Attached files
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| EX-32.1 - SignPath Pharma, Inc. | ex32-1.htm |
| EX-31.1 - SignPath Pharma, Inc. | ex31-1.htm |
| EX-3.11 - SignPath Pharma, Inc. | ex3-11.htm |
| EX-4.12 - SignPath Pharma, Inc. | ex4-12.htm |
| EX-4.11 - SignPath Pharma, Inc. | ex4-11.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 333-158474
SIGNPATH PHARMA INC.
(Exact name of Registrant as Specified in Its Charter)
| Delaware | 20-5079533 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| 3477 Corporate Parkway, Suite 100 | ||
| Center Valley, PA | 18034 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (215) 538-9996
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [X] Yes [ ] No
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller Reporting Company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
As of March 30, 2016, 14,203,887 shares of the Registrant’s common stock, par value $0.001 per share, were issued and outstanding.
On June 30, 2015, the aggregate market value of voting stock (based upon the closing price of the Registrant’s common stock on that date) held by non-affiliates of the Registrant was $0, as there is no public market for the Company’s Common Stock.
Documents Incorporated By Reference: None.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Except for historical information, the matters discussed in this document may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include declarations regarding the intent, belief or current expectations of SignPath Pharma Inc., and its management and are valid only as of today, and we disclaim any obligation to update this information. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors to consider and evaluate that could cause actual results to differ materially from those predicted in any such forward-looking statements include, but are not limited to: (i) general economic conditions and changes in the external competitive market factors which might impact the Company’s results of operations; (ii) unanticipated working capital or other cash requirements including those created by the failure of the Company to adequately anticipate the costs associated with clinical trials, manufacturing and other critical activities; (iii) changes in the Company’s business strategy or an inability to execute its strategy due to unanticipated changes in the therapeutic drug industry; (iv) the inability or failure of the Company’s Management to devote sufficient time and energy to the Company’s business; (v) the failure of the Company to complete clinical trials described herein on the terms currently contemplated; and (vi) failure of the Company’s pharmaceutical candidates to achieve safety and/or efficacy in their targeted disease indications. In light of these risks and uncertainties, many of which are described in greater detail under “Risk Factors” below and other reports filed with the Securities and Exchange Commission (“SEC”), there can be no assurance that the forward-looking statements contained in this Report will in fact transpire. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. We do not undertake any duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results or changes in our expectations.
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ITEM 1. 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.
Curcumin has an extensive history as an oral medicinal product with safe human use, but its potential therapeutic benefits have been limited by its low absorption (the amount of active drug reaching lesioned tissue) when taken orally, as well as its inactivation in the liver (due to hepatic glucuronidation or sulfation) and “hydro-phobic” nature whereby it is not soluble in water or blood. SignPath has developed and received approval in June 2014 from the U.S. Food and Drug Administration (the “FDA”) of its Investigational New Drug (“IND”) application, and in Europe for an Investigated Medical Product Dossier (“IMPD”) for parenterally (taken into the body in a manner other than the digestive tract) administered curcumin, allowing curcumin to be administered intravenously and delivered to diseased sites with minimal inactivation. Based on the results from in-vitro and animal studies, we believe that the liposomal curcumin which we have licensed, may be useful in the treatment of cancer, cardiac and neurologic disorders such as Parkinson’s disease. During IND mandated pre-clinical toxicity trials in dogs with liposomal curcumin, a dose-dependent hemolysis was observed, allowing us to identify a safe dose level, hence, allowing specific dose/schedules of administration for clinical trials in humans.
SignPath has licensed a proprietary intravenous formulation containing curcumin as the active therapeutic agent. This formulation is a liposomal construct that was licensed from University of Texas MD Anderson Cancer Center (“UTMDACC.”) This formulation is currently in Phase Ib clinical trials in Salzburg, Austria. The complete pre-clinical dossier for liposomal curcumin, was submitted to the European Medicines Agency (the “EMA”) on June 8, 2011, for Phase Ia clinical trials and clinical trials were initiated in October 2012. The Company believes its liposomal curcumin product will be useful in the treatment of various cancer indications. In addition to cancer, when funds become available the Company would attempt to develop other products which potentially will give SignPath proprietary preparations with applications in the treatment for a neurologic, cardiac, and immunologic indications. Specifically, based on early pre-clinical research using animal models, the Company believes that the liposomal curcumin formulation may be active against Parkinson’s disease.
The Company has assembled leaders experienced in pharmacologic development of natural products to advise it on the development of its curcumin formulations. The Company’s consultants and Scientific Advisory Board members are comprised of individuals with specific experience with natural products, formulation development, neoplastic, immunologic and neurologic disorders. Expertise in analytical chemistry will come from commercially based product chemists. Drug development will be overseen by Lawrence Helson MD, Chief Executive Officer, an oncologist with more than 30 years of pharmaceutical development experience;
The Company has retained consultants and Scientific Advisory Board members who bring relevant experience to the Company. Professor Tauseef Ahmad, MD is an experienced principal investigator for lymphoma, myeloma and solid tumor studies. Dr. Peter P. Sordillo, who joined our Scientific Advisory Board in 2013, was on the Staff of Medical Oncology and Hematology at Lenox Hill Hospital, New York as an experienced Oncologist. George Shopp, PhD, is an experienced toxicologist and pre-clinical expert. James D McChesney is a world class organic chemist with extensive drug development expertise, and Brigitta Vcelar PhD, is a drug development specialist in the European Union. See “Management” below for more information about our management team and Scientific Advisory Board members.
Clinical application strategies will be based upon the advice of the consultants and Scientific Advisory Board members, all of whom have academic and practical experience in biopharmaceutical development. As described below, we expect that our Phase I and II clinical trials will be run by contract clinical research organizations in Europe and the United States.
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During the fiscal years ended December 31, 2014 and 2015, the Company expended $1,927,851, and $754,268, 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.
Target Markets
The anticipated markets for therapeutic curcumin are diseases for which current therapeutic alternatives are not satisfactory or unavailable. There are several malignant diseases which are classified as orphan indications, defined by the U.S. Food and Drug Administration (the “FDA”) as conditions with less than 200,000 patients in the United States. Some of these conditions exhibit dependency upon NF-kB (NF-kappaB, a family of intracellular proteins), a signaling pathway component inhibited by curcumin.1 Two such indications are lung and Brain cancers. The Company currently plans to pursue the development and testing of therapies with parenterally-administered curcumin to address non-small cell lung and other cancers, in which current treatment is only marginally effective or could be greatly improved. Additional indications for curcumin include Parkinson’s disease, where liposomal curcumin has shown promise in animal studies.
Preclinical and animal studies conducted by other scientists of curcumin-based treatments in cancer therapy suggest it may have an application as a parenteral drug for both prophylaxis and therapy.2 While these preclinical data show potentially beneficial activity and exhibit multiple mechanisms of action, the parenteral route has not yet been tried in controlled human clinical trials. Current trials with oral curcumin by academic research groups at various stages of pre-clinical and clinical development have limited efficacy. The Company’s goals differ in that it intends to establish the safety and efficacy of parenteral curcumin in patients.
While our focus is on non-small cell lung cancer, and brain cancer, subsequent studies may consider pancreatic cancer an unmet clinical need and the fifth leading cause of cancer deaths, accounting for an estimated 45,600 deaths annually in the United States, according to published reports found in Burro, H.A. et al. This cancer is largely resistant to the current approved drug, gemcitabine, and results in an objective tumor response in less than 10% of patients resulting in a minor impact on survival.3 Most patients with this diagnosis could be candidates for trials in combination with gemcitabine, or trials of curcumin alone as a second line therapy.
The annual incidence of lung cancer is approximately over 200,000 cases in the United States and about 170,000 deaths. Lung cancer researchers have shown an increased expression of curcumin-sensitive signaling pathways, which the Company believes may make it susceptible to therapy with our product candidate. Based upon pre-clinical studies conducted by SignPath scientists with our active principle and other scientists with curcumin extracts, we believe the potential patient population could include the majority of these patients following failure of standard treatment, or as testing advances, in combination therapy or as a first line single-agent.
Another potential tumor target is primary brain tumors. The market for glioblastoma multiforme has an 4incidence of about 17,000 per year, or 59 per million of the population, according to the scientific literature. Although this represents just 2% of cancer deaths in the United States, survival rates are low and cost of treatment is high. Following standard therapy, the median survival of glioblastoma patients is 9 to 11 months with less than 5% of patients alive after 5 years. In addition, metastases to the brain from other sites affect an estimated 75,000 patients per year and have very poor survival rates, making primary and metastatic brain tumors a clear unmet need. Lymphomas are another clinical indication that is of interest.The annual incidence of lymphoma is approximately 66,000 cases in the United States. Multiple myeloma is responsible for 10% to 20% of the lymphoma malignancies, with skeletal involvement in about 80% of the patients.5 Lymphoma researchers have shown an increased expression of the curcumin-sensitive signaling pathway, which the Company believes may make it susceptible to therapy with our product candidates. In our drug distribution trials in dogs we observed large amounts of liposomal curcumin collected in the lung tissues following 8 hour infusions, suggesting that lung disorders would be appropriate clinical targets. Lung cancer affects 175,000 persons in the United States.
1 Ahn KS, Aggarwal BB., 2005 Transcription factor NF-(kappa)B; A sensor for smoke and stress Signals. Ann N.Y. Acad Sci 1056:218-233.
2 Aggarwal B.B., Kumar A, Bharti C 2003. Anticancer potential of curcumin. Pre-clinical and clinical studies. Anticancer Research 23:363-398.
3 See footnote 1 above.
4 See footnote 2 above.
5 Burris H.A. et al. 1997 Improvements in survival and clinical benefit with gemcitabine as first line therapy for patients with advanced pancreatic cancer: a randomized trial. J Clinical Oncology 15:2403-2413.
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The Company believes that its parenteral formulations of curcumin can be compared with standard of care when used in combination with front line or second line standard chemotherapy in a number of diseases. Given the aging of the population with annual incremental growth in the number of prospective patients in chronic and acute disease categories, the Company believes a minimally toxic agent like curcumin could gain wide acceptance and usage.
Marketing Strategies
Analysis
| Strength: | Currently, six liposomal chemotherapeutics have received clinical approval and others are in clinical trials or undergoing preclinical evaluation. Liposomes exhibit low toxicity and improve the biopharmaceutical features and therapeutic index of drugs, thereby increasing efficacy and reducing side effects. Liposomal incorporation offers advantages for the delivery of chemotherapeutics which are metabolically unstable or poorly water-soluble. SignPath is developing parenteral curcumin administration methods because the oral route of administration of this compound lacks sufficient bioavailability for systemic disease therapy. The Phase Ib liposomal curcumin formulation was initiated in a cancer patient in Salzburg, Austria in October 2013. Based upon initial observations we altered the infusion delivery method and shortened the infusion duration from 24 to 6-8 hours, the same procedure we plan to use in clinical trials in the United States. SignPath has a strong relationship with curcumin manufacture, analytics, regulatory and CRO groups in Canada, Europe, and in the United States. | |
| There are numerous publications (See “Publications/Presentations: SignPath Pharma Curcumin Formulations” below) regarding our products, along with issued and pending patents covering our drug candidates. If successful, the formulations may be applicable for diseases affecting large numbers of people. | ||
| Weakness: | Contraindicated in patients with a pre-existing bleeding diathesis. When solubilized in alkaline media, and at high ambient light conditions it is instable. Intravenous administration can be safely done using controlled syringe infusions rather than electronic impellent pumps which cause the product to precipitate in the infusion line. | |
| Opportunity: | Curcumin can be applicable to unmet clinical indications including cancer, and neurologic disorders. It can also be used in auto-immune, inflammatory diseases, mycoses, and parasitic diseases alone or in combination with other treatment modalities such as cytotoxics, and ionizing radiation. | |
| Threat: | Even if approved, Curcumin will compete with numerous anti-cancer drugs developed and marketed by established pharmaceutical companies worldwide. All of these pharmaceutical companies have greater resources than we do. |
Marketing Strategies
Curcumin has potential utility in over 5,000,000 patients in multiple clinical disorders assuming penetration in all potential markets. Our initial plan is to determine its efficacy in cancer and Parkinson’s disease (over 1,200,000 patients). Used alone or in combination with other drugs or radiation treatments, we anticipate being able to market, when approved by the FDA, to eligible patients depending upon the indications chosen and responses in Phase II and Phase III clinical trials.
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Product Overview
Background on Curcumin
Curcumin has been used primarily in its natural state in turmeric as an ingredient in foods for several thousand years in India and the Asian subcontinent where it grows naturally. It also has a history of use as a medicinal extract.6
The history of curcumin includes oral human use for a variety of benign and malignant diseases. A body of published research explaining curcumin’s mechanisms of action at the cellular level supports its potential application in humans.7 8 In addition, there have been parenteral curcumin toxicology studies in mice and rats published by other researchers which support a finding of curcumin’s safety after oral application.
The problem that has limited the therapeutic potential of curcumin is that it is orally delivered and the curcumin has limited bioavailability. This is because curcumin is inactivated as it passes through the intestinal wall and the liver. Lymphoma researchers have attributed its low efficacy to low levels of active drug reaching the bloodstream. Yet, uncontrolled clinical trials conducted by third parties have indicated that oral curcumin may have preventative clinical activity in several diseases, when taken over long periods of time, but not in established systemic diseases.
To address this problem, SignPath has in-licensed and developed a parenteral formulation (administration that bypasses the gastrointestinal system) in the form of a liposomal curcumin.
Brief Technology Background: Signal Transduction and Cellular Pathways Cells carry out many of their functions by responding to signals transmitted from the external environment. The surface of a cell has receptor proteins that span or cross the cell surface and bind to their targets with high specificity. When an external molecule binds to a surface receptor, it provides the signal to activate (turn on or turn off) critical cell processes.
Recent scientific breakthroughs have enabled these surface receptors and the internal pathways they control to become targets for drug development. Several companies have used these mechanisms to develop products that have reached the market or advanced to late stage clinical trials.
Once a cell signaling pathway is activated, a series of reactions (or cascade) occurs within the cell. Each step activates a specific protein in the pathway, and its active products initiate the activation of the next protein in the process. Some of the cellular processes that are controlled in this manner include inflammatory pathways, cell proliferation, cell survival, and cell death (apoptosis). Elevated levels of activated inflammatory and survival pathways have been correlated with many types of tumors,9 and can also be markers for more severe disease and/or poor prognosis. Some pathways are associated with resistance to chemotherapy, translated as tumor cell survival in the presence of conventional chemotherapy. These are some of the many tumor cell characteristics that can make cancer a fatal disease.
SignPath is developing curcumin, a compound for which there are early indicators that it may be a compound that inhibits several cell survival pathways via blockade of specific signaling proteins called activating kinases. Two established pathway targets are known as NF-kB and AKT(1). The net effect when these pathways are inactivated is to turn off signals leading to cell metabolism, protein synthesis, proliferation and to activate signals leading to cell death via activation of downstream processes. These changes also alter other pathways, including STAT3, Survivin, TNFalpha, and MDR-1 pathways conferring resistance to chemotherapy.
6 See footnote 2 above.
7 Reddy RC, Vatsala PG, Keshamouni VG et al, 2005. Curcumin for Malaria Therapy Biochemical and Biophysical Research Communications 326:472-474; see footnotes 1 and 2 above.
8 Li,L., Brairteh, F. Kurzrock,R 2005. Liposome Encapsulated Curcumin. In Vitro Effects on proliferation, apoptosis, signaling and angiogenesis. Cancer, 104:1322-1331.
9 Rakoff-Nahoum Seth, and Medzitof, Rusian 2007 Regulation of Spontaneous Intestinal Tumorigenesis Through the Adaptor Protein MyD88. Science 317: 124-127.
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SignPath believes inhibition of these critical intracellular survival pathways are good targets for drug development, and our management believes that curcumin is an attractive lead compound for further development due to its inhibition of major survival pathways and collateral effects of activating death pathways. It also prohibits inflammation and release of inflammatory cytokines such as tumor necrosis factor-ά (alpha), inflammatory cells such as macrophages which are required for the development and spread of tumors. Recently it has been shown that activation of NF-kB (an intracellular protein) is a critical component in cellular responses to TOLL-receptor ligands (receptors that activate immune cell responses) and Interleukin-1 (a cytokine). The latter are implicated in the innate immune response promoting murine hepatocellular and colon carcinoma.10 One of the established effects of curcumin is to inhibit NF-kB and subsequent TOLL-receptor ligand activity. Scientific studies have suggested that a drug that can inhibit these activated survival and inflammatory pathways should be able to stop the growth of cancer cells. Blocking inhibitors of death pathways are believed to shorten the cell’s ability to survive.11
Liposome Encapsulation12
SignPath is developing the liposomal version: a phospholipid coating that encases the molecule. This increases solubility in serum, and may increase the drug’s circulation time allowing more drug to reach tumor sites.
Mechanism of Action
Curcumin’s molecular mechanisms of action involve direct and indirect inhibition or activation of multiple biochemical targets in cells. These include genes, enzymes, proteins, and, particularly, many components of up-regulated cell survival and down-regulated cell death pathways. These activities result in decreased inflammatory and/or oxidative damage, decreased migration, proliferation and invasion of tumor cells, decreased radio- and chemoresistance, and increased chemosensitivity to cytotoxic drugs. These observations suggest the potential to treat several diseases with large potential markets, with an economically feasible product.
Cancer: Less than 1% of an oral dose of curcumin is absorbed; yet in spite of this extreme limitation, there are publications that suggest preventative anti-cancer activity of orally administered curcumin.13 More substantial evidence for anticancer activity is suggested from in vitro and animal experiments. Its anticancer effects include promoting apoptosis (cell death pathways) and down regulation of major pro-survival factors, including AKT, NF-kB, STAT-3, and Survivin signaling pathways. We, therefore, believe that commercial application of parenteral curcumin formulations for cancers which depend upon NF-kB (such as pancreatic cancer) represent prime candidates for Phase II trials assuming successful preclinical and Phase I trials. Many other cancers such as brain tumors are also dependent upon AKT, NF-kB, and survival pathways which may render them additional potential clinical targets.14
Government Regulation
Regulation by governmental authorities in the United States and other countries is a significant hurdle in the development, manufacture and marketing of pharmaceuticals, and in our ongoing research and development activities. All of our products will require regulatory approval by governmental agencies prior to commercialization. In particular, pharmaceutical drugs are subject to rigorous preclinical testing and clinical trials and other pre-marketing approval requirements by the U.S. Food and Drug Administration (“FDA”) and regulatory authorities in other countries. In the United States, various federal, and in some cases, state statutes and regulations also govern or impact upon the manufacturing, safety, labeling, storage, record-keeping and marketing of pharmaceutical products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations, require the expenditure of substantial resources.
