is dependent upon the Company obtaining adequate capital to fund operating losses until it becomes profitable, if ever. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

Results of Operations

 

Material Changes in Results of Operations

 

For the nine months ended September 30, 2015, as compared with the nine months ended September 30, 2014

 

Total operating expenses decreased by $760,726 to $1,375,518 for the nine months ended September 30, 2015 from $2,136,244 for the nine months ended September 30, 2014, primarily as a result of research and development decreasing to $683,802 for the nine months ended September 30, 2015 from $1,546,500 for the nine months ended September 30, 2014. Lower R&D expenses are in part a result of the Company focusing its R&D expenditures on cancer and cardiac arrhythmia, and curtailing expenditures in all other areas of research and development. General and administrative increased to $157,181 in the 2015 period from $60,041 in the 2014 period. This was due to an increase in travel expense of $4,275, an increase of $14,285 for loss on equity, and $81,353 in payroll taxes that were re-classed to general and administrative for the nine months ended September 30, 2015 compared to $10,059 for the nine months ended September 30, 2014. Professional fees decreased by $53,704 from $320,176 in the 2014 period to $266,472 in the 2015 period. This resulted from an increase of $19,774 in accounting fees, $10,900 in audit fees, $25,524 in consulting fees, $29,120 in legal fees, and $22,568 in stock compensation, offset by a $161,590 decrease in stock issued for professional services rendered to the Company.

 

Research and Development fees for the nine months ended September 30, 2015, included payments to Cesar, ClinicPace Worldwide, IPS Therapeutique, Nucro Technology, & Polymun for, $90,284, $48,650, and $80,401, $105,653, and $78,813, respectively, for lab fees and other costs related to the Company’s research and development efforts. The Company incurred $141,371, in legal fees classified as research and development related to legal counsel’s work on patents, related filing documents, reviewing contracts, and filing disclosure statements. The decrease in research and development expenses to $683,802 for the nine months ended September 30, 2015 from $1,546,500 for the nine months ended September 30, 2014 is a result of drug development decreasing to $540,616 for the 2015 period as compared to $1,346,535 for the 2014 period, a decrease of $805,919. The decrease is a result of the Company focusing on cancer and cardiac arrhythmia clinical trials, and curtailing expenditures in all other areas. In addition to the decrease in drug development costs, costs relating to patents licensed from Johns Hopkins (which license was terminated by the Company December 2014) decreased to $0 for the 2015 period from $116,966 for the 2014 period, legal fees related to research and development were $141,371 for the 2015 period compared to $80,235, an increase of $61,136.

 

As a result of the foregoing, the Company had a net loss of $1,363,242 for the nine months ended September 30, 2015 as compared to a net loss of $2,139,679 for the nine months ended September 30, 2014.

 

For the three months ended September 30, 2015, as compared with the three months ended September 30, 2014

 

Total operating expenses for the three months ended September 30, 2015 decreased to $475,676 as compared with $978,958 for the three months ended September 30, 2014, primarily as a result of research and development expenses decreased to $274,157 in the 2015 period from $799,965 in the 2014 period. Lower R&D expenses are, in part, a result of the Company focusing its R&D expenditures on cancer and cardiac arrhythmia, and curtailing expenditures in all other areas of research and development. General and administrative decreased to $36,914 in the 2015 period from $45,852 in the 2014 period due to a decrease in filing fees of $11,172, and decrease in travel of $5,891 of set by an increase of $5,465 in payroll taxes that were re-classed to general and administrative for the three months ended September 30, 2015, and an increase of $2,344 in insurance expense. Professional fees decreased to $45,811 in the 2015 period from $88,204 in the 2014 period due in part to stock for compensation expense of $10,806 for the three months ended September 30, 2014 with no such activity for the three months ended September 30, 2015.

 

Salaries and wages increased to $118,794 in the 2015 period from $45,207 in the 2014 period, an increase of $73,587 due to $67,950 in common stock issued for services rendered to the Company in the three months ended September 30, 2015 with no such activity in the 2014 period.

 

  

Research and Development fees for the three months ended September 30, 2015, included payments to Cesar, ClinicPace Worldwide, IPS Therapeutique, Nucro Technology, & Polymun for, $30,510, $3,552, $3,200, $71,968, & $20,707, respectively, for lab fees and other costs related to the Company’s research and development efforts. The Company incurred $26,261, in legal fees classified as research and development related to legal counsel’s work on patents, related filing documents, reviewing contracts, and filing disclosure statements. The decrease in research and development is a result of drug development costs of $246,080 for the three months ended September 30, 2015 as compared to $758,562 for the three months ended September 30, 2014, a decrease of $512,482. The decrease is a result of the Company focusing on cancer and cardiac arrhythmia clinical trials, and curtailing expenditures in all other areas. In addition to the decrease in drug development costs, legal fees related to research and development were $26,261 compared to $40,972, a decrease of $14,711 from the comparable period ended September 30, 2015 and 2014, respectively, resulting from legal work previously handled by outside counsel being handled internally by the Company.

 

As a result of the foregoing, the Company had a net loss of $477,096, for the three months September 30, 2015 as compared to a net loss of $982,790 for the three months ended September 30, 2014.

 

Plan of Operations

 

Manufacturing of GMP grade synthesized curcumin is continuing at Sami labs, in India. Over 4.3 kilograms of the active principle was sent to Dalton Pharma Services in Canada for analytical and continuing stability testing. Aliquots of curcumin are sent to Polymun Scientific in Austria to manufacture the formulated GMP grade liposomal curcumin product. The product is further analyzed for endotoxins in Gibraltar Labs in New Jersey, and for release kinetics at Northern Lipids in Canada. The final product has been used in 45 human normal subjects in a Phase Ia ascending dose trial in Austria. Based upon these data, a Phase Ib ascending dose clinical trial is ongoing in Austria: accruing as of this date 26 cancer patients who progressed on standard of care therapy. The purpose of this study is to ascertain side effects and appropriate dosing levels of liposomal curcumin.