10 See footnote 2 above.
11 See footnote 8 above.
12 [Intentionally left blank]
13 See footnote 2 above.
14 See footnote 1 above.
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Regulatory approval, when obtained for any of our product candidates may be limited in scope which may significantly restrict the indicated uses for which our product candidates may be marketed. Further, approved drugs and manufacturers are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on their manufacture, sale or use or in their withdrawal from the market.
FDA Approval & Developmental Milestones
There are four primary phases of FDA clinical trials for an FDA new drug application (NDA) and approval for commercial sale. Before these can begin, non-clinical/pre-clinical laboratory studies are conducted and an Investigational New Drug application (IND) is submitted to the FDA. After FDA approval, the Company may begin Phase I clinical safety and dosage estimation studies, followed by Phase II studies to evaluated clinical efficacy in selected diseases, then Phase III testing to demonstrate statistically significant safety and efficacy and Phase IV pharmacovigilence designed to identify long-term effects of treatment.
During the pre-clinical phase (non-clinical and pre-clinical), a compound is studied in-vitro in a laboratory and in-vivo in laboratory animals to establish its stability, manufacturing feasibility, bioavailability, absorption, distribution, metabolism and elimination. This phase of testing establishes pre-clinical parameters for clinical safety and efficacy. Results of these pre-clinical trials comprise the IND that is submitted to the FDA for review before the drug is tested in humans. Phase I testing is a basic safety and dosage study to determine if the drug is safe enough to administer to patients with advanced diseases such as pancreatic cancers, lymphomas and brain tumors.
During the initial Phase I, the drug must be tested in healthy human volunteers to determine a tolerable dosage regimen that is sufficiently safe to proceed with further testing in a larger group of diseased patients. Testing in disease-free volunteers can supply accurate estimates of safety and tolerability for application in persons with non-cancer indications, while testing in patients with pre-treated cancers designated Phase Ib can indicate different degrees of tolerance depending upon their past medical history.
In Phase II studies, the drug is tested in small number of patients with benign and/or malignant forms of disease to determine the doses at which the drug has clinical activity and to characterize the drug’s effects on the body. These effects include the drug’s dosage, efficacy, and side effect profiles.
Drugs that have a clinical benefit in Phase II trials move forward to additional clinical testing with a larger number of patients in Phase III trials. These trials verify Phase II results in a larger patient sample and must demonstrate statistically significant clinical benefits, as well as safety. Trial endpoints are designed to show a meaningful clinical effect over a predetermined timeframe. These timeframes depend on the disease being tested and can be in weeks, months, or years of treatment.
The drug being tested is compared with the current standard of treatment to show that the drug is equal to (or an improvement upon) existing treatments or combined with the standard of care in a Phase II study using Simon’s two stage design. Once those studies have been completed, and following a phase III trial, a new drug application (NDA) is prepared and submitted to the FDA for approval. Under FDA guidelines, the NDA should be answered within 10 months. At such time, the FDA may inform the Company that a drug is approved or the application is approvable pending resolution of certain issues, or may require additional studies to be completed for approval.
Other Regulatory Requirements
Any products that are manufactured or distributed under FDA approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP regulations which impose procedural and documentation requirements. Before approving a biologics license application, the FDA will inspect the facilities at which the product is manufactured (including both those of the applicant and any third-party component manufacturers) and will not approve the product unless the manufacturing facilities are in compliance with FDA’s cGMP, which are regulations that govern the manufacture, storage and distribution of a product. Manufacturers of biologics also must comply with FDA’s general biological product standards.
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Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the cGMP regulations. We must ensure that any third-party manufacturers continue to expend time, money and effort in the areas of production, quality control, record keeping and reporting to ensure full compliance with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.
The FDA also closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use.
The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of product candidates or approval of new indications for our existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the United States or abroad.
In addition, the labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and U.S. Federal Trade Commission (“FTC”) requirements which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing the Company to correct deviations from regulatory standards and enforcement actions that can include seizures, injunctions and criminal prosecution.
Other Uses of Curcumin
There are other potential uses of curcumin in addition to our initial focus on lung cancer and brain tumors. Following our clinical trials in these two categories, we will seek to study other cancer candidates which have an AKT or NF-kB requirement for survival and proliferation, such as breast and brain cancers. The unique protean activity of curcumin also suggests its use with other cancer treatment modalities. For example, it may increase tumor cell susceptibility to standard treatment with radiation or chemotherapy, and prevent adverse reactions from other drugs used to treat non-cancer conditions.
Because of the protean nature of curcumin’s interaction with different cell components, and based upon data derived from traditional use and non-clinical and pre-clinical laboratory studies, we believe it may have a therapeutic role in numerous non-cancer indications, including neurologic disorders and immunologic disorders.
To expand its use for Parkinson’s disease, a research grant was received for approximately $82,000 from the Michael J. Fox Parkinson’s Disease Foundation to measure parenteral liposomal curcumin and the other two formulations passage across the blood brain barrier and focal cerebral distributions in rat brains in collaboration with Dr. S. Chiu at the Department of Pharmacology and Toxicology, University of Western Ontario, Canada. Data, to date, has revealed intravenous curcumin localized in specific brain regions associated with Parkinson’s disease (striatum and substantial nigra pars compacta) and memory processing (hippocampus). In a subsequent study based upon these data an intravenous liposomal curcumin formulation was effective in blocking progression of brain neuronal death in DJ-1 knockout rats (genetically designed to develop early Parkinson’s disease signs and symptoms). Metabolomic analyses of Parkinson’s-related brain domains in these same rats has been completed and showed significant and specific effects related to amelioration of the disease. These observations indicate that curcumin may be effective in patients with Parkinson’s disease and potentially in other neurologic disorders, such as trauma brain injury, and post-traumatic stress disorder. The Company’s liposomal curcumin has demonstrated efficacy against human tumor xenografts in mice. During IND pre-clinical toxicity trials in dogs, with liposomal curcumin, a dose-dependent hemolysis was observed. It suggested specific dose/schedules of administrations might be required for trials in humans. Follow up studies included in vitro testing of curcumin with human red blood cells revealed the concentrations of curcumin inducing hemolysis were greater than that necessary to mitigate tumors. A patent for preventing this activity has been issued.
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Clinical Trials
The Company submitted an IMPD to begin human Phase Ia clinical trials in Europe. Regulatory clearance was received in July 2011, and the first subjects were started on August 22, 2011. The clinical trials for liposomal curcumin use curcumin formulations made under GMP conditions by Polymun GmbH. As described below, the Company entered into agreements with manufacturers of curcumin, liposomal curcumin, and polymers to produce sufficient quantities to complete all pre-clinical requirements for a clinical dossier. Agreements for additional quantities of both formulations for Phase II clinical trials will be initiated depending upon human dosage estimates generated in current clinical studies. The Company plans to pursue Phase II liposomal curcumin parenteral trials in cancer and one in Parkinson’s disease patients.
We have had discussions regarding participation in Phase Ib and II clinical trials during direct meetings with responsible physician investigators with the Central European Society for Anticancer Research (CESAR) and at cancer centers in the United States. All have had extensive experience with drug trials of anticancer drugs and are willing to participate in the proposed clinical studies.
These investigators include:
| ● | New York Medical College, Dr. T. Ahmad has had extensive experience as a Phase I, II, and III clinical trial investigator. |
| ● | In Vienna, Austria, Dr. Michael Wolzt is in charge of Phase Ia clinical trials in normal volunteers. Our CEO inspected Dr. Wolzt’s facilities in December 2007. To date subjects have been entered into the clinical Phase Ia study of liposomal curcumin and a dose of 4.5 mg/kg was found to induce less than grade 1 hemolytic toxicity, and to reach blood concentrations that we estimate are within a therapeutic range. |
| ● | Phase Ib trials in cancer patients are being carried out by the CESAR group, and these data will be used to bridge studies in the United States. |
| ● | Phase Ib trials will be cancer patients who have failed standard of care therapy and elected experimental therapy. |
| ● | Provided that the safety results of Phase Ib trials in cancer patients are satisfactory and with FDA and EMA approvals, the Company anticipates the following Phase II trials: |
| ● | Liposomal curcumin (cancer): Intravenous administration to lung cancer patients who fail standard therapy, and glioblastoma patients who fail standard therapy |
| ● | Liposomal curcumin (neurologic): intravenous administration to patients with Parkinson’s disease who have progressed on standard therapy. |
Market Analysis
The anticipated markets for therapeutic curcumin include populations with unmet medical needs, or as combinations with established drugs to enhance their activity in the presence of drug resistance. The preclinical studies of curcumin in cancer suggest its potential applications as a parenteral drug for both prophylaxis and therapy.
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Given the aging of the population with an annual increment in the number of prospective patients in chronic disease categories, the Company believes a potentially effective and tolerable parenteral curcumin could gain wide acceptance and usage.
As stated earlier, the Company is aware of pre-clinical data from other research suggesting that parenteral curcumin has anti-cancer activity.15
The new cases of cancer in the United States in 2015 were estimated at approximately 1,660,000 per year, according to the American Cancer Society, Inc. Surveillance Research. This is a large market with substantial room for improvement over current therapies.
Potential Commercialization of Liposomal Curcumin may also prove to be effective as prevention for high-risk individuals and as a therapeutic for established disease when used alone or in combination with other agents. As an initial approach we anticipate treating diseases with unmet needs. These include lung cancer and Parkinson’s disease. While there are current clinical trials with oral preparation of curcumin, we currently know of no competitors with publicly known plans to develop parenteral forms of curcumin. Management believes that the Company is positioned to leverage its rights to its licensed intellectual property of these parenteral products in the United States and worldwide. Because the liposomal formulation and curcumin in turmeric extracts have been demonstrated by other researchers to be effective in animal studies,16 we anticipate that synthesized curcumin could be more effective than the extract from turmeric when administered parenterally.
Assuming we obtain positive results from our clinical trials and ultimately receive FDA approval, the Company believes that these formulations of curcumin may be accepted by physicians for treating cancer and other diseases that fit within the efficacy profiles established by the Company.
Modification of water-insoluble drugs such as curcumin with specific liposomes represent a novel formulation process. There may be specific pharmacological advantages which could confer clinical and/or commercial value. The final cost of drug production will depend upon usage and economies of scale; however, we intend to adopt a strategy, if possible, to result in our products having a cost competitive with current medications for the intended applications.
The Company also expects to evaluate conducting potential additional development initiatives based on its licensed curcumin formulation to treat patients with neurologic diseases depending upon the results of the Phase Ib trials, clinical imperatives, and financial resources to carry them out.
Clinical application of parenteral administration of liposomal curcumin may induce varied responses in the same disease or in different disease states. In addition, we anticipate different development and manufacturing costs, and ultimately different commercial remuneration in the different applications. These variations are attributed to demographic differences in applications such as pancreatic cancer and lymphoma.
The Company entered into a Liposomal Formulation Manufacturing Agreement, as amended, with Polymun Scientific Immunbiologische Forschung GmbH (“Polymun”), Vienna, Austria, dated as of September 6, 2007, which has been filed as an exhibit to the Company’s SEC filings. Pursuant to this agreement, Polymun applies their GLP process and experience to encapsulate pure synthetic curcumin provided by the Company with a layer of lipid particles (making a liposome formulation which can be injected intravenously). After testing for size, and stability, Polymun delivered the liposomal curcumin to the MD Anderson Cancer Center for intravenous animal Potential Commercialization of Liposomal Curcumin toxicity testing. During this developmental process they have invented and developed a special assay to simultaneously quantify the content of lipids and curcumin in all batches they prepare. Polymun completed scaled-up GMP manufacture of the lipocurc formulation. The Company’s obligation to Polymun totaled €280,000 (approximately $319,000) through the first two development stages and thereafter a €130,000 (approximately $148,000) per production fee. In August 2012, the Company entered into Amendment No. III with Polymun for the production of additional GDP batches of liposomes and the parties continue to work under the terms of the original agreement. Polymun has produced liposomal curcumin for animal and human use.
15 See footnote 8 above.
16 See footnote 8 above.
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Since liposomal curcumin is at an advanced stage of development and has completed EMA and IND requirements, the Company’s interest is to proceed with that product in its Phase Ib-II clinical studies.
Raw Materials; Supplies
Liposomal curcumin was manufactured for the Company by Polymun, Inc., of Vienna, Austria under the agreement described in the prior section. Curcumin was obtained initially from a U.S. chemical supplier, Sigma Aldrich Fine Chemicals (“SAFC”). The Company obtained one batch of 200 grams of GMP manufactured liposomal curcumin under an agreement dated June 30, 2007 with SAFC. The total cost to the Company was $98,350. Sabinsa Inc. subsequently scaled-up manufacture of 98.2% pure curcumin under GMP for human use in Bangalore, India. FDA and EMA (European Medicines Agency) compliance and validations audits relating to the curcumin manufacturing facility in India were performed by Topaz Technology, Inc. of Bryn Mawr, PA under an agreement with the Company dated June 30, 2009, at a total cost of $24,500 which has been paid. Analysis of the 0.1% residue was completed at Chemic Labs, Massachusetts. The Company’s supply from Sabinsa was made pursuant to purchase orders without a contract. There are very stringent new regulations concerning GMP by the EMA and the FDA.
At UTMDCC, GLP pharmacokinetic and toxicity studies of single and multi-dose intravenous liposomal curcumin in mice and rats were without evidence of toxicity at a maximal injectable volume. Dog pharmacokinetics and single ascending dose toxicity studies identified reversible hemolysis at a maximum tolerated dose (MTD) and irreversible hemolysis at a significantly higher dose limiting level. In vitro studies with dog and human RBCs corroborated these observations using annexin V biomarker (a biochemical feature used to measure the progress of diseases or the effects of treatment), and a second independent set of studies at Xenometrics, USA indicated hemolytic sensitivity only at multiples of concentrations above those necessary for therapeutic effect. Multidose toxicological canine studies were completed at Nucro Technics, Canada based upon these studies, and were devoid of tissue toxicity. Body tissue distribution of liposomal curcumin and repeat pharmacokinetic studies of two hour and eight hour infusions were analyzed with a novel validated (patent applied) method for drug levels.
Intellectual Property
The Company has rights to three issued patents relating to liposomal curcumin entitled: Intravenous Infusion of Curcumin and a Calcium Channel Blocker; Liposomal Curcumin for Treatment of Diseases; and Intravenous Infusion of Curcumin and a Calcium Channel Blocker. The Company has one issued patent relating to mitigation of drug-induced hearth arrhythmia, entitled: Liposomal Mitigation of Drug-Induced Long QT Syndrome and Potassium Delayed-Rectifier Current.
The Company has various pending patents relating to curcumin and cardiac arrhythmia mitigation.
Internet domains have been established for Signpathpharma.com. The trademark Lipocurc (February 16, 2011) has been registered.
Research
The Company currently outsources all of its preclinical research. This research is or has been performed at a number of universities including with experienced investigators at Johns Hopkins University, MD Anderson Cancer Center, Univ., North Texas Health Science Center, U. Vienna, Austria, A.I. Dupont Hospital, DE Bostyr Univ. CA, N.Y. Medical College, N.Y. State Medical school at Buffalo. In addition, research is also performed at a number of private corporations with which the Company has relationships, including Dalton Inc. for stability testing and drug storage; Nucro Technics for analysis of human tissue samples, and animal toxicological studies; IPS -Therapeutics for hERG assays; Sabinsa Inc./Sami Labs. for curcumin manufacture and Sorosa product; Polymun GmbH for liposomal formulation manufacture; Chemic Inc. for analytics of the API; Clinipace for regulatory in the USA; Dr Heinz and Partner CRO in Europe; Schiff &Co for CRO (for Phase II) in the USA and Central European Society for Anticancer Research (CESAR) for Phase Ib -II clinical trials in the EU.
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Agreement with University of Texas MD Anderson Cancer Center
The above described patent for liposomal curcumin was issued on June 28, 2011. It was submitted in 2005 by the University of Texas MD Anderson Cancer Center (the “UTMDACC”) with the title “Liposomal Curcumin for Treatment of Cancer.” On February 21, 2007, SignPath, the UTMDACC and the Board of Regents of the University of Texas System (the “Board”) entered into an exclusive license for this pending patent (the “UTMDACC License Agreement”). Pursuant to the UTMDACC License Agreement, SignPath has a royalty-bearing exclusive, worldwide license to manufacture, use, import and sell for human and animal use inventions and discoveries covered by the issued patent and associated technologies. SignPath may sublicense its rights under the UTMDACC License Agreement.
SignPath has agreed to pay all of UTMDACC’s reasonable out-of-pocket expenses of filing, prosecuting, enforcing and maintaining its patent rights. In addition, SignPath is obligated to pay a $15,000 license documentation fee and an annual maintenance fee of $10,000 for the first seven years of the UTMDACC License Agreement. If a patent is issued during the first seven years of the license, this annual fee will increase to $15,000. After the seventh anniversary of the UTMDACC License Agreement, the annual fee will increase to $30,000 a year.
In addition, 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.
The Company will also be responsible for the following milestone payments upon the occurrence of specified events. These consist of: (1) $10,000 upon dosing the first patent with a licensed product in a Phase I Study; (2) $25,000 upon dosing the first patient within a licensed product in a Phase II study; (3) $50,000 upon dosing the first patient with a licensed product in a Phase III Study, or $40,000 if no patent has issued when this milestone is achieved; (4) $400,000 upon the first regulatory approval of a licensed product, or $200,000 if no patent has issued and (5) $15,000 upon issuance of a patent. The Company expects to fund the milestone payments when they come due from the private placement of equity securities to the extent funds are available. Further the Company has agreed to provide a minimum of $250,000 in funding for the completion of pre-clinical studies subject to completion of final reports.
The UTMDACC License Agreement survives for the period that patent rights covering the licensed intellectual property are in place, or if no patent rights are issued, 15 years with an automatic extension of 15 years upon regulatory approval of a licensed product. UTMDACC and/or the Board has the right to terminate the agreement in any jurisdiction if SignPath fails to cure within 90 days of receipt of written notice its failure to commercialize and actively attempt to commercialize sales in such jurisdiction. The UTMDACC License Agreement is terminable by UTMDACC upon 30 days’ written notice if SignPath fails to cure a breach of payment and/or fails to fund completion of pre-clinical studies or file an IND or upon 90 days’ written notice for any other breach of contract.
Agreement Relating to SPP4040
On December 23, 2015, the Company entered into an agreement with Annie Bouchard, a co-inventor of the SPP4040 drug candidate under development. In the Agreement, Ms. Bouchard agreed to assign all patent rights relating to cardiac arrhythmia mitigation drugs to SignPath and continue collaborations with SignPath regarding future development of cardiac arrhythmia therapies. In return, Ms. Bouchard is entitled to one third of any future profits earned from these cardiac arrhythmia therapies.
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Employees
The Company currently has two employees, Dr. Lawrence Helson, its Chief Executive Officer, and Kai Larson its Chief Operating Officer. The Company expects to continue to use subcontractors and independent consultants and will hire a business development director when funds are available.
Publications/Presentations: SignPath Pharma Curcumin Formulations
The Company has various publications available on the Company’s website, see www.signpathpharma.com.
An investment in the Company is speculative, involves a high degree of risk and should only be purchased by persons who can afford to lose their entire investment. Prospective investors should carefully consider, among other things, the following risk factors relating to the business of the Company.
Risks Related to Our Company
History of significant losses and risk of losing entire investment.
The Company’s financial statements reflect that it has incurred significant losses since inception, including net losses of $1,634,990 and $2,748,190 for the years ended December 31, 2015, and 2014, respectively. The Company expects to continue to have losses and negative cash flows for the foreseeable future, and it is possible that the Company may never reach profitability. Therefore, there is a significant risk that public investors may lose some or all of their investment.
Our financial statements have been prepared assuming that the Company will continue as a going concern.
Our audited financial statements for the fiscal year ended December 31, 2015 have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements for the period ended December 31, 2015, 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. Given the Company’s current stage of development, it is unlikely that the Company will become profitable in the foreseeable future. Our independent registered public accounting firm has included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report for the fiscal year ended December 31, 2015. If we are unable to raise additional capital or borrow money we will not be able to complete our existing clinical trials, or initiate other clinical trials with our drug candidates. If that were to occur the Company would be forced to suspend or terminate operations and, in all likelihood cause investors to lose their entire investment. During Fiscal 2014, we raised $1,940,000 of gross proceeds, and in Fiscal 2015 we raised $2,039,076 in gross proceeds, all, excluding offering costs, which has allowed us to continue operations.
We are a development stage company, making it difficult for you to evaluate our business and your investment.
We are in the development stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including:
| ● | the absence of an operating history; | |
| ● | the lack of commercialized products; | |
| ● | reliance on third parties for the development and commercialization of some of our proposed products; | |
| ● | uncertain market acceptance of our proposed products; and | |
| ● | reliance on our founder Dr. Lawrence Helson. |
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Because we are subject to these risks, you may have a difficult time evaluating our business and your purchase of our securities.
No revenue for the foreseeable future, with substantial losses and no guarantee of profitability.
At this stage of its growth cycle, the Company has a limited operating history and no revenues, products ready for market (with the exception of an advertisement to sell liposomal curcumin for restricted animal research), customers or marketing resources.
As a development stage company, the Company has a limited relevant operating history upon which an evaluation of its prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in the evolving and heavily-regulated pharmaceuticals industry, which is characterized by an ever-increasing number of market entrants, intense competition and high failure rate. In addition, significant challenges are often encountered in shifting from developmental to commercial activities.
In addition, we are subject to many business risks, including but not limited to, unforeseen capital requirements, failure of market acceptance, failure to establish business relationships, and competitive disadvantages against larger and more established companies. In addition, there can be no assurance that the Company will ever be able to generate revenues or, if the Company generates revenues, that it will ever be profitable, or that the Company will be able to obtain sufficient additional funds to continue its planned activities. Therefore, prospective investors may lose all or a portion of their investment. The Company does not anticipate that it will have any revenues for the foreseeable future.
Concentration of ownership by a Founder and its affiliates raises a potential conflict of interest between the Company, a Founder and certain of their employees.
Bruce Meyers, a Founder of the Company and CEO of Meyers Associates, the Company’s Placement Agent, is the General Partner of Meyers Investments Family Limited Partnership, which, together with affiliates of Bruce Meyers, owns 4,914,665 shares of the 25,741,541 (19.1%) outstanding voting securities. In addition, Imtiaz Khan, Vice President of Meyers Associates, owns 2,450,000 shares of common stock (or 9.8% of the voting securities.) This concentration of ownership may not be in the best interests of the Company’s other stockholders and Meyers Associates may be subject to potential conflicts of interest. As the Company’s largest shareholder, these conflicts of interest include Mr. Meyers and affiliates being in a position to elect the Company’s Board of Director which may (i) vote to take the Company in a direction different from that of Management; (ii) approve extraordinary corporate transactions including the merger or consolidation of the Company or the sale of the Company’s assets to an entity including one related to Mr. Meyers; (iii) approve transactions with a short term return to Mr. Meyers, as opposed to waiting for transactions in the long-term best interests of the Company’ and (iv) approve transactions with a relation to Mr. Meyers, as opposed to negotiating with non-affiliated third parties. As a result of Meyers Associates’ ownership of the Company, it is likely that in the event the Company becomes a publicly-traded company, the Placement Agent would not be able to serve as a market maker in the Company’s common stock. To date, Meyers Associates, L.P. has not made a market for the Company’s securities in the marketplace, nor has it submitted quotations on an interdealer quotation system for the Company’s common stock in the past or is currently doing so. See “Principal Stockholders.”
The Company does not have the financial resources necessary to successfully complete development and market any drug products.
As of December 31, 2015, the Company had $692,480 cash on hand. These funds are expected to be sufficient to complete the ongoing Phase Ib clinical trial in Europe. However, in order to complete product development and marketing, the Company will need to attract sufficient additional capital. Even if the Company does find such financing, it may be on terms that are unfavorable or dilutive, to owners of the Company’s equity securities.
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Our drug development program will require substantial additional capital to successfully complete it, arising from costs to:
| ● | complete research, preclinical testing and human studies; | |
| ● | establish pilot scale and commercial scale manufacturing processes; and | |
| ● | establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. |
Our future operating and capital needs will depend on many factors, including:
| ● | the pace of scientific progress in our research and development programs and the magnitude of these programs; | |
| ● | the scope and results of preclinical testing and human studies; | |
| ● | the time and costs involved in obtaining regulatory approvals; | |
| ● | the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; | |
| ● | competing technological and market developments; | |
| ● | our ability to establish additional collaborations; | |
| ● | changes in our existing collaborations; | |
| ● | the cost of manufacturing scale-up; and | |
| ● | the effectiveness of our commercialization activities. |
We base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include regulatory approvals, the timing of events outside our direct control such as negotiations with potential strategic partners and other factors. Any of these uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt of major milestones and other payments.
We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital, when required, or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or the commercialization of one or more of our product candidates. Accordingly, any failure to raise adequate capital in a timely manner would have a material adverse effect on our business, operating results, financial condition and future growth prospects.
Additional funds are required to support our operations but we may be unable to obtain them on favorable terms, we would be required to cease or reduce further development or commercialization of our potential products.
We may need to increase the size of our organization, and we may experience difficulties in managing growth.
We are a small company with two full-time employees, our CEO and COO, as of the date of this report. To conduct our clinical trials and commercialize our product candidates, we may need to expand our employee base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.
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The Company’s success is highly dependent on attracting and retaining key scientific and management personnel, but the Company may be unable to do so.
The Company’s future depends on the service of its scientific and management teams and other key personnel. The Company may be unable to attract highly qualified personnel, especially if it is unable to demonstrate to those individuals that it has sufficient funding to adequately compensate them either through current cash salary or with equity that could eventually have substantial value. If the Company is unable to attract highly qualified individuals, the Company may be unable to continue development or commercialization efforts of its proposed products which would have a material adverse effect on the Company’s operations.
Risks Related to Our Business
We have no experience in manufacturing, sales, marketing or distribution capabilities.
The Company has no experience in manufacturing, selling, marketing or distributing any formulations of curcumin or any other product. The Company has outsourced production of raw materials for production of liposomal curcumin and will outsource production of good manufacturing practice (“GMP”) grade of liposomal curcumin and nanocurcumin to commercial facilities. There can be no assurance that the Company will be able successfully to sell, market, commercialize or distribute any formulation of curcumin or any other products at any time in the future.
If we lose the services of our Chief Executive Officer, our operations would be disrupted and our business could be harmed.
Our business plan relies significantly on the continued services of our CEO, Dr. Lawrence Helson, age 84. If we were to lose his services, including through death or disability, our ability to continue to execute our business plan would be materially impaired. While we have entered into an employment agreement with Dr. Helson, the agreement would not prevent him from terminating his employment with us. Dr. Helson has not indicated he intends to leave the Company, and we are not currently aware of any facts or circumstances that suggest he might leave us. In the event that Dr. Helson is unable to fulfill his duties for any reason, the Company has adopted a contingency plan setting forth a recommended plan for the governance and operations of the Company. See “Item 10. Directors, Executive Officers and Corporate Governance.”
We are devoting our efforts to a limited number of product candidates, and there is no assurance of product success.
The Company is an early stage biopharmaceutical company and, since its inception, has focused mainly on research and development. There can be no assurance that the Company will ever successfully develop liposomal curcumin, SPP4040, or any product whatsoever, or obtain FDA approval for any product.
Our liposomal curcumin formulation will require extensive additional development, including human studies, as well as regulatory approvals, before we can commercialize and market it. Our SPP4040 drug candidate will require extensive preclinical testing before we can begin human studies. We cannot predict if or when any of the product candidates we are developing will be approved for marketing. There are many reasons that we may fail in our efforts to develop our potential products, including the possibility that:
| ● | human studies may show that our potential products are ineffective or cause harmful side effects; | |
| ● | the products may fail to receive necessary regulatory approvals from the FDA in a timely manner, or at all; | |
| ● | the products, if approved, may not be produced in commercial quantities or at reasonable costs; | |
| ● | the potential products, once approved, may not achieve commercial acceptance; | |
| ● | regulatory or governmental authorities may apply restrictions to our potential products, which could adversely affect their commercial success; or | |
| ● | the proprietary rights of other parties may prevent us from marketing our potential products. |
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Given our limited focus on three product candidates, if these product candidates do not prove successful in clinical trials, and are not approved or are not commercialized because we have insufficient resources for continued development or for any other reason, we may be required to suspend or discontinue our operations and our business could be materially harmed.
SignPath partially depends on intellectual property licensed from third parties which it may not be able to maintain, however has submitted additional patent applications affording broad protection.
The Company’s liposomal curcumin development strategy depends on developing products based on intellectual property licensed from The University of Texas MD Anderson Cancer Center (“UTMDACC”.) The Company currently does not have sufficient resources to make payments, which it may be required to make to UTMDACC, nor can there be any assurance that the Company will be able to make such payments in the future.
The Company’s exclusive license with UTMDACC is for the life of patent rights or, if no patent rights are issued, for up to 30 years; however, is terminable upon 30 days’ written notice if the Company fails to cure a breach of payment or funding requirement, or upon up to 90 days’ written notice for any other breach of contract by the Company.
Additional patents and pending patent applications filed by third parties, if issued, may cover aspects of products the Company intends to develop or may develop and test in the future. As a result, the Company may be required to obtain additional licenses from third-party patent holders in order to use, manufacture or sell the Company’s product candidates.
There can be no assurance that the Company’s current arrangements with UTMDACC, Annie Bouchard, or any future arrangements will lead to the development of any products with any commercial potential, that the Company will be able to obtain proprietary rights or licenses for proprietary rights with respect to any technology development in connection with these arrangements or that the Company will be able to ensure the confidentiality of any proprietary rights and information developed with UTMDACC will prevent the public disclosure thereof. The Company is not aware of any litigation, threatened litigation, or challenge to intellectual property, however, once any patents are issued to the Company, we may be subject to future litigation.
There can be no assurance that the Company will be able to maintain its existing license agreements or obtain additional necessary licenses on reasonably acceptable terms or at all. The Company’s inability to maintain its existing licenses or obtain additional licenses on acceptable terms would have a material adverse effect on the Company’s business, financial condition and results of operations.
The US FDA regulatory process is costly, lengthy and requires specific expertise.
The Company will rely initially on consultants and service organizations with prior experience working with the FDA to guide the product through the regulatory process. The Company has utilized Clinipace Inc. to assist the Company in pre-clinical and clinical matters. The process of obtaining regulatory approvals can be extremely costly and time-consuming, and there is no guarantee of success. If the Company does not receive approval of any of its IND applications, it will not be able to proceed with Phase Ib-II clinical testing, in the United States, but has completed an IND, and an EMA approved Phase Ib trial in Austria. In addition, clinical testing is not predictable. Even if the FDA approves an IND application, the Company cannot guarantee that the FDA will approve Phase III clinical results. The Company’s failure to obtain required regulatory approvals would have a material adverse effect on the Company’s business, financial condition and results of operations and could require the Company to curtail or cease its operations.
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Delays in clinical testing could result in increased cost to us and delay our ability to generate revenue.
We may experience delays in clinical testing of our product candidates. We do not know whether planned clinical trials will need to be redesigned or will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable clinical trial terms with prospective sites, in obtaining institutional review board approval to conduct a trial at a prospective site, in recruiting patients to participate in a trial or in obtaining sufficient supplies of clinical trial materials. Many factors affect patient enrollments, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating. Prescribing physicians will also have to decide to use our product candidates over existing experimental drugs that have putative better safety and efficacy profiles. Any delays in completing our clinical trials will increase our cost, slow down our product development and approval process and delay our ability to generate revenue.
We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.
Our clinical trials may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with requirements or that they present an unacceptable safety risk to the clinical trial patients.
The Company has not encountered any material adverse effects in mice or rats with liposomal curcumin. However, studies in humans have been initiated by the Company and an acceptable dose level has been identified, with less than grade I erythroid (RBC) toxicity. Administering any product candidates to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying further developments or approval of our product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials.
If testing of a particular product candidate does not yield successful results, then we will be unable to commercialize that product.
Our product candidates in clinical trials must meet rigorous testing standards. We must demonstrate the safety and efficacy of our potential products through extensive preclinical and clinical testing. Clinical trials are subject to continuing oversight by governmental regulatory authorities, such as the FDA, and the EMA and institutional review boards and must meet the requirements of these authorities in the United States and in Europe including those for informed consent and good clinical practices. We may not be able to comply with these requirements, which could disqualify completed or ongoing clinical trials. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our product candidates, including the following:
| ● | safety and efficacy results from human clinical trials may show the product candidate to be less effective or safe than desired, however, those results may not be replicated in later clinical trials; | |
| ● | the results of preclinical studies may not be indicative of results that will be obtained in human clinical trials; | |
| ● | after reviewing relevant information, including preclinical testing or human clinical trial results, we may abandon or substantially restructure projects that we might previously have believed to be promising; | |
| ● | we and/or the FDA or EMA may suspend or terminate clinical trials if the participating patients are being exposed to unacceptable health risks or for other reasons; and | |
| ● | the effects of our product candidates may not be the desired effects or may include undesirable side effects or other characteristics that interrupt, delay or cause us or the FDA to halt clinical trials or cause the FDA or foreign regulatory authorities to deny approval of the product candidate for any or all target indications. |
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Data from our completed clinical trials, when and if completed, may not be sufficient to support approval by the FDA and the EMA. The clinical trials of our product candidates may not be completed as or when planned, and the FDA or EMA may not approve any of our product candidates for commercial sale. If we fail to demonstrate the safety or efficacy of a product candidate to the satisfaction of the FDA or EMA, this will delay or prevent regulatory approval of that product candidate. Therefore, any delay in obtaining, or inability to obtain, FDA or EMA approval of any of our product candidates could materially harm our business and cause our stock price to decline.
Even if we receive regulatory approval for our product candidates, we will be subject to ongoing significant regulatory obligations and oversight.
If we receive regulatory approval to sell our product candidates, the FDA and foreign regulatory authorities may, nevertheless, impose significant restrictions on the indicated uses or marketing of such products, or impose ongoing requirements for post-approval studies. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Any of these events could harm or prevent sales of the affected products or could substantially increase the costs and expenses of commercializing and marketing these products. In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product, we could face one or more of the following:
| ● | a change in the labeling statements or withdrawal of FDA or other regulatory approval of the product; | |
| ● | a change in the way the product is administered; or | |
| ● | the need to conduct additional clinical trials. |
Discovery after approval of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:
| ● | restrictions on such products’ manufacturers or manufacturing processes; | |
| ● | restrictions on the marketing of a product; | |
| ● | warning letters; | |
| ● | withdrawal of the products from the market; | |
| ● | refusal to approve pending applications or supplements to approved applications that we submit; | |
| ● | recall of products; | |
| ● | fines, restitution or disgorgement of profits or revenue; | |
| ● | suspension or withdrawal of regulatory approvals; | |
| ● | refusal to permit the import or export of our products; | |
| ● | product seizure; | |
| ● | injunctions; or | |
| ● | imposition of civil or criminal penalties. |
Our potential products face significant regulatory hurdles prior to commercialization and marketing which could delay or prevent sales; No assurance of FDA approval.
The FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of therapeutic and diagnostic pharmaceutical and biological products through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these requirements typically takes several years or more and varies substantially based upon the type, complexity and novelty of the product. The regulatory review may result in extensive delay in the regulatory approval process. Regulatory requirements ultimately imposed could adversely affect the Company’s ability to clinically test, manufacture or market potential products. Government regulation also applies to the manufacture of pharmaceutical and biological products.
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Before we obtain the approvals necessary to sell any of our potential products, we must show through preclinical studies and human testing that each potential product is safe and effective. Failure to show any potential product’s safety and effectiveness would delay or prevent regulatory approval of the product and could adversely affect our business. The clinical trials process is complex and uncertain. The results of preclinical studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may not demonstrate a potential product’s safety and effectiveness to the satisfaction of the regulatory authorities. A number of companies have suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials.
The rate at which we complete our clinical trials depends on many factors, including our ability to obtain adequate supplies of the potential products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites and the eligibility criteria for the trial. Delays in patient enrollment may result in increased costs and longer development times. In addition, under our license agreement with UTMDACC the university has certain rights to control product development and clinical programs for products developed under the collaborations. As a result, the university may conduct these programs more slowly or in a different manner than we had expected. Even if clinical trials are completed, we still may not apply for FDA approval in a timely manner or the FDA still may not grant approval.
Competition in the biotechnology and pharmaceutical industries is intense, and if SignPath fails to compete effectively its financial results will suffer.
SignPath’s business environment is characterized by extensive research efforts, rapid developments and intense competition. Its competitors may have or may develop superior technologies or approaches to the development of competing products, which may provide them with competitive advantages. The Company’s potential curcumin product candidates may not compete successfully. The Company believes that successful competition in its industry depends on product efficacy, safety, reliability, availability, timing, scope of regulatory approval, acceptance and price, among other things. Important factors to SignPath’s success also include speed in developing product candidates, completing clinical development and laboratory testing, obtaining regulatory approvals and manufacturing and selling commercial quantities of potential products to the market.