 

Upon completion of the Phase Ib ascending dose trial in Austria, the Company plans to initiate Phase II trials for liposomal curcumin in glioblastoma (a brain tumor) and non-small cell lung cancer in patients who have progressed on standard of care therapy. Because of the high costs of conducting clinical trials in the United States compared with other jurisdictions, the Company plans to conduct these Phase II trials in primarily in Western Europe, with the majority of the trial centers located in Austria and Germany.

 

The Company has made a decision to focus its resources on cancer and cardiac arrhythmia research and development at this time, so the planned FDA submission on Parkinson’s disease and the associated expenditures supporting this effort have been suspended.

 

The liposome composed of DMPC and DMPG was initially discovered to prevent curcumin induced cardiac arrhythmias in in vitro, in ex vivo studies in rabbit models, and in vivo in rabbit models challenged with clinically approved QTc prolonging anticancer drugs, Crizotinib and Nilotinib. The Company is collaborating with Avanti Polar Inc. and IPS Therapeutique, Canada in further research and development relating to controlling cardiac arrhythmia side effects for a broad range of drugs. To date, a lead compound has been identified, and work is under way to generate the pre clinical data necessary to initiate clinical trials with this compound. Negotiations are also in progress between Avanti Polar, IPS, and the Company regarding ownership, licensing, and exploitation of the intellectual property resulting from these collaborative efforts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not Required

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As of September 30, 2015, the Company’s management evaluated, with participation of its principal executive officer and its principal financial officer, the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on that evaluation, the Company’s principal executive officer and its principal financial officer concluded that the Company’s disclosure controls and procedures were ineffective as of September 30, 2015.

 

Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission. The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting resources; and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation. In light of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting at the Evaluation Date.

 

Change in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting or in any other factors that could significantly affect these controls, during the Company’s quarter ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

  

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

As of the date of this Quarterly Report on Form 10-Q, we are not a party to any legal proceedings.

 

Item 1A. Risk Factors

 

In accordance with the requirements of Form 10-Q, the Company, as a smaller reporting company, is not required to make disclosure under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the nine-month period ended September 30, 2015, this Registrant sold 1,269 units (the “Units”) of its securities at a price of $1,000 per unit or 1,268,948. Each Unit consists of (i) one share of 6.5% Series D Convertible Preferred Stock convertible into 500 shares of common stock (equivalent to $2.00 per share of common stock) subject to adjustment, and (ii) Warrants to purchase 125 shares of common stock at $3.00 per share ending seven years following the Effective Date of its registration statement. The Company received gross proceeds of $1,269,076 and paid sales commissions of $195,337 to Meyers Associates, L.P., the Company’s placement agent and related party.

 

The Units were sold to 33 accredited investors who were customers of the placement agent. The Company claimed an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder, based upon a subscription agreement executed by such investor. The net proceeds of the offering were used for working capital, research and development and clinical trials in Europe towards filing an investigational new drug application to commence clinical trials in the United States.

 

During the nine-month period ended September 30, 2015, the Registrant issued 40,000 shares of common stock to Jack Levine, an independent director, for services rendered as Chairman of the Company’s Audit Committee during 2014. The Company claimed an exemption from registration pursuant to Section 4(a)(2) of the Securities Act. No commissions were paid and no placement agent or underwriter was involved in the transaction.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits.

 

Exhibits.

 

Set forth below is a list of the exhibits to this quarterly report on Form 10-Q.

 

Exhibit Number		Description
3.1		Certificate of Incorporation of the registrant (1)
3.2		Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock (1)
3.3		Amended and Restated Certificate of Incorporation of the registrant dated August 2, 2006 (1)
3.4		Certificate of Amendment of the Registrant dated May 27, 2008 (1)
3.5		Certificate of Designation Preference and Rights of Series B Convertible Preferred Stock (3)
3.6		Certificate of Amendment of the Registrant dated October 20, 2011 (2)
3.7		Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock (4)
3.8		Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock (5)
3.9		By-Laws of the registrant (1)
4.1		Form of Common Stock Certificate (1)
4.2		Form of Class C Common Stock Purchase Warrant (4)
4.3		Form of Bridge Note (1)
4.4		Form of Series A Subscription Rights Agreement (1)
4.5		Form of Series A Subscription Agreement (1)
4.6		Form of Series B Subscription Agreement (3)
4.7		Form of Series C Subscription Agreement (4)
4.8		Form of Registration Rights Agreement (4)
4.9		Form of Class D Common Stock Purchase Warrant(6)
4.10		Form of Series D Subscription Agreement (6)
*31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Filed with this Report.

 

(1)	Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-158474, declared effective on August 10, 2009.
(2)	Incorporated by reference to the Company’s Form 8-K for October 20, 2011 filed on October 21, 2011.
(3)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for September 30, 2011 filed on November 21, 2011.
(4)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for March 31, 2013 filed on May 15, 2013.
(5)	Incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 333-198110) filed on December 12, 2014.
(6)	Incorporated by reference to the Company’s Annual Report on Form 10-K for December 31, 2014 filed on April 9, 2015.

 

  

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: November 16, 2015	SIGNPATH PHARMA INC.
	By:	/s/ Lawrence Helson
		Lawrence Helson, M.D., Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

 

 

 SignPath Pharma Inc.
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2015 

EXHIBITS

 

Exhibit Number		Description
31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.