The Company expects competition to increase as technological advances are made and commercial applications broaden. In the event it develops its initial product candidates and any additional product candidates, the Company anticipates it may face substantial competition from pharmaceutical, biotechnology and other companies, universities and research institutions. The Company is aware of other companies and academic groups that focus on cellular signal transduction pathways and are developing specific pathway or related kinase inhibitors. These competitors include Exelixis Inc., Onyx Pharmaceuticals, and several major pharmaceutical companies.
Almost all of the Company’s competitors have substantially greater capital resources, research and development staffs, facilities and experience in conducting clinical trials and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. In addition, some of SignPath’s competitors may achieve product commercialization or patent protection earlier than SignPath achieves commercialization or patent protection, if at all.
If we or our collaborators receive regulatory approvals for our product candidates, some of our products will compete with well-established, FDA-approved therapies that have generated substantial sales over a number of years. In addition, we will face competition based on many different factors, including:
| ● | the safety and effectiveness of our products; | |
| ● | the timing and scope of regulatory approvals for these products; | |
| ● | the availability and cost of manufacturing, marketing and sales capabilities; | |
| ● | the effectiveness of our marketing and sales capabilities; | |
| ● | the price of our products; | |
| ● | the availability and amount of third-party reimbursement; and | |
| ● | the strength of our patent position. |
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We also anticipate that we will face increased competition in the future as new companies enter our target markets and scientific developments surrounding cancer therapies and drugs for treatment of heart arrhythmia conditions continue to accelerate. Competitors may develop more effective or more affordable products, or may achieve patent protection or commercialize products before us or our collaborators. In addition, the health care industry is characterized by rapid technological change. New product introductions, technological advancements, or changes in the standard of care for our target diseases could make some or all of our products obsolete.
The Company may be unable to defend or protect its intellectual property.
The Company intends to protect its intellectual property through patents and trademarks. The patent positions of biotechnology companies generally are highly uncertain and involve complex legal and factual questions that will determine who has the right to develop a particular product or process. As a result, the Company cannot predict which of its patent applications will result in the granting of patents or the timing of the granting of the patents. Additionally, virtually all of the Company’s competitors have significantly greater capital with which to pursue patent litigation. There can be no assurance that the Company would have the resources to defend its patents in the face of a lawsuit.
Further, the Company partially relies on trade secrets, know-how and other proprietary information. The Company seeks to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, there can be no assurance that those agreements will provide adequate protection for the Company’s trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. While the Company is not aware of any challenges to its intellectual property, once any patents are issued to the Company litigation may ensue. There is also the risk that the Company’s employees, consultants, advisors or others will not maintain confidentiality of such trade secrets or proprietary information, or that this information may become known in some other way or be independently developed by the Company’s competitors.
SignPath is exposed to potential product liability risks.
The Company’s business exposes it to potential product liability risks that are inherent in the testing, including testing in human clinical trials, manufacturing, marketing and sale of biotechnology products. There can be no assurance that product liability claims will not be asserted against the Company.
We plan to have product liability insurance covering our clinical trials which we currently believe will be adequate to cover any product liability exposure we may have. Clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance coverage at a reasonable cost to protect us against losses that could have a material adverse effect on our business. An individual may bring a product liability claim against us if one of our products or product candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any product liability claim brought against us, with or without merit, could result in:
| ● | liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available; | |
| ● | increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all; | |
| ● | withdrawal of clinical trial volunteers or patients; | |
| ● | damage to our reputation and the reputation of our products, resulting in lower sales; | |
| ● | regulatory investigations that could require costly recalls or product modifications; | |
| ● | litigation costs; and | |
| ● | the diversion of management’s attention from managing our business. |
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A successful product liability claim or series of claims brought against the Company could have a material adverse effect on the Company’s business, financial condition and results of operation.
The Company may be sued by third parties who claim that its products infringe on their intellectual property rights.
The Company may be exposed to future litigation by third parties based on claims that its patents, products or activities infringe on the intellectual property rights of others or that the Company has misappropriated the trade secrets of others. Any litigation or claims against the Company, whether or not valid, could result in substantial costs, could place a significant strain on the Company’s financial and managerial resources, and could harm the Company’s reputation. In addition, intellectual property litigation or claims could force the Company to do one or more of the following, any of which could have a material adverse effect on the Company or cause the Company to curtail or cease its operations:
| ● | Cease testing, developing, using and/or commercializing products that it may develop; or | |
| ● | Obtain a license from the holder of the infringed intellectual property right, which could also be costly or may not be available on reasonable terms. |
SignPath may be subject to damages resulting from claims that it or its employees have wrongfully used or disclosed alleged trade secrets of their former employers.
The Company’s current employee and/or future employees have been previously employed by other biotechnology or pharmaceutical companies. Although no claims against the Company are currently pending or threatened, the Company may be subject to claims that these employees or the Company 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 SignPath is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If the Company fails in defending such claims, in addition to paying money claims, it may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent its ability to commercialize certain product candidates, which could severely harm SignPath’s business.
Governmental and third-party payors may impose sales and pharmaceutical pricing restrictions or controls on SignPath’s potential products that could limit its future product revenues and adversely affect profitability.
The commercial success of the Company’s potential products is substantially dependent on whether third-party reimbursement is available for the ordering of its products by the medical profession for use by their patients. Medicare, Medicaid, health maintenance organizations and other third-party payors may not cover or provide adequate payment for SignPath’s potential products. They may not view the Company’s potential products as cost-effective and reimbursement may not be available to consumers or may not be sufficient to allow its potential products to be marketed on a competitive basis. Likewise, legislative or regulatory efforts to control or reduce health care costs or reform government health care programs could result in lower prices or rejection of its potential products. Changes in reimbursement policies or health care cost containment initiatives that limit or restrict reimbursement for the Company’s products may cause its revenue to decline.
Rapid technological change could make any products that SignPath eventually develops obsolete.
Biopharmaceutical technologies have undergone rapid and significant change and the Company expects that they will continue to do so. Any compounds, products or processes that SignPath develops may become obsolete or uneconomical before the Company recovers any expenses incurred in connection with their development.
We expect to rely heavily on third party relationships and termination of any of these programs could reduce the financial resources available to us, including research funding and milestone payments.
Our strategy for developing and commercializing many of our potential product candidates, including products aimed at larger markets, includes entering into collaborations with research partners, licensors, licensees and others. These collaborations will provide us with research and development resources for potential products. These agreements also will give our collaborative partners significant discretion when deciding whether or not to pursue any development program. Our collaborations may not be successful. Currently, we have collaborative relationships with UTMDACC, and Annie Bouchard. See “Business – Intellectual Property”.
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In addition, UTMDACC may develop products, either alone or with others, which compete with the types of drugs they currently are developing with us. This would result in less support and increased competition for our programs. If any collaborator breaches or terminates their agreements with us or otherwise fail to conduct their collaborative activities successfully, our product development under these agreements will be delayed or terminated.
We may have disputes in the future with UTMDACC, including disputes concerning who owns the rights to any technology developed. These and other possible disagreements between us and our licensors could delay our ability and the ability of the universities to achieve milestones or our receipt of other payments. In addition, any disagreements could delay, interrupt or terminate the collaborative research, development and commercialization of certain potential products, or could result in litigation or arbitration. The occurrence of any of these problems could be time-consuming and expensive and could adversely affect our business.
In general, collaborative agreements provide that they may be terminated under certain circumstances. There can be no assurance that the Company will be able to extend either of its agreements with the universities upon their termination or expiration, or that the Company will be able to enter into new collaborative agreements with existing or new partners in the future. To the extent the Company chooses not to or is unable to establish any additional third party arrangements, it would require substantially greater capital to undertake research, development and marketing of its proposed products at its own expense. In addition, the Company may encounter significant delays in introducing its proposed products into certain markets or find that the development, manufacture or sale of it proposed products in such markets is adversely affected by the absence of such third party agreements.
We will rely on third parties to supply and manufacture our product candidates, without any direct control over the timing for the supply, production and delivery of our product candidates, thereby possibly adversely affecting any future revenues.
Curcumin was initially obtained from SAFC and subsequently from Sabinsa in Bangalore, India. We will rely exclusively and be dependent on certain third party source suppliers to supply pure synthetic curcumin for our product candidates. Liposomal curcumin is manufactured in Vienna, Austria by Polymun Scientific Immunbiologische Forschung GmbH. We have obtained initial quantities of liposomal curcumin from Sabinsa/Sami Labs, Bangalore, India. See “Business – Potential Commercialization of Liposomal Curcumin; and Raw Materials; Supplies.”
If any of these arrangements terminate, locating additional or replacement suppliers for these materials may take a substantial amount of time. In addition, we may have difficulty obtaining similar supplies from other suppliers that are acceptable to the FDA. If we have to switch to a replacement supplier, we may face additional regulatory delays and the manufacture and delivery of our product candidates could be interrupted for an extended period of time, which may delay completion of our clinical trials or commercialization of our product candidates. As a result, regulatory approval of our product candidates may not be received at all. All these delays could cause delays in commercialization of our product candidates, delays in our ability to generate revenue, and increase our costs.
Further, our contract manufacturers must comply with current Good Manufacturing Practices, or cGMPs, and other government regulations, which may limit the available sources of our needed supplies. The FDA periodically inspects manufacturing facilities, including third parties who manufacture products or active ingredients for us. The FDA may not believe that the chosen manufacturers have sufficient experience making the dosage forms that we have contracted with them to produce, and may subject those manufacturers to increased scrutiny. Pharmaceutical manufacturing facilities must comply with applicable cGMPs, and manufacturers usually must invest substantial funds, time and effort to ensure full compliance with these standards. We will not have control over our contract manufacturers’ compliance with these regulations and standards. Failure to comply with applicable regulatory requirements can result in sanctions, fines, delays or suspensions of approvals, seizures or recalls of products, operating restrictions, manufacturing interruptions, costly corrective actions, injunctions, adverse publicity against us and our products and possible criminal prosecutions.
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We will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.
We will need to retain a third party clinical research organization, or CRO, to implement, provide monitors and manage data for our clinical programs. We and our CRO are required to comply with current Good Clinical Practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. In the future, if we or our CRO fails to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials for products in clinical development comply with GCPs. In addition, our clinical trials must be conducted with products produced under cGMP regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
The Orphan Drug Act may provide a competitor with up to seven years of market exclusivity.
The Orphan Drug Act was created to encourage companies to develop therapies for rare diseases by providing incentives for drug development and commercialization. One of the incentives provided by the act is seven years of market exclusivity for the first product in a class licensed for the treatment of a rare disease. We intend to target indications that would be covered by the Orphan Drug Act, and companies may obtain orphan drug status for therapies that are developed for this indication. In the event that any competitor of ours is first to obtain FDA licensure for a competitive product, we could be prevented from obtaining licensure and marketing our product candidates.
The commercial success of our product candidates will depend upon the degree of market acceptance of these products among physicians, patients, health care payors and the medical community.
Even if a product candidate is approved for sale by the appropriate regulatory authorities, physicians may not prescribe our product candidates, in which case we could not generate revenue or become profitable. Market acceptance by physicians, healthcare payors and patients will depend on a number of factors, including:
| ● | acceptance by physicians and patients of each such product as a safe and effective treatment; | |
| ● | cost effectiveness; | |
| ● | adequate reimbursement by third parties; | |
| ● | potential advantages over alternative treatments; | |
| ● | relative convenience and ease of administration; and |
We are subject to critical accounting policies, and we may interpret or implement required policies incorrectly.
We follow generally accepted accounting principles (GAAP) for the United States in preparing our financial statements. As part of this work, we must make many estimates and judgments about future events. These affect the value of the assets and liabilities, contingent assets and liabilities, and revenue and expenses that we report in our financial statements. We believe these estimates and judgments are reasonable, and we make them in accordance with our accounting policies based on information available at the time. However, actual results could differ from our estimates, and this could require us to record adjustments to expenses or revenues that could be material to our financial position and results of operations in future periods.
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The obligations associated with being a public company require significant resources and management attention, which may divert from our business operations.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will incur significant legal, accounting and other expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a stand-alone public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with this, the second annual report that we are required to file with the Securities and Exchange Commission. In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify additional deficiencies. We may not be able to remediate any future deficiencies imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price.
Risks Related to Our Securities
Anti-Takeover, Limited Liability and Indemnification Provisions
Some provisions of our certificate of incorporation and by-laws may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.
Certificate of Incorporation and By-laws. Under our certificate of incorporation, our Board of Directors may issue additional shares of common or preferred stock. Any additional issuance of common stock could have the effect of impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protects the continuity of our management. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:
| ● | diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, | |
| ● | putting a substantial voting bloc in institutional or other hands that might undertake to support the incumbent Board of Directors, or | |
| ● | effecting an acquisition that might complicate or preclude the takeover. |
Our certificate of incorporation also allows our Board of Directors to fix the number of directors in the bylaws. Cumulative voting in the election of directors is specifically denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender offer or takeover attempt that a stockholder may determine to be in his or its best interest, including attempts that might result in a premium over the market price for the shares held by the stockholders.
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Delaware Anti-Takeover Law. We are subject to the provisions of Section 203 of the Delaware General Corporation Law concerning corporate takeovers. This section prevents many Delaware corporations from engaging in a business combination with any interested stockholder, under specified circumstances. For these purposes, a business combination includes a merger or sale of more than 10% of our assets, and an interested stockholder includes a stockholder who owns 15% or more of our outstanding voting stock, as well as affiliates and associates of these persons. Under these provisions, this type of business combination is prohibited for three years following the date that the stockholder became an interested stockholder unless:
| ● | the transaction in which the stockholder became an interested stockholder is approved by the Board of directors prior to the date the interested stockholder attained that status; | |
| ● | on consummation of the transaction that resulted in the stockholder’s becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction was commenced, excluding those shares owned by persons who are directors and also officers; or | |
| ● | on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Limited Liability and Indemnification. Our certificate of incorporation eliminates the personal liability of our directors for monetary damages arising from a breach of their fiduciary duty as directors to the fullest extent permitted by Delaware law. This limitation does not affect the availability of equitable remedies, such as injunctive relief or rescission. Our certificate of incorporation requires us to indemnify our directors and officers to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law.
Under Delaware law, we may indemnify our directors or officers or other persons who were, are or are threatened to be made a named defendant or respondent in a proceeding because the person is or was our director, officer, employee or agent, if we determine that the person:
| ● | conducted himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity as our director or officer, that his or her conduct was in our best interests, and, in all other cases, that his or her conduct was at least not opposed to our best interests; and | |
| ● | in the case of any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. |
These persons may be indemnified against expenses, including attorney’s fees, judgments, fines, including excise taxes, and amounts paid in settlement, actually and reasonably incurred, by the person in connection with the proceeding. If the person is found liable to the corporation, no indemnification will be made unless the court in which the action was brought determines that the person is fairly and reasonably entitled to indemnity in an amount that the court will establish. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us under the above provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Absence of a public market for the securities offered hereby will lack liquidity.
There is currently no public market for any of the Company’s securities and there can be no assurance that a public market will develop in the future. In the event there is no active trading market for the Company’s securities, an investor may be unable to liquidate an investment in the shares and, therefore, should be prepared to bear the economic risk of an investment in the shares for an indefinite period and to withstand a total loss of investment. Rule 144 promulgated under the Securities Act requires, among other conditions, a six month holding period prior to the resale of securities acquired in a non-public offering without having to satisfy the registration requirements of the Securities Act. In the event we do not have sufficient financial and human resources in the future, we may not be able to fulfill our reporting requirements under the Exchange Act or disseminate to the public any current financial or other information concerning the Company, as required by Rule 144 as one of the conditions of its availability. In such event we will not be absolved from liability for our failure to file these reports.
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If our common stock is traded in the over-the-counter market, which is not a national securities exchange, it may be detrimental to investors
We were previously approved for a listing of our shares of common stock on the OTC Bulletin Board maintained by FINRA, however have no present intention to have our securities publicly traded. Although there is currently no market for our securities, securities traded in the over-the-counter market, as compared to the national securities exchanges, generally have limited trading volume and exhibit a wide spread between the bid/ask quotations. We cannot predict whether a more active market for our common stock will develop in the future. In the absence of an active trading market: investors may have difficulty buying and selling our common stock or obtaining market quotations; market visibility for our common stock may be limited; and a lack of visibility for our common stock may have a depressive effect on the mark price for our common stock.
Preferred Stock as an anti-takeover device
We are authorized to issue an aggregate of 5,000,000 shares of preferred stock, $0.10 par value. As of March 1, 2016, there were, 3,256 shares of Series A Preferred Stock issued and outstanding convertible into approximately 3,832,312 shares of common stock, 2,146 shares of Series B Preferred Stock convertible into approximately 2,525,842 Shares of Common Stock, 5,000 shares of Series C Preferred stock convertible into 4,000,000 shares of Common Stock, and 2,359 shares of Series D Preferred Stock convertible into 1,179,500 shares of Common Stock. The preferred stock may be issued from time to time with such designation, voting and other rights, preferences and limitations as our Board of Directors may determine by resolution. Unless the nature of a particular transaction and applicable status require such approval, the Board of Directors has the authority to issue these shares without stockholder approval subject to approval of the holders of our preferred stock. The issuance of preferred stock may have the effect of delaying or preventing a change in control of the Company without any further action by our stockholders.
Our common stock will be subject to restrictions on sales by broker-dealers and penny stock rules, which may be detrimental to investors.
Our common stock will be subject to Rules 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(a) of the Securities Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock.
Additionally, our common stock will be subject to SEC regulations applicable to “penny stocks.” Penny stocks include any non-exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of a penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.
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A significant number of our shares are eligible for sale, and their sale could depress the market price of our stock.
The Company registered 23,387,488 shares of common stock on behalf of various stockholders of the Company in a registration statement on Form S-1 (File No. 333-198110), which was declared effective by the SEC on March 1, 2015. Sales of a significant number of shares of common stock in the public market pursuant to a current prospectus could harm the market price of our common stock. All of the shares registered under the resale registration statement are free-trading upon resale by the stockholders. As additional shares of our common stock become available for resale if a public market develops, the supply of our common stock will increase, which could decrease its price. Some or all of the shares of our common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect on the market for the shares of our common stock. In general, a non-affiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our common stock all of their shares, subject to the Company being current in its periodic reports filed with the SEC. An affiliate may sell an amount equal to the greater of 1% of the outstanding shares or, if listed on Nasdaq or another national securities exchange, the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated once every three months, and any of the restricted shares may be sold by a non-affiliate without any restriction after they have been held the year.
Investors may experience substantial dilution of their ownership in the future.
Pursuant to the Company’s Stock Option Plan, employees, directors and independent contractors may acquire up to an aggregate of 3,000,000 shares (as amended on September 4, 2015) of the Company’s common stock through the exercise of stock options that may be granted in the future of which 2,115,000 options are issued and outstanding. The Company’s stockholders will incur dilution upon exercise of such options. In addition, as of March 1, 2016, there were currently outstanding Class A, Class B, Class C and Class D warrants to purchase approximately 4,037,018, 2,525,842, 2,000,000 and 294,888 shares of common stock, respectively, and Series A, Series B, Series C and Series D Convertible Preferred Stock convertible into approximately 3,832,312, 2,525,842, 4,000,000 and 1,179,500 shares of Common Stock, respectively, plus placement agent warrants to purchase approximately 3,402,088 shares of common stock and vendor warrants to purchase 800,000 shares of Common Stock. The mere existence of these derivative securities may have a depressive effect on any market for our common stock which may develop.
In addition, if the Company raises additional funds by issuing additional stock in one or more additional financings, further dilution to stockholders will result, and new investors may have rights superior to existing stockholders.
The Company’s officers, directors and principal stockholders may be able to significantly influence matters requiring stockholder approval because they own a large percentage of the Company’s outstanding shares.
The Company’s founder, Bruce Meyers, who is the CEO of Meyers Associates, and Imtiaz Khan, Vice President of Meyers Associates, a FINRA member firm, Dr. Lawrence Helson, CEO of the Company, Dr. Arthur Bollon, Director, and Jack Levine beneficially own 4,914,664, 2,450,000, 2,310,000, 800,000 and 190,000 shares, respectively, an aggregate of 10,664,664 shares or approximately 41.5% of the 25,741,541 outstanding voting securities of the Company as of March 1, 2016. These stockholders will be able to exercise control over substantially all matters requiring approval by the Company’s stockholders, including the election of directors and the approval of significant corporate transactions, which includes their ability to amend the Certificate of Incorporation, approve a merger or consolidation of the Company with another company or approve the sale of substantially all of the assets of the Company without the agreement of minority stockholders. This concentration of ownership may not be in the best interests of all of the Company’s stockholders. See “Item 12. Security Ownership of Certain Beneficial Owners, and Management and Related Stockholder Matters.”
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Meyers Associates, L.P. and its principals are subject to disciplinary proceedings from FINRA in connection with, among other things, previous offerings of the Company’s securities.
Meyers Associates, L.P. (“Meyers”), the Company’s placement agent, as well as Bruce Meyers (“B. Meyers”) and Imtiaz Khan (“Khan”), two of the principals of Meyers (collectively, the “Principals”), are subject to pending disciplinary proceeding from the Financial Industry Regulatory Authority, Inc. (“FINRA”). On October 6, 2014, FINRA filed a complaint (the “Complaint”) alleging, among other things, the violation of certain rules of FINRA and the National Association of Securities Dealers (“NASD”) and federal securities laws in connection with Meyers’ prior offerings of the Company’s securities as well as Meyers’ general operations. The Complaint has nine (9) separate causes of action, which include the following:
1. Unregistered public offerings in contravention of Section 5 of the Securities Act and FINRA Rule 2010, against Meyers and B. Meyers, in connection with the manner that Meyers allegedly solicited prospective investors in the Company’s Series A Offering in violation of the prohibition on general solicitation for private placements;
2.Advertising Violations in violation of NASD Conduct Rule 2210 and FINRA Rule 2010, against Meyers and B. Meyers, in connection with the alleged omission of material information in solicitation material and misleading statements to prospective investors;
Rule 5122 Violation (FINRA Rules 5122 and 2010) against Meyers, in connection with an alleged failure to comply with the rules of a “member private offering” under FINRA Rule 5122 during the Company’s Series B Offering, as Meyers was a control entity because Meyers, B. Meyers, and Khan collectively owned more than 50% of the Company’s outstanding voting securities, including the alleged failure to timely file a private placement memorandum and other solicitation documents with FINRA.
4. Inaccurate Books and Records in violation of Section 17(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and Rules 17a-3, 17a-4, and 17a-5 thereunder, NASD Conduct Rule 3110, and FINRA Rules 4511 and 2010 against Meyers, B. Meyers, and Khan, for alleged failure of B. Meyers and Khan to identify personal expenses that were paid by Meyers and which were not recorded as compensation;
5. Failure to Observe High Standards of Commercial Honor and Just and Equitable Principles of Trade by Falsifying Tax Form W-2 in violation of FINRA Rule 2010 against Meyers, B. Meyers, and Khan, for B. Meyers and Khan allegedly causing Meyers to compensate them, in part, by paying personal expenses which were not properly reported on their Forms W-2;
6. Supervision of the Maintenance of Books and Records in violation of NASD Conduct Rule 3010 and FINRA Rule 2010 against Meyers and B. Meyers, for an alleged failure to establish and maintain a system to supervise the activities of employees and representatives in connection with the recording of payments for B. Meyers and Khan’s expenses;
7. Supervisory Review of Electronic Communications in violation of NASD Conduct Rules 3010 and 2110 and FINRA Rule 2010 against Meyers, for alleged failure to properly supervise and review Meyers’ electronic correspondence and Meyers not having adequate written supervisory procedures with respect to electronic communications.
8. Failure to Report Customer Complaints in violation of NASD Conduct Rules 3070 and 2110 and FINRA Rule 2010 against Meyers, in connection with Meyers’ alleged failure to report various customer complaints to FINRA.
9. Deficient Supervisory Control Procedures in violation of NASD Conduct Rule 3012 and FINRA Rule 2010 against Meyers, in connection with Meyers’ alleged failure to establish, maintain, and enforce reasonable written supervisory control policies and procedures regarding various aspects of the firm’s operations.
FINRA is seeking sanctions which may include a suspension and monetary sanctions under FINRA Rule 8310(a), an order that Meyers and the Principals bear the cost of proceedings under FINRA Rule 8330, as well as specific findings that Meyers willfully committed the alleged violations and violated Exchange Act Section 17, and Rule 17a-3, 17a-4, and 17a-5 thereunder. Meyers and the Principals have answered the Complaint and a hearing was held at which time they contested the enforcement action vigorously. However, if FINRA ultimately prevails in this action, of if Meyers or the Principals admit or concede any of FINRA’s allegations, it could have a material adverse effect on the Company, as the enforcement action could prevent Meyers from helping the Company raise additional funds from investors.
On April 8, 2015, FINRA filed a second complaint (the “Second Complaint”) against Meyers alleging, among other things, the violation of certain rules of FINRA, the NASD and Federal securities law involving Meyers’ failure to supervise the firm’s Chicago Branch Office and a broker, and its failure to establish and implement Anti-Money Laundering (“AML”) policies and procedures reasonably expected to detect and cause the reporting, if appropriate, of potentially suspicious activity relating to the manipulative trading of securities. FINRA is seeking sanctions which may include disgorgement and/or restitution. Meyers has answered the Second Complaint and a hearing was held at which time they contested the enforcement action vigorously.
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Limitations on ability to pay cash dividends.
The Company does not currently expect to pay cash dividends on any of its common stock for the foreseeable future. The ability of the Company to pay dividends on the Company’s common stock will depend upon, among other things, future earnings, if any, the success of the Company’s business activities, capital requirements, the general financial condition of the Company, and general business conditions. There can be no assurance that the Company will ever be in a financial position to declare and pay dividends on the Company’s common stock or that the Board of Directors would otherwise ever declare or pay such a dividend.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company’s executive offices are located at 3477 Corporate Parkway, Suite 100, Center Valley, PA 18034, telephone (215) 538-9996.
As of the date hereof, there are no material legal proceedings pending or threatened to be taken against the Company. SignPath has retained legal counsel to evaluate and advise on our intellectual property and patent strategy.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. PRICE RANGE OF COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information
Our common stock is not publicly traded We were previously approved for trading of our common stock on the Over-The-Counter Bulletin Board (“OTCBB”), which is maintained by the Financial Industry Regulatory Authority, Inc. (“FINRA”), however, do not have a preset intention to commence trading at this point in time.
As of March 21, 2016, there were outstanding: 14,203,887 shares of common stock; 3,256, 2,146, 5,000 and 2,359 shares of Series A, Series B, Series C and Series D Convertible Preferred Stock convertible into approximately 3,832,312, 2,525,842, 4,000,000 and 1,179,500 shares, respectively, of common stock; Class A, Class B, Class C and Class D common stock purchase warrants to purchase approximately 4,037,018, 2,525,842, 2,000,000 and 294,888 shares, respectively, of Common Stock, placement agent warrants to purchase approximately 3,402,088 shares of Common Stock, vendor warrants to purchase 800,000 shares of Common Stock, options to purchase an aggregate of 2,115,000 shares of Common Stock, or an aggregate of approximately 40,692,679 shares of Common Stock.
(b) Holders of Record
As of the date of this Report, there were approximately 60 different holders of record of our common stock, 35 different holders of Series D Preferred Stock, 16 different holders of Series C Preferred Stock, 27 different holders of Series B Preferred Stock, and 47 different holders of Series A Preferred Stock.
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(c) Dividend Policy
We have never declared or paid dividends on our shares of common stock. We currently intend to retain future earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our shares of common stock in the foreseeable future. Any future determination as to the payment of cash dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors including the General Corporation Law of the State of Delaware, which provides that cash dividends are only payable out of retained earnings or if certain minimum rations of assets to liabilities are satisfied. The declaration of cash dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time.
(d) Securities Authorized For Issuance Under Equity Compensation Plans.
Equity Compensation Plan Information
| Plan category | Number of shares of common stock to be issued on exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans. (excluding securities reflected in the previous columns) | |||||||||
| Equity compensation plans approved by security holders (1) | 1,715,000 | $ | 1.53 | 1,285,000 | ||||||||
| Equity compensation plans not approved by security holders | -0- | -0- | -0- | |||||||||
| Total | 1,715,000 | 1,285,000 | ||||||||||
(1) Consists of our 2009 Employee Stock Incentive Plan, which authorized as of December 31, 2015, an aggregate of 3,000,000 options and/or shares of common stock.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
ITEM 7. 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 as well as discussed elsewhere herein.
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Liquidity and Capital Resources
As of December 31, 2015 and 2014, the Company had $692,480 and $716,193, respectively, of cash on hand. The Company had positive working capital of $388,139 at December 31, 2015 compared to $268,194 as of December 31, 2014. SignPath had an accumulated deficit of $15,051,588 as of December 31, 2015.
During the year ended December 31, 2015, SignPath sold 2,039 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, subject to adjustment,) and (ii) Warrants to purchase 125 shares of common stock at $3.00 per share for at any time after issuance and prior to the seventh anniversary of the effective date of a registration statement including the underlying securities (the “Effective Date”). The Company received net proceeds of $1,470,438, this includes the reduction for $249,150 in subscription receivable which was received in January 2016, and stock offering costs of $319,487 related to such offerings paid to a related party, during the year ended December 31, 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 $130,000 per month. Thus, it is expected that the Company currently has sufficient cash on hand to operate through the next 5 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 $681,813 from ($2,175,964) for the year ended December 31, 2014 to ($1,494,151) for the year ended December 31, 2015. The $681,813 decrease is due to a decrease of $5,453 in prepaid expenses, and a decrease in accounts payable of $130,571. This overall decrease is primarily related to the Company’s conscious effort to lower R&D expenses and to focus its R&D expenditures on cancer and cardiac arrhythmia research.
The Company had net cash provided by financing activities of $1,470,438 during the year ended December 31, 2015, as a result of the $2,039,076 received in a Private Placement, reduced by $319,488 of offering costs, and a subscription receivable in the amount of $249,150 at year end compared to cash provided by financing activities for the year ended December 31, 2014 of $1,650,760, a decrease of $180,322 due to less offerings.
As a result of the foregoing, the Company’s cash decreased by $23,713 during the year ended December 31, 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
Year ended December 31, 2015, as compared with year ended December 31, 2014
Total operating expenses decreased by $1,095,347 to $1,646,778 for the year ended December 31, 2015 from $2,742,125 for the year ended December 31, 2014, primarily as a result of research and development decreasing to $754,268 for the year ended December 31, 2015 from $1,927,851 the year ended December 31, 2014, a decrease of $1,173,583. 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 by $135,509 to $208,514 in the 2015 period from $73,005 in the 2014 period. This was due to an increase of stock option expense of $14,285, and an increase of $87,327 in payroll taxes that were due to additional payroll incurred by a bonus to the CEO, and hiring a Chief Operating Officer for the year ended December 31, 2015, offset by a decrease in filing fees of $3,980. Professional fees decreased by $129,657 from $413,953 in the 2014 period to $284,296 in the 2015 period. This large decrease was due to stock issued to the CEO for the year ended December 31, 2014 for services rendered to the Company with no such issuance in the year ended December 31, 2015.
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Research and Development fees for the year ended December 31, 2015, included payments to Cesar, ClinicPace, IPS Therapeutique, Nucro Technology, & Polymun for, $122,397, $41,503, $80,401, $114,973, and $110,209, respectively, for lab fees and other costs related to the Company’s research and development efforts. The Company incurred $173,173 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 $754,268 for the year ended December 31, 2015 from $1,927,851 for year ended December 31, 2014 is a result of drug development decreasing to $557,955 for the 2015 period as compared to $1,672,407 for the 2014 period, a decrease of $1,114,452. 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 in December 2014) decreased to $0 for the 2015 period from $116,966 for the 2014 period, legal fees related to research and development were $173,173 for the 2015 period compared to $128,934, an increase of $44,239, this increase is due to legal fee’s related to patent work on heart arrhythmia developments.
As a result of the foregoing, the Company had a net loss of $1,634,990 the year ended December 31, 2015 as compared to a net loss of $2,748,190 for the year ended December 31, 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 February 19, 2016 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 Company’s proprietary anti-arrhythmia drug candidate, SPP4040, has been shown to prevent drug induced cardiac arrhythmias in animal models. The Company is conducting further research and development relating to controlling cardiac arrhythmia side effects for a broad range of drugs. To date, a lead compound (SPP4040) has been identified, and work is under way to generate the pre-clinical data necessary to initiate clinical trials with this compound.
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Critical Accounting Policies
We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Basis of Presentation
These 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.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to valuation and amortization policies on property and equipment and valuation allowances on deferred income tax losses. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the few air values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.
Revenue Recognition
As of the date of this disclosure, the Company has yet to recognize revenues. As the Company continues to develop and implement its business plan, revenue from the performance of services or sale of products will be recognized in accordance with FASB codification standards. Revenue will be recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is provided, and collectability is assured.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with FASB codification standards. The standard requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using their 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.
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Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted FASB codification regarding the required tax asset benefit computations for net operating losses carry forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB codification standards, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.”
Following FASB’s guidelines, the Company elects to use the Black-Sholes option-pricing model when to estimate the grant-date fair value of its stock, which takes into account assumptions regarding an expected dividend yield, a risk-free interest rate, an expected volatility factor for the market price of the Company’s common stock and an expected term of the stock options. The fair value of stock options granted is amortized on a straight-line basis over the vesting period. For the years ended December 31, 2015 and 2014, stock-based compensation expense associated with stock options totaled $204,885 and $217,444, respectively.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of the Independent Registered Public Accounting Firm and the Financial Statements and Notes to Financial Statements appear following Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
ITEM 9A. CONTROLS AND PROCEDURES
The chief executive officer and the chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e); collectively, “Disclosure Controls”) as of the end of the period covered by this annual report (the “Evaluation Date”) have concluded that as of the Evaluation Date, our Disclosure Controls were not effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information relating to our company and any consolidated subsidiaries is made known to management, including the chief executive officer and chief financial officer, particularly during the period when our periodic reports are being prepared to allow timely decisions regarding required disclosure.
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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 the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has determined that as of the Evaluation Date, there were material weaknesses in our internal control over financial reporting. 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.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. A clear and concise segregation of duties is important to maximize checks and balances so that no single individual has control over two or more phases of a transaction or operation. A strong segregation of duty also is critical to reduce effectively the risk of mistakes and inappropriate actions preventing fraud and discourages collusion. It can be difficult for small businesses to always have a clear separation of duties because there simply are not enough personnel to cover each and every process and procedure. Ultimately, checks and balances need to be in place as a supportive measure to the business operations, but also as a fraud prevention measure as well. Because we have limited financial personnel, and limited resources, compliance with segregation of duties and proper oversight of control requirements is extremely difficult In connection with the evaluation referred to in the foregoing paragraph, we have identified no change in our internal control of financial reporting that occurred during the year ended December 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are a non-accelerated filer and are required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending December 31, 2015. Although we are working to comply with these requirements, we have limited financial personnel, making compliance with Section 404 – especially with segregation of duty control requirements – very difficult and cost ineffective, if not impossible. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
NONE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below is also a brief description of the relevant business and/or scientific experience and background of each person named below.
Officers, Directors and Other Key Staff
Our current officers, directors, and other key advisors to the Company consist of:
| Name | Age | Position | ||
| Lawrence Helson, BSci, BMed, M.Sci, MD | 84 | Chief Executive Officer, Chief Financial Officer, Director, and President | ||
| Kai Larson, JD | 51 | Vice President of Corporate Development, Chief Operating Officer and Secretary | ||
| Arthur P. Bollon, Ph.D. | 73 | Director | ||
| Jack Levine, CPA | 65 | Director |
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Lawrence Helson, BSci, BMed, M.Sci, MD
Dr. Helson has served as Chief Executive Officer, Director and President of the Company since May 28, 2008. From 1967 to 1986, Dr. Helson was employed at Memorial Sloan Kettering Cancer Center NYC, the last 12 years as attending physician. From 1982 to 1986, he was an associate attending pediatrician at Cornell University Medical School, New York City. From 1986-1987 he was director of Phase III clinical trials of Zoladex ICI in Delaware. From 1987 to 1997 he was Professor of Pediatric and Adult Oncology at New York Medical College, Valhalla, NY. From 1997 to 2007 he was a founder-scientist at Onconova Inc, a biotechnology company in Princeton, New Jersey, and since 1993 has also been part-time Vice President of Bio-Research at NaproBiotherapeutics, Boulder, Colorado. He has held oncology consulting positions from 1985 to 1997 at Bambino Jesu Hospital, Vatican City, Metaxa Hospital; Pireaus, Greece; and for the Brazilian Consulate in New York City. From 2003 until present, he has provided unpaid informal consulting services to HemoBiotech Inc, in Dallas, Texas. He ran various research laboratories at Sloan Kettering Institute from 1973-1985, from 1987 to 1997 at New York Medical College, and from 2002 to 2005 for NaproBiotherapeutics (now Tapestry Pharmaceuticals) in Allentown, Pennsylvania. Dr. Helson has over 200 peer reviewed publications and 4 Issued Patents. He initiated the bone marrow transplant program at Memorial Sloan Kettering Hospital in 1973, and published the first peer reviewed paper in the journal Nature on Tumor Necrosis Factor in 1975. His laboratory research also developed six human neural tumor cell lines which are in the ATCC and English repositories and are distributed worldwide. He also edits the journal Anticancer Research, published in Athens, Greece and was an editor for Nude Mouse Heterotransplantation Research, published by Karger and Co.
Kai Larson
Kai Larson has served as Vice President of Corporate Development, Chief Operating Officer and Secretary of the Company since May 1, 2015. Mr. Larson has over two decades of experience, including 13 years as General Counsel of a publicly traded company. He is experienced with licensing transactions, SEC reporting, FDA laws and regulations, clinical trial support, marketing compliance, intellectual property and patents, drug development, manufacturing, commercial contracts and regulatory interactions.
Prior to joining the Company, from 2009 through 2015, Mr. Larson was Vice President, Associate General Counsel of The Sun Products Corporation, a major consumer products company, where he focused on commercial contracts, regulatory compliance, government interactions and patents. Prior thereto, from 2008, he was an attorney in the Life Sciences Group of Axiom Legal and in private practice with RxTech Law, LLC. From 2004-2008, Mr. Larson was Vice President, General Counsel and Secretary of Tapestry Pharmaceuticals, a publicly traded biotech company focused on oncology and genetic diseases. From 1994 - 2006 he was employed by Napro Biotherapeutics, last serving as Vice President, General Counsel and Secretary for a biotech company focused on small molecule oncology drugs. Mr. Larson received his J.D. from Columbia University School of Law in 1992 and his B.A. in Chinese from Brigham Young University in 1989.
Arthur P. Bollon, Ph.D.
Dr. Arthur P. Bollon has served as a director of the Company since May 28, 2008. Dr. Bollon has more than 25 years of experience in biotechnology as a scientist, executive and entrepreneur. Since 2011, Dr. Bollon has been Chairman and CEO of Vitruvian BioMedical, Inc., which is developing an Alzheimer Disease Vaccine and diagnostic technologies. From October 2003, until August 2010, he was the Chairman, President and Chief Executive Officer to HemoBioTech, Inc. which is developing HemoTech, a potential substitute for human blood. He is a founder and had served as Chairman and Chief Executive Officer of Wadley Biosciences Inc./LPL, a joint venture between Wadley Cancer Center and Phillips Petroleum which focused on cancer and immune disease therapeutics from 1987 to 1991. From 1992 to 2000, he was a founder, Chairman and Chief Executive Officer of Cytoclonal Pharmaceutics Inc. which focused on cancer and infectious disease therapeutics. While at Cytoclonal, he completed an initial public offering. In addition, he has completed research contracts with multiple universities including UCLA, Montana State University, University of California at San Diego, Texas Tech University and University of British Columbia and licensing agreements with Brisol Meyers-Squibb, Phillips Petroleum, Merck & Co. and Nuron Biotech.
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Jack Levine, CPA
Jack Levine was appointed to the Board of Directors of the Company on July 12, 2010. Mr. Levine, a Certified Public Accountant, has been advising private companies for over 30 years. As of November 2011, he was elected Chairman of the Audit Committee of Provista Diagnostics, Inc., a cancer detection and diagnostics company focused on women’s cancer. The company has established partnerships that allow access to some of the most innovative biomarkers in the molecular oncology market. From 1999 to 2007 he served as an Independent Board Member to Pharmanet, Inc. where from 2006-2007, he served as Chairman of the Board; in 2005, was a member of the Nominating Committee, Lead Director in 2004; a member of the Compensation Committee in 2003, a Chairman of the Audit Committee in 1999. Pharmanet is a global drug development services company providing a comprehensive range of services to pharmaceutical biotechnology, generic drug and medical device companies that was traded on Nasdaq and has since been acquired. From 2004-2008, Mr. Levine served as Chairman of the Audit Committee of Grant Life Sciences (OTCBB), an R&D company focused on early detection of cervical cancer and also providing medical diagnostic kits. From 2000-2006, Mr. Levine was Chairman either of the Audit Committee, Executive Committee or ALCO Committee of Beach Bank, Miami Beach, Florida. He also served as Chairman of the Audit Committees of Prairie Fund (2000-2006) and Bankers Savings Bank (1996-1998). From 2004-2006, Mr. Levine was a member of the Audit Committee of Miami Dade County School Board, the nation’s third largest school system with an annual budget exceeding $5 Billion. Mr. Levine currently sits on the Board of Biscayne Pharmaceuticals, Inc. Biscayne is a biopharmaceutical company discovering and developing novel therapies based on growth hormone-releasing hormone (GHRH) analogs. Mr. Levine has been a Board Member since January 2013.
Mr. Levine has been a licensed CPA in Florida since 1983. He has been a Committee member of the State of Florida – Florida Bar since 1993 and a Board Member of the Southeast Region of the American Friends of Bar-Ilan University since 2002.
Audit Committee
The Company’s audit committee presently consists of one member, Jack Levine. Mr. Levine is an Audit Committee Financial Expert as defined in Item 407(d)(5)(i) of Regulation S-K. The audit committee’s duties are to recommend to our board of directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles. The audit committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee oversees the independent auditors, including their independence and objectivity. However, the committee members are not acting as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee is empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the audit committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors. Our audit committee member possesses an understanding of financial statements and generally accepted accounting principles.
Director Independence
The Company presently does not have any other committees of the Board of Directors, including compensation, nominating and corporate governance, and the Board acts together on all matters. We are not required to comply with the director independence requirement of any securities exchange. In determining whether our directors are independent, however, we intend to comply with the independent rules of Nasdaq provided by Rule 4200(a)(15). As of the date of this report, Dr. Arthur Bollon and Jack Levine, two of our three directors, are non-officer independent members of the Board of Directors.
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Contingency Plan
In the event that Dr. Helson, our current CEO, is unable to fulfill his duties due to a short-term, long-term, or permanent absence, the Company has adopted a contingency plan setting forth a recommended plan for the governance of the Company. Under the terms of the contingency plan, Dr. George Shopp, a consultant for the Company is expected to supervise our preclinical science, and Dr. Peter Sordillo, also a consultant, is expected to supervise our clinical issues, trials and related matters. Drs. Shopp and Sordillo are expected to enter into employment agreements with the Company under their current positions, and Kai Larson would become interim CEO if Dr. Helson is unable to perform his duties.
ITEM 11. EXECUTIVE COMPENSATION
Dr. Lawrence Helson
On February 20, 2013, the Company has entered into a three-year employment agreement with Dr. Lawrence Helson to secure his services as Chairman, President and Chief Executive Officer. The contract ends February 20, 2016. Pursuant to this Agreement, Dr. Helson will receive a base salary of $204,000 per annum. On May 1, 2014, Dr. Helson received options to purchase 200,000 shares of Common Stock exercisable at $1.25 per share for services rendered during 2013.
Dr. Helson will be eligible to receive stock options to purchase up to 250,000 shares of Common Stock exercisable at $0.85 per share for 10 years from the date of grant upon initiation of Phase Ib trials and approvals from either the U.S. FDA to initiate Phase II trials on one or more cancer indications. Dr. Helson would also then be entitled to a 20% increase in salary. Upon successful completion of one or more clinical Phase II trials and approvals from either or both the FDA and EMA to initiate Phase III trials on at least one cancer indication, Dr. Helson shall be granted stock options to purchase 250,000 shares of the Company’s common stock exercisable at $1.25 per share and an increase in salary to $325,000 per annum. If the Company is acquired or a Change of Control takes place at a price not less than $500 million before the completion of either of these milestones and/or other milestones authorized on December 12, 2014 described below, all bonuses shall be payable upon closing of such transaction.
Dr. Helson may terminate the agreement upon 30 days’ prior written notice. If the Company terminates without Cause (as defined) or Dr. Helson terminates for Good Reason (as defined) or a Disability, the Company shall pay Dr. Helson in addition to all accrued compensation, a severance payment equal to two times Dr. Helson’s then current base salary. The Company shall also pay the severance payment in the event it fails to notify Dr. Helson of its intentions to continue employment past the expiration date no less than 90 days prior to the expiration date, or if they fail to reach an agreement on a new employment agreement prior to the expiration date. The severance payment shall be paid 25% upon termination and the balance in five equal monthly installments commencing one month after termination. Dr. Helson’s employment agreement provides for a non-compete for one year following termination of employment with any business primarily involved in the development, marketing and licensing that is in competition with the Company’s products or the Company was in the process of developing at termination.
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 $25,000.
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Kai Larson
On May 1, 2015, the Company entered into a three (3)-year employment agreement with Kai Larson to serve as Vice President of Corporate Development, Chief Operating Officer and Secretary of the Company. Mr. Larson agreed to devote substantially all of his business time to the affairs of the Company. The agreement provides for Mr. Larson to be compensated at the rate of $200,000 per annum, provided, however, $150,000 of the salary is deferred unless and until the Company raises an aggregate of $10,000,000 through either equity or debt financing or licensing revenue after the date of his agreement. Mr. Larson received options to purchase 750,000 shares of common stock exercisable at $2.00 per share. The options vest in equal monthly installments over a 72-month period from the date of grant, provided Mr. Larson remains employed by the Company. Mr. Larson is eligible for a bonus, in cash or securities, at the discretion of the Board of Directors. Mr. Larson agreed to a one-year non-compete upon termination of employment so long as he is receiving severance pay.
| Name and Principal Position | Year | Salary ($) | Bonus($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||
| Lawrence Helson | 2015 | $ | 250,000 | (1) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 250,000 | ||||||||||||||
| President and Chief Executive Officer | 2014 | 200,000 | (2) | 30,000 | (2) | - | 162,580 | (3) | - | 20,300 | (4) | 412,880 | ||||||||||||||||||
| Kai Larson, Vice President Corporate Development and Chief Operating Officer | 2015 | 33,333 | (5) | - | - | 831,249 | (6) | - | - | 864,582 | ||||||||||||||||||||
(1) Under Dr. Helson’s employment contract he received a base salary of $204,000 per annum, of which he received $200,000 in 2014 and $250,000 in 2015.
(2) A discretionary cash bonus of $30,000 was authorized by the Board on December 12, 2014, in consideration of additional services rendered by Dr. Helson during 2014.
(3) On May 1, 2014, the Company issued 200,000 options to Dr. Helson under the 2009 plan. The options have an exercise price of $0.85 per share and have a life of five years. The options vest immediately on grant date. The Company valued these options using the Black-Scholes option pricing model totaling $162,580 under the following assumptions: $0.85 stock price, $1.25 exercise price, 5 years to maturity, 415.87% volatility, 1.66% risk free rate.
(4) Pursuant to the terms of Dr. Helson’s employment agreement, the Compensation Committee of the Board of Directors authorized the reimbursement of an aggregate of approximately $20,300 for Medicare payments deducted from Dr. Helson’s salary from the beginning of his employment by the Company.
(5) Under Mr. Larson’s employment contract, he is entitled to $200,000 per annum, however, $150,000 of his salary is deferred, unless and until the Company raises an aggregate of $10,000,000 through equity or debt financing or licensing revenue after May 1, 2015.
(6) Pursuant to Mr. Larson’s employment contract, he received options to purchase 750,000 shares of Common Stock exercisable at $2.00 per share. The options vest in equal monthly installments over a 72-month period from the date of grant, provided Mr. Larson remains employed by the Company. The Company valued the options using the Black-Scholes option pricing model totaling $831,249 under the following assumptions: $1.25 stock price, $2.00 exercise price, 10 years to maturity, 105% volatility, 1.50% risk fee rate.
Directors’ Compensation
Members of the Board of Directors are reimbursed for reasonable expenses incurred in connection with travel to attend board meetings. In addition, members of the Board of Directors are compensated for their service with annual grants of options to purchase 30,000 shares of Common Stock each. On March 21, 2016, 50,000 options were granted to each of Jack Levine and Arthur Bollon, which will vest in quarterly increments during 2016. No cash compensation has been paid to directors. See “2009 Employee Stock Incentive Plan” below.
Jack Levine received 40,000 restricted shares of Common Stock on January 1, 2015, in consideration of consulting and accounting services as Chairman of the Company’s Audit Committee during 2014, and another 40,000 restricted shares of Common Stock on March 21, 2016 in consideration of consulting and accounting services as Chairman of the Company’s Audit Committee during 2015. He will be reimbursed for reasonable expenses incurred, however will not receive any other cash compensation.
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2009 Employee Stock Incentive Plan
The Company’s 2009 Employee Stock Incentive Plan (the “2009 Option Plan”) was adapted by the Company’s Board of Directors on February 9, 2009 and last amended on September 4, 2015 in order to motivate participants by means of stock options and restricted stock to achieve the Company’s long-term performance goals and enable our employees, officers, directors and consultants to participate in our long term growth and financial success. The 2009 Plan, which is administered by our Board of Directors, authorizes the issuance of a maximum of 3,000,000 shares of our common stock, which may be authorized and unissued shares or treasury shares. Employee options shall be deemed Incentive Stock Options (as defined in the 2009 Option Plan) to the maximum extent permitted by Section 422 of the Internal Revenue Code including a five-year limit on exercise for 10% or greater stockholders with any excess grant to the above individuals over the limits set by Section 422 being Non-Qualified Stock Options as defined in the 2009 Option Plan. Both the Incentive Stock Options or any Non-Qualified Stock Options must be granted at an exercise price of not less than the fair market value of shares of common stock at the time the option is granted and Incentive Stock Options granted to 10% or greater stockholders must be granted at an exercise price of not less than 110% of the fair market value of the shares on the date of grant. If any award under the 2009 Plan terminates, expires unexercised, or is cancelled, the shares of common stock that would otherwise have been issuable pursuant thereto will be available for issuance pursuant to the grant of new awards. The 2009 Plan will terminate on February 9, 2019. An aggregate of 560,000 options have been granted under the 2009 Plan to independent directors of the Company, 400,000 options to the Company’s CEO, 750,000 options to the Company’s COO, 30,000 options to the Company’s outside law firm, and 75,000 options to members of the Scientific Advisory Board, or an aggregate of 1,815,000 options, as of March 21, 2016. See “Directors’ Compensation” above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of the Company’s common stock and convertible preferred stock (“Voting Stock”) as of March 31, 2016 by (i) each person which is known by the Company to beneficially own more than 5% of the Company’s common stock, (ii) by each of the Company’s directors, (iii) by each executive officer of the Company, and (iv) by all executive officers and directors as a group.
The address of each of the persons listed below, unless otherwise noted, is c/o SignPath Pharma Inc., 3477 Corporate Parkway, Suite 100, Center Valley, PA 18034.
| Name of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned (1) | Percentage of Common Stock and Preferred Stock Beneficially Owned (2) | ||||||
| Dr. Lawrence Helson | 2,810,000 | (3) | 10.7 | % | ||||
| Kai Larson | 750,000 | (4) | 2.8 | % | ||||
| Dr. Arthur Bollon | 980,000 | (5) | 3.8 | % | ||||
| Jack Levine | 510,000 | (5)(6) | 2.0 | % | ||||
| Bruce Meyers (7) | 5,263,885 | (8) | 21.3 | % | ||||
| Imtiaz Kahn (7) (9) | 2,450,000 | 9.8 | % | |||||
| All Executive Officers and Directors as a Group (4 persons) | 5,050,000 | 18.4 | % | |||||
(1) Except as otherwise noted in the footnotes to this table, the named person owns directly and exercises sole voting and investment power over the shares listed as beneficially owned by such person. Includes any securities that such person has the right to acquire within sixty days pursuant to options, warrants, conversion privileges or other rights. As of March 30, 2016, there were 14,203,887 shares of our common stock issued and outstanding. As of that date: (i) 3,000,000 shares of common stock were authorized for issuance under our 2009 Option Plan of which 2,115,000 options had been granted; (ii) approximately 3,832,312 shares of our common stock were reserved for issuance pursuant to conversion of Series A Preferred Stock; (iii) approximately 4,037,018 shares were reserved for issuance pursuant to exercise of Class A Warrants to purchase common stock; (iv) 368,894 shares of our common stock were reserved for issuance pursuant to the issuance of shares in payment of liquidated damages concerning registration rights; (v) 2,525,842 shares of Common Stock were reserved for issuance pursuant to conversion of Series B Preferred Stock; (vi) 2,525,842 shares of Common Stock were reserved for issuance pursuant to exercise of Class B Warrants; (vii) 4,000,000 shares of Common Stock were reserved for issuance pursuant to conversion of Series C Preferred Stock; (viii) 2,000,000 shares of Common Stock were reserved for issuance pursuant to exercise of Class C Warrants; (ix) 1,179,500 shares of Common Stock were reserved for issuance pursuant to conversion of outstanding shares of Series D Preferred Stock; (x) 294,888 shares of Common Stock were reserved for issuance pursuant to exercise of Class D Warrants; (xi) there were Placement Agent Warrants to purchase approximately 3,402,088 shares of common stock pursuant to the Units sold in the 2008 - 2015 Private Placements; and (xii) 800,000 shares issuable upon exercise of vendor warrants granted in 2013 and 2014.
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(2) As of March 30, 2016 based on an aggregate of 25,741,541 voting shares, consisting of 14,163,887 shares of Common Stock, 3,832,312 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 2,525,842 shares of Common Stock issuable upon conversion of Series B Preferred Stock, 4,000,000 shares of common stock issuable upon conversion of Series C Preferred Stock, and 1,179,500 shares of Common Stock issuable upon conversion of Series D Preferred Stock.
(3) Dr. Helson disclaims beneficial ownership of an aggregate of 90,000 shares of Common Stock gifted for estate planning purposes. Includes options to purchase 200,000 shares of Common Stock granted on February 20, 2013, in lieu of $104,000 of accrued compensation for 2012, and options to purchase 200,000 shares of Common Stock granted on May 1, 2014, and options to purchase, 100,000 shares of common stock granted to Dr. Lawrence Helson on March 21, 2016, exercisable at $2.00 per share for ten (10) years, but does not include options to purchase an additional 200,000 shares which will vest in two (2) equal installments only upon satisfaction of certain performance milestones.
(4) Includes incentive stock options to purchase 300,000 shares at $2.00 per share and non-qualified stock options to purchase 450,000 shares of common stock at $2.00 per share, which expire on September 4, 2025. All of these options shall vest in equal monthly installments for 72 months commencing on May 1, 2015, when the options were granted by the board of Directors.
(5) Includes options to purchase 180,000 shares of Common Stock issuable from $0.85 - $2.00 per share. Does not include options to purchase 50,000 shares of common stock granted on March 21, 2016, which will vest in quarterly increments during 2016.
(6) Includes options to purchase 100,000 shares of common stock issuable at $0.85 per share upon his joining the board of directors in July 2010 are currently exercisable.
(7) The address of each of these persons is 45 Broadway, 2nd Fl., New York, NY 10006.
(8) Bruce Meyers is the General Partner of Meyers Investments Family Limited Partnership and has the power to vote and dispose of the shares, consisting of: 4,565,490 shares of common stock, 349,175 shares issuable upon conversion of 296.665 shares of Series A Preferred Stock and 349,220 shares issuable upon exercise of Class A Warrants. Does not include 2,747,685 shares of common stock issuable upon exercise of Placement Agent Warrants held by Meyers Investments Family Limited Partnership and Meyers Associates under blocking amendments pursuant to which the holder must give at least 61 days prior notice to the Company prior to any exercise if the holder would beneficially own in excess of either 4.99% or 9.99% of the outstanding common stock of the Company.
(9) Mr. Khan is Vice President of Meyers Associates L.P. and owns 1% of Meyers Securities Corp., the parent of Meyers Associates L.P., the Company’s placement agent. Consists of shares of common stock held by Mr. Khan personally.
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Unless otherwise indicated in the foregoing table (or the footnotes thereto), the persons named in the table have sole voting and dispositive power with respect to the shares of the Company’s common stock and/or options owned by such person, subject to community property laws where applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
As described elsewhere in this Report, the Company, Meyers Securities Corp. and Meyers Associates LP, the placement agent for its preferred stock offerings, have numerous relationships and related transactions. Mr. Bruce Meyers, the Principal and Chief Executive Officer of Meyers Securities Corp. and Meyers Associates LP, is a founder of the Company. Mr. Meyers, as a principal stockholder of the Company’s common stock, has influence in the affairs and operations of the Company which may present a conflict of interest between the Company and the Placement Agent.
During fiscal 2013, the Company sold 3,380 Units of Series C Preferred Stock at $1,000 per Unit, to nine different investors for aggregate proceeds of $3,380,000. Each Unit consists of one share of a 6.5% Series C Convertible Preferred Stock. Meyers Associates L.P. received sales commissions of 10% ($338,000) of the gross proceeds of the sale of Units, as well as a non-refundable expense allowance equal to 3% of the gross proceeds of the offering and a Unit Purchase Option (subsequently transferred to Meyers Investments Family Limited Partnership) to purchase 20% of the shares sold in the offering.
During the period from January 1, 2014 through June 18, 2014, the Company sold an aggregate of 1,620 Units of Series C Preferred Stock at $1,000 per Unit, to eight (8) different investors for aggregate proceeds of $1,620,000. Meyers Associates L.P. received sales commissions of 10% ($162,000) of the gross proceeds of the sale of Units, as well as a non-refundable expense allowance equal to 3% of the gross proceeds of the offering and a Unit Purchase Option (subsequently transferred to Meyers Investments Family Limited Partnership) to purchase 20% of the shares sold in the offering.
During the period from October 31, 2014 to December 31, 2014, the Company sold an aggregate of 320 Units of Series D Preferred Stock at $1,000 per Unit, to four (4) different investors for aggregate proceeds of $320,000. Meyers Associates L.P. received aggregate sales commissions of 10% ($32,000) of the gross proceeds of the sale of Units, as well as a non-accountable expense allowance equal to 3% of the gross proceeds of the offering and a Unit Purchase Option (subsequently transferred to Meyers Investments Family Limited Partnership) to purchase 20% of the shares sold in the offering.
From January 1, 2015 through December 31, 2015, the Company sold an additional 2,039.076 Units of Series D Preferred Stock at $1,000 per Unit, to 31 different investors for aggregate proceeds of $1,470,438 net of stock offering costs of $319,487, and a subscription receivable of $249,150, which was received in January 2016. Meyers Associates L.P. received sales commissions of 10% ($203,908) of the gross proceeds of the sale of Units, as well as a non-accountable expense allowance equal to 3% of the gross proceeds of the Offering and received a Unit Purchase Option (subsequently transferred to Meyers Investments Family Limited Partnership) to purchase 20% of the shares sold in the Offering.
On May 28, 2014, the Company voided 1,537,840 placement warrants which were replaced by 1,484,851 placement agent warrants with an exercise price of $1.25 which will expire on the seventh anniversary of the modification. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $1.25 exercise price, 7 years to maturity, 117.07% volatility, 2.01% risk free rate. As a result of the modification the value of the replacement placement warrants was less than the valuation of the original warrants, therefore the Company did not recognize a gain on equity modification.
On July 22, 2014, the Company voided and replaced 2,092,051 placement agent warrants with an exercise price of $0.85 to $1.25 which will expire on the seventh anniversary of the modification. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 to 7 years to maturity, 99.66% volatility, 1.91% to 2.13% risk free rate. As a result of the modification, the Company recognized a loss on equity modification of $13,132.
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On January 14, 2015, the Company voided and were replaced by 2,621,851.22 placement agent warrants with an exercise price of $1.25 which will expire on the seventh anniversary of the modification. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $1.25 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 equity modification of $24,868 in 2015.
On December 22, 2011, the Board of Directors awarded (i) 150,000 restricted shares of Common Stock to Dr. Helson in exchange for his forfeiture of approximately $104,000 in accrued and unpaid salary, and an additional 150,000 shares of Common Stock in exchange for his forfeiture of bonus compensation through December 31, 2012; (ii) 200,000 restricted shares of Common Stock to Meyers Securities Corp. for administrative functions performed for the Company which is without staff; (iii) 30,000 restricted shares of Common Stock to Jack Levine, who performed various tasks without compensation as Chairman of the Audit Committee. He also received 40,000 restricted shares of Common Stock on December 22, 2011 and February 20, 2013 in consideration of consulting and accounting services as Chairman of the Audit Committee.
On February 20, 2013, as amended on December 10, 2014, the Board of Directors authorized: (a) a new three-year employment agreement for Dr. Helson described above under “Executive Compensation”, and (b) options to purchase 60,000 shares of Common Stock to each of Jack Levine and Arthur Bollon, independent directors, for 2012 compensation exercisable at $0.85 per share for five years and 60,000 shares of Common Stock for 2013 compensation exercisable at $1.25 per share for five years. See “Executive Compensation” for the terms of the Amendment to the Company’s Employment Agreement with Dr. Lawrence Helson, its Chief Executive Officer.
On May 1, 2014, the Board of Directors authorized: (a) options to purchase 200,000 shares of Common Stock to Lawrence Helson, CEO, exercisable at $1.25 per share for ten years, and (b) options to purchase 30,000 shares of Common Stock to each of Jack Levine and Arthur Bollon, independent directors, for 2014 compensation exercisable at $1.25 per share for five (5) years.
On January 1, 2015, the Board of Directors authorized 40,000 restricted shares of Common Stock to Jack Levine, in consideration of 2014 consulting and accounting services as chairman of the Company’s Audit Committee.
On March 20, 2015, the Board of Directors authorized options to purchase 30,000 shares of Common Stock to each of Jack Levine and Arthur Bollon, independent directors, for 2015 compensation exercisable at $2.00 per share for five (5) years.
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.
On May 1, 2015, the Company issued 750,000 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.
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Meyers Associates, Bruce Meyers, and Imtiaz Khan, principals of Meyers Associates, L.P. (collectively, the “Principals”), are subject to pending disciplinary proceeding from the Financial Industry Regulatory Authority, Inc. (“FINRA”). On October 6, 2014, FINRA filed a complaint (the “Complaint”) alleging, among other things, the violation of certain rules of FINRA and the National Association of Securities Dealers and federal securities laws in connection with Meyers’ prior offerings of the Company’s securities. Meyers and the Principals have answered the Complaint which they maintain is without merit and that they will contest the enforcement action vigorously. For more information regarding the Complaint, see the Risk Factor titled “Meyers Associates, L.P. and its principals are subject to disciplinary proceedings from FINRA in connection with, among other things, previous offerings of the Company’s securities.”
On April 8, 2015, FINRA filed a second complaint (the “Second Complaint”) against Meyers alleging, among other things, the violation of certain rules of FINRA, the NASD and Federal securities law involving Meyers’ failure to supervise the firm’s Chicago Branch Office and a broker, and its failure to establish and implement Anti-Money Laundering (“AML”) policies and procedures reasonably expected to detect and cause the reporting, if appropriate, of potentially suspicious activity relating to the manipulative trading of securities. FINRA is seeking sanctions which may include disgorgement and/or restitution. Meyers has answered the Second Complaint and a hearing was held at which time they contested the enforcement action vigorously.
On March 21, 2016, the Board of Directors authorized options to purchase 50,000 shares of common stock to each of Jack Levine and Arthur Bollon, independent directors for 2016 compensation, exercisable at $2.00 per share for ten (10) years.
The Board also authorized the grant of options to purchase 300,000 shares of common stock to Dr. Lawrence Helson, exercisable at $2.00 per share for ten (10) years, 100,000 shares have fully vested and the remaining 200,000 shares will vest in two (2) equal installments upon satisfaction of certain performance milestones.
On March 21, 2016, the Board of Directors authorized 40,000 shares of common stock to Jack Levine, in consideration of 2015 consulting and accounting services as Chairman of the Company’s Audit Committee.
Otherwise, none of our directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any promoter, nor any relative or spouse of any of the foregoing persons has any material interest, direct or indirect, in any presently proposed transaction which, in either case, has or will materially affect us.
Our management is involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between our business and their other business interests. In the event that a conflict of interest arises at a meeting of our directors, a director who has such a conflict will disclose his interest in a proposed transaction and will abstain from voting for or against the approval of such transaction.
Director Independence
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the company; |
| ● | the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
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| ● | a family member of the director is, or at any time during the past three years was, an executive officer of the company; |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
As of the date of this Report, we have determined that Dr. Arthur Bollon and Jack Levine, two of our three directors, are non-officer independent members of the Board of Directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During Fiscal 2014, M&K CPAS, PLLC (“M&K”) served as our independent auditors. However, the Company terminated the services of M&K on January 29, 2015 and engaged Friedman LLP (“Friedman”) as the Company’s independent auditors on February 11, 2015. Friedman performed the audit of the Company’s consolidated financial statements for Fiscal 2014 and 2015and issued the audit report in this Annual Report.
The following table presents: (1) fees for professional audit services rendered by Friedman for the audit of our annual financial statements and for other services for the year ended December 31, 2015; (2) fees for professional services rendered by M&K for the year ended December 31, 2014; and (3) fees for professional audit services rendered by Friedman for the audit of our annual financial statements and for other services for the year ended December 31, 2014.
| 2015 | 2014 | 2014 | ||||||||||
| (Friedman) | (Friedman) | (M&K) | ||||||||||
| Audit Fees | $ | 35,000 | $ | 20,000 | $ | 28,500 | ||||||
| Audit Related Fees | -0- | -0- | -0- | |||||||||
| Tax Fees | -0- | -0- | -0- | |||||||||
| All Other Fees | -0- | -0- | -0- | |||||||||
| Total | $ | 35,000 | $ | 20,000 | $ | 28,500 | ||||||
Audit Fees. Annual audit fees relate to services rendered in connection with the audit of our annual financial statements and the quarterly reviews of financial statements included in our Forms 10-Q.
Audit Related Fees. Audit related services include fees for SEC registration statement services, benefit plan audits, consultation on accounting standards or transactions, statutory audits, business acquisitions, and assessment of risk management controls in connection with the implementation of Section 404 of the Sarbanes-Oxley Act of 2002.
Tax Fees. Tax services include fees for tax compliance, tax advice and tax planning.
All Other Fees: The aggregate fees, including expenses, billed for all other services, not described above, rendered to the Company by M&K and Friedman during Fiscal year 2014 and by Friedman during 2015 were zero.
We have been advised by both M&K and Friedman that neither the firms, nor any member of the firms, have any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.
| 45 |
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor
The Company’s audit committee presently consists of one member, Jack Levine. The audit committee is responsible recommend to the Company’s Board the engagement of independent auditors to audit the Company’s financial statements and to review the Company’s accounting and auditing principles, and for overseeing the work of the independent auditor, including their independence and objectivity. The Board is responsible for approving the compensation of the auditor. The Board has established a policy regarding pre-approval of all audit and non-audit services provided by the independent auditor, as follows: on an ongoing basis, management communicates specific projects and categories of service for which the advance approval of the Board is requested, and the Board reviews these requests and advises management if the Board approves the engagement of the independent auditor. On a periodic basis, management reports to the Board regarding the actual spending for such projects and services compared to the approved amounts. All audit-related fees, tax fees and all other fees were approved by the entire Board. The projects and categories of service are as follows:
Audit—Annual audit fees relate to services rendered in connection with the audit of our financial statements and the quarterly reviews of financial statements included in our Forms 10-Q.
Audit Related Services—Audit related services include fees for SEC registration statement services, benefit plan audits, consultation on accounting standards or transactions, statutory audits, and business acquisitions.
Tax—Tax services include fees for tax compliance, tax advice and tax planning.
All Other – fees for all other services provided by the auditor.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SignPath Pharma, Inc.
We have audited the accompanying balance sheets of SignPath Pharma, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SignPath Pharma, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s accumulated deficit and operating losses raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
| /s/ Friedman LLP | |
| Marlton, New Jersey | |
| April 8, 2016 |
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SIGNPATH PHARMA, INC.
Balance Sheets
| December 31, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 692,480 | $ | 716,193 | ||||
| Prepaid expenses | 5,453 | - | ||||||
| Total current assets | 697,933 | 716,193 | ||||||
| TOTAL ASSETS | $ | 697,933 | $ | 716,193 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 309,795 | $ | 447,999 | ||||
| Total current liabilities | 309,795 | 447,999 | ||||||
| Commitments & contingencies | ||||||||
| 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 2,359 and 320 shares issued and outstanding, respectively | 236 | 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 | 1,729,741 | 969,230 | ||||||
| Subscription receivable | (249,150 | ) | - | |||||
| Additional paid-in capital | 13,943,694 | 12,700,365 | ||||||
| Accumulated deficit | (15,051,588 | ) | (13,416,598 | ) | ||||
| Total stockholders’ equity | 388,138 | 268,194 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 697,933 | $ | 716,193 | ||||
The accompanying notes are an integral part of these financial statements.
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SIGNPATH PHARMA, INC.
Statements of Operations
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| REVENUES | $ | - | $ | - | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative | 208,514 | 73,005 | ||||||
| Professional fees | 284,296 | 413,953 | ||||||
| Research and development | 754,268 | 1,927,851 | ||||||
| Salaries and wages | 399,700 | 327,316 | ||||||
| Total Operating Expenses | (1,646,778 | ) | (2,742,125 | ) | ||||
| OPERATING LOSS | (1,646,778 | ) | (2,742,125 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Other Income | 23,642 | - | ||||||
| Foreign currency loss | (11,924 | ) | (6,671 | ) | ||||
| Interest income | 70 | 606 | ||||||
| Total Other Income (Expense) | 11,788 | (6,065 | ) | |||||
| NET LOSS BEFORE INCOME TAXES | (1,634,990 | ) | (2,748,190 | ) | ||||
| Provision for income taxes | - | - | ||||||
| NET LOSS | $ | (1,634,990 | ) | $ | (2,748,190 | ) | ||
| PREFERRED STOCK DIVIDEND | (760,512 | ) | (640,673 | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (2,395,502 | ) | $ | (3,388,863 | ) | ||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.17 | ) | $ | (0.25 | ) | ||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 14,163,887 | 13,505,925 | ||||||
The accompanying notes are an integral part of these financial statements.
| 49 |
SIGNPATH PHARMA, INC.
Statements of Stockholders’ Equity (Deficit)
| Additional | Total Stockholders’ | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accrued | Subscription | Paid-In | Deficit | Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Dividends | Receivable | Capital | Accumulated | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2013 | 8,782 | $ | 879 | 12,877,500 | $ | 12,879 | $ | 1,353,961 | $ | - | $ | 10,120,454 | $ | (10,668,408 | ) | $ | 819,765 | |||||||||||||||||||
| Preferred stock and warrants issued for cash, net of $289,240 offering costs | 1,941 | 194 | - | - | - | - | 1,650,567 | - | 1,650,760 | |||||||||||||||||||||||||||
| Amortization of options issued for services | - | - | - | - | - | - | 217,444 | - | 217,444 | |||||||||||||||||||||||||||
| Modification of warrants | - | - | - | - | - | - | 13,132 | - | 13,132 | |||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | - | - | 281,283 | - | 281,283 | |||||||||||||||||||||||||||
| Common Stock issued for services | - | - | 40,000 | 40 | - | - | 33,960 | - | 34,000 | |||||||||||||||||||||||||||
| Common Stock issued payment of preferred stock dividends | - | - | 1,206,387 | 1,206 | (1,025,404 | ) | - | 1,024,198 | - | - | ||||||||||||||||||||||||||
| Preferred dividend accrued | - | - | - | - | 640,673 | - | (640,673 | ) | - | - | ||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2014 | - | - | - | - | - | - | - | (2,748,190 | ) | (2,748,190 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2014 | 10,723 | $ | 1,073 | 14,123,887 | $ | 14,124 | $ | 969,230 | $ | - | $ | 12,700,365 | $ | (13,416,598 | ) | $ | 268,194 | |||||||||||||||||||
| Preferred stock and warrants issued for cash, net of $319,487 offering costs | 2,040 | 204 | - | - | - | (249,150 | ) | 1,719,385 | - | 1,470,439 | ||||||||||||||||||||||||||
| Amortization of options issued for services | - | - | - | - | - | - | 204,885 | - | 204,885 | |||||||||||||||||||||||||||
| Modification of warrants | - | - | - | - | - | - | 29,610 | - | 29,610 | |||||||||||||||||||||||||||
| Common Stock issued for services | - | - | 40,000 | 40 | - | - | 49,960 | - | 50,000 | |||||||||||||||||||||||||||
| Preferred dividend accrued | - | - | - | - | 760,511 | - | (760,511 | ) | - | - | ||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2015 | - | - | - | - | - | - | - | (1,634,990 | ) | (1,634,990 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2015 | 12,763 | 1,277 | 14,163,887 | 14,164 | 1,729,741 | (249,150 | ) | 13,943,694 | (15,051,588 | ) | 388,138 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
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SIGNPATH PHARMA, INC.
Condensed Statements of Cash Flows
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,634,990 | ) | $ | (2,748,190 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Common stock issued for services | - | 34,000 | ||||||
| Stock options compensation | 204,885 | 217,444 | ||||||
| Stock issued for compensation | 16,000 | - | ||||||
| Warrants issued for services | - | 281,283 | ||||||
| Loss on equity modification | 29,610 | 13,132 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Change in prepaid expenses | (5,453 | ) | - | |||||
| Accounts payable and accrued expenses | (104,204 | ) | 26,367 | |||||
| Net Cash Used in Operating Activities | (1,494,151 | ) | (2,175,964 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Preferred stock issued for cash, net of stock offering costs | 1,470,439 | 1,650,760 | ||||||
| Net Cash Provided by Financing Activities | 1,470,439 | 1,650,760 | ||||||
| NET INCREASE (DECREASE) IN CASH | (23,713 | ) | (525,204 | ) | ||||
| CASH AT BEGINNING OF PERIOD | 716,193 | 1,241,397 | ||||||
| CASH AT END OF PERIOD | $ | 692,480 | $ | 716,193 | ||||
| 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 | $ | 760,512 | $ | 640,673 | ||||
The accompanying notes are an integral part of these financial statements.
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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 audited financial statements have been prepared by the Company with an 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 December 31, 2015, and for all periods presented herein, have been made.
Description of Business
Throughout this report, the terms “we,” “us,” “our,” “registrant,” “Company” refer to SignPath Pharma Inc.
Business
SignPath Pharma, Inc. (the “Company”) 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 years ended December 31, 2015 and 2014, the Company expended $754,268 and $1,927,851 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 year ended December 31, 2015, the Company recognized sales revenue of $-0- and incurred a net loss of $1,634,990. As of December 31, 2015, the Company had an accumulated deficit of $15,051,588. 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.
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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 a maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents as of December 31, 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 $442,480 and $437,081 cash balances in excess of federally insured limits at December 31, 2015 and 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 $754,268 and $1,927,851 during the years ended December 31, 2015 and 2014, respectively.
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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.
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 years ended December 31, 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 26,313,289 and 23,922,480 at December 31, 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. During the year ended December 31, 2009, the Company accrued $85,738 in the accompanying balance sheet related to this liability. The balance of the liability was $85,738 as of December 31,2015 and 2014, which will be satisfied by the issuance of common stock.
| 54 |
NOTE 5 – PREFERRED STOCK
The Company has authorized 5,000,000 shares of Preferred Stock, $.10 par value, of which, as of December 31, 2015, an aggregate of 12,762 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, 2,359 of which were issued and outstanding.
Series A Convertible Preferred Stock
Rank. The Preferred Stock ranks (i) senior to the common stock and any other class or series of the Company’s capital stock either specifically ranking by its terms junior to the Preferred Stock or not specifically ranking by its terms senior to or on parity with the Preferred Stock, (ii) on parity with any class or series of the Company’s capital stock specifically ranking by its terms on parity with the Preferred Stock, and (iii) junior to any class or series of capital stock specifically ranking by its terms senior to the Preferred Stock, in each case, as to payment of dividends or as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary. The approval of the holders of a majority of the Preferred Stock is required in order for the Company to issue any capital stock with rights on parity with or senior to the Preferred Stock.
Dividends. The holders of the Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% of the liquidation preference of the Preferred Stock, out of funds legally available, prior to any payment of dividends on the Company’s common stock or any other class of stock ranking junior to the Preferred Stock. Such dividends are payable in cash or shares of common stock, at the option of the Company, semiannually on the last business day of February and August of each year (each a “Dividend Payment Date”), commencing in February 2009 with respect to the period from issuance through such date. The holders of the Preferred Stock are entitled to share ratably with the holders of the common stock in any dividend declared on the common stock.
Dividends on the Preferred Stock will accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Dividends accumulate to the extent they are not paid on the Dividend Payment Date to which they relate. Accumulated unpaid dividends will not bear interest. According to Delaware law, the Company may declare and pay dividends or make other distributions on its capital stock only out of legally-available funds. In addition, no dividends or distributions may be declared, paid or made if the Company is or would be rendered insolvent by virtue of such dividend or distribution.
The Company may not (i) pay any dividends in respect of any shares of capital stock ranking junior to the Preferred Stock (including the common stock), other than dividends payable in the form of additional shares of the same junior stock as that on which such dividend is declared, or (ii) redeem any shares of capital stock ranking junior to the Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Preferred Stock have been, or contemporaneously are, declared and paid in full.
Conversion. At the election of the holder thereof, each share of Preferred Stock will be convertible into common stock, at any time after issuance, at the Conversion Rate, as it may be adjusted from time to time in accordance with the Certificate of Designation. The Preferred Stock will not convert automatically into Common Stock upon completion of this offering and only the underlying Common Stock issuable upon conversion is registered for the resale under this prospectus. The Conversion Rate initially will be 1,177 shares of common stock ($.85 per share) for each Share of Preferred Stock. Conversion Price is also subject to adjustment from time to time in the event of (i) the issuance of common stock as a dividend or distribution on any class of the Company’s capital stock; or (ii) the combination, subdivision or reclassification of the common stock. No fractional shares will be issued upon conversion. Payment of accumulated and unpaid dividends will be made upon conversion to the extent of legally-available funds.
The shares of Preferred Stock may also be converted into common stock at the Conversion Rate at the Company’s option following the effectiveness of a Registration Statement, if the Company’s common stock trades above 200% of the Conversion Rate per share for a period of 20 consecutive trading days.
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Voting Rights. The affirmative vote of the holders of at least two-thirds of the outstanding shares of Preferred Stock, voting as a class, shall be required to authorize, effect or validate (i) any change in the rights, privileges or preferences of the Preferred Stock that would adversely affect the Preferred Stock, or (ii) the authorization, creation, issuance or increase in the authorized or issued amount of any class or series of stock ranking on parity with or superior to the Preferred Stock with respect to the declaration and payment of dividends or distribution of assets upon liquidation, dissolution or winding-up of our Company. In addition, the holders of Preferred Stock shall have the right to vote, together with holders of common stock as single class, on all matters upon which the holders of common stock are entitled to vote pursuant to applicable Delaware law or the Company’s Certificate of Incorporation. The Preferred Stock shall vote on an “as converted basis” with each holder of Preferred Stock having one vote for each Conversion Share underlying such holder’s shares of Preferred Stock.
Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, before any payment or distribution of the assets of the Company (whether capital or surplus), or the proceeds thereof, may be made or set apart for the holders common stock or any stock ranking junior to Preferred Stock, the holders of Preferred Stock will be entitled to receive, out of the assets of the Company available for distribution to stockholders, a liquidating distribution of $1,000 per share, plus any accrued and unpaid dividends, subject to adjustment upon the occurrence of certain events. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to make the full payment of $1,000 per share, plus all accrued and unpaid dividends on the Preferred Stock and similar payments on any other class of stock ranking on a parity with the Preferred Stock upon liquidation, then the holders of Preferred Stock and such other shares will share ratably in any such distribution of the Company’s assets in proportion to the full respective distributable amounts to which they are entitled. Certain events, including a consolidation or merger of the Company with or into another corporation or sale or conveyance of all or substantially all the property and assets of the Company will be deemed to be a liquidation, dissolution or winding-up of the Company for purposes of the foregoing.
Miscellaneous. The Company is not subject to any mandatory redemption or sinking fund provision with respect to the Preferred Stock. The holders of the Preferred Stock are not entitled to preemptive rights to subscribe for or to purchase any shares or securities of any class which may at any time be issued, sold or offered for sale by the Company. Shares of Preferred Stock redeemed or otherwise reacquired by the Company shall be retired and shall be unavailable for subsequent issuance as any class of the Company’s preferred stock.
Each share of Series A Preferred Stock is convertible at $.85 per share into an aggregate of 1,177 shares of common stock, with each share of Series B Preferred Stock accruing an annual dividend of 6.5% or $65 per share payable annually in cash or shares of common stock at the option of the Company, unless earlier converted or redeemed. The Series A Preferred Stock votes on an as converted basis with the Common Stock and Series A Preferred Stock having one vote for each share issuable upon conversion of the Series B Preferred Stock.
Series B Convertible Preferred Stock
The Conversion Rate and dividend rates are the same for Series A and Series B Preferred Stock; however, the Series A Preferred Stock is senior to the Series B Preferred Stock on sale or liquidation of the Company. Each share of Series B Preferred Stock is convertible at $.85 per share into an aggregate of 1,177 shares of common stock, with each share of Series B Preferred Stock accruing an annual dividend of 6.5% or $65 per share payable annually in cash or shares of common stock at the option of the Company, unless earlier converted or redeemed on the same terms as the Series A Preferred Stock. The Series B Preferred Stock votes on an as converted basis with the Common Stock and Series A Preferred Stock having one vote for each share issuable upon conversion of the Series B Preferred Stock.
Series C Convertible Preferred Stock
The dividend rate of 6.5% per annum and the terms of the dividends are the same as Series A and B Preferred Stock. The Conversion Rate is 800 shares of Common Stock (at $1.25 per share) for each $1,000 stated value of Series C Preferred Stock and may be converted into Common Stock by the Company following the effectiveness of a registration statement if the Company’s Common Stock trades above 300% of the Conversion Rate for 10 consecutive trading days. The Series C Preferred Stock ranks on parity with the Series B Preferred Stock and junior to the Series A Preferred Stock on sale or liquidation of the Company. The Series C Preferred Stock votes on an as converted basis with the Common Stock and Series A and B Preferred Stock having one vote for each share issuable upon conversion of the Series C Preferred Stock.
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Series D Convertible Preferred Stock
The dividend rate of 6.5% per annum and the terms of the dividends are the same as Series A, B and C Preferred Stock. The Conversion Rate is 500 shares of Common Stock (at $2.00 per share) for each $1,000 stated value of Series D Preferred Stock and maybe converted into Common Stock following the effectiveness of a registration statement if the Company’s Common Stock trades above 200% of the Conversion Rate for 10 consecutive trading days. The Series D Preferred Stock ranks on parity with the Series B and C Preferred Stock and junior to the Series A Preferred Stock on sale or liquidation of the Company. The Series D Preferred Stock votes on an as converted basis with the Common Stock and Series A, B and C Preferred Stock having one vote for each share issuable upon conversion of the Preferred Stock.
For the year ended December 31, 2014 the Company issued 1,620 Units of Series C Convertible Preferred Stock and 320 Units of Series D Convertible Preferred Stock. Gross proceeds received for these shares were $1,940,000 offset by stock offering costs of $289,240 issued to the placement agent, a related party. (See note 9).
For the year ended December 31, 2015 the Company issued 2,039 shares of Series D Preferred Stock. Gross proceeds received for these shares was $2,039,076 offset by stock offering costs of $319,487 issued to the placement agent, a related party. (See note 9).
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 year ended December 31, 2015. For the year ended December 31, 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 December 31, 2015 and 2014 are presented below:
| Weighted Average | Weighted Average | Remaining | ||||||||||||||
| Number of | Exercise | Grant Date | Term | |||||||||||||
| Warrants | Price | Fair Value | (years) | |||||||||||||
| Outstanding as of December 31, 2013 | 13,018,764 | 1.07 | 0.85 | 4.88 | ||||||||||||
| Granted | 2,071,011 | 1.40 | 0.85 | 4.88 | ||||||||||||
| Cancelled/Expired | (2,539,713 | ) | (1.27 | ) | - | |||||||||||
| Outstanding as of December 31, 2014 | 12,550,062 | 1.25 | 0.85 | 4.60 | ||||||||||||
| Granted | 3,135,373 | 1.47 | 1.25 | 7.00 | ||||||||||||
| Cancelled/Expired | (2,625,601 | ) | (1.29 | ) | - | |||||||||||
| Outstanding as of December 31, 2015 | 13,059,834 | 1.32 | 1.13 | 4.09 | ||||||||||||
The Company also issued 200,000 warrants to its vendor for curcumin on January 24, 2014. The warrants have an exercise price of $1.875 per share and have a life of five years from the effective date of a registration statement. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $2.00 exercise price, 5 years to maturity, 123.35% volatility, 1.75% risk free rate. As a result of the Company recognized a research and development expense of $130,249.
The Company also issued 200,000 warrants to its vendor for curcumin on December 12, 2014. The warrants have an exercise price of $2.00 per share and have a life of seven years from the effective date of a registration statement. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $2.00 exercise price, 7 years to maturity, 132.88% volatility, 1.75% risk free rate. As a result of the Company recognized a research and development expense of $151,034.
During the year ended December 31, 2014, the Company issued 443,800 warrants as stock offering costs to the Company’s placement agent. 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.
On May 28, 2014, the Company voided 1,537,840 placement warrants which were replaced by 1,484,851 placement agent warrants with an exercise price of $1.25 which will expire on the fifth anniversary of the effective date of the registration statement. The Company modified the terms of the warrants from $0.85 exercise price to $1.25. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 stock price, $1.25 exercise price, 7 5 years to maturity, 117.07% volatility, 2.01% risk free rate. As a result of the modification the value of the replacement placement warrants was less than the valuation of the original warrants, therefore the Company did not recognize a gain on equity modification.
During the year ended December 31, 2015, the Company issued 254,887 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% - 168.60% volatility, and 1.49% - 2.02% risk free rate.
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During the year ended December 31, 2015, the Company voided and replaced 2,621,851 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.
On December 15, 2015, the Company voided and replaced 3,750 Class D Warrants. Those warrants 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, $3.00 exercise price, 7 years to maturity, 159.75% volatility, 2.06% risk free rate. As a result of the modification the value of the replacement placement warrants was less than the valuation of the original warrants, therefore the Company did not recognize a gain on equity modification.
For the year ended December 31, 2015 the Company has issued a total of 254,885 Placement Agent warrants, of those 214,407 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, 159.46%-168.60% volatility, and 1.88% -2.02% risk free rate.
Options
The Company’s 2009 Employee Stock Incentive Plan (the “2009 Plan”) was adapted by the Company’s Board of Directors on February 9, 2009 in order to motivate participants by means of stock options and restricted stock to achieve the Company’s long-term performance goals and enable our employees, officers, directors and consultants to participate in our long term growth and financial success. The 2009 Plan, which is administered by our Board of Directors, currently authorizes the issuance of a maximum of 3,000,000 (as of January 1, 2016) shares of our common stock, which may be authorized and unissued shares or treasury shares. Employee options shall be deemed Incentive Stock Options (as defined in the 2009 Option Plan) to the maximum extent permitted by Section 422 of the Internal Revenue Code including a five-year limit on exercise for 10% or greater stockholders with any excess grant to the above individuals over the limits set by Section 422 being Non-Qualified Stock Options as defined in the 2009 Option Plan. Both the Incentive Stock Options or any Non-Qualified Stock Options must be granted at an exercise price of not less than the fair market value of shares of common stock at the time the option is granted and Incentive Stock Options granted to 10% or greater stockholders must be granted at an exercise price of not less than 110% of the fair market value of the shares on the date of grant.
If any award under the 2009 Plan terminates, expires unexercised, or is cancelled, the shares of common stock that would otherwise have been issuable pursuant thereto will be available for issuance pursuant to the grant of new awards. The 2009 Plan will terminate on February 9, 2019. As of December 31, 2015, an aggregate of 1,715,000 options were outstanding, as follows:
| Weighted Average | Weighted Average | Expiration | ||||||||||||||
| Number of | Exercise | Grant Date | Date | |||||||||||||
| Options | Price | Fair Value | (yrs) | |||||||||||||
| Outstanding as of December 31, 2013 | 570,000 | $ | 0.93 | $ | 0.85 | 4.56 | ||||||||||
| Granted | 285,000 | 1.32 | 0.85 | 5.06 | ||||||||||||
| Cancelled/Expired | - | - | - | - | ||||||||||||
| Outstanding as of December 31, 2014 | 855,000 | $ | 1.06 | $ | 0.85 | 3.84 | ||||||||||
| Granted | 860,000 | 2.00 | 1.12 | 9.65 | ||||||||||||
| Cancelled/Expired | - | - | - | - | ||||||||||||
| Outstanding as of December 31, 2015 | 1,715,000 | $ | 1.53 | $ | 0.98 | 4.18 | ||||||||||
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During the year ended December 31, 2014, the Company issued an aggregate 60,000 options to two members of its board of directors and under the 2009 plan for compensation during 2014. The options have an exercise price of $1.25 per share and have a life of five years. The options vest as follows: one fourth on the date of grant, one fourth on every quarter from grant date. The Company valued these options using the Black-Scholes option pricing model totaling $43,226 under the following assumptions: $0.85 stock price, $1.25 exercise price, 2.69 years to maturity, 305% volatility, .64% risk free rate.
During the year ended December 31, 2014, the Company issued 225,000 options to its CEO and a member of its Scientific Advisory Board under the 2009 plan. The options have an exercise price of $1.25 to $2.00 per share and have a life of five years. The options vest immediately on grant date. The Company valued these options using the Black-Scholes option pricing model totaling $179,232 under the following assumptions: $0.85 stock price, $1.25 to $2.00 exercise price, 5 years to maturity, 286.96% to 415.87% volatility, 1.66% to 1.92% risk free rate.
During the year ended December 31, 2015, the Company issued an aggregate 60,000 options to two members of its board of directors and under the 2009 plan for compensation during 2015. The options have an exercise price of $1.25 per share and have a life of five years. The options vest as follows: one fourth on the date of grant, one fourth on every quarter from grant date. The Company valued these options using the Black-Scholes option pricing model totaling $71,785 under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 years to maturity, 188% volatility, 1.37% risk free rate.
During the year ended December 31, 2015, the Company issued 800,000 options to its Chief Operating Officer, and two members of the Scientific Advisory Board under the 2009 plan. The options have an exercise price of $1.25 to $2.00 per share and have a life from five to six years. The Company valued these options using the Black-Scholes option pricing model totaling $888,411 under the following assumptions: $1.25 stock price, $2.00 exercise price, 5 to 10 years to maturity, 105% to 162 % volatility, 1.47% to 1.50% risk free rate.
For the years ended December 31, 2015 and 2014, stock-based compensation expense associated with stock options totaled $204,885 and $217,444, respectively. At December 31, 2015, related to stock-based compensation, there is an unamortized balance of $760,324 to be amortized at a rate of $71,400 per year for the next 6 years.
NOTE 8 – INCOME TAXES
The Company’s provision for income taxes was $0 for the years ended December 31, 2015 and 2014 respectively since the Company incurred net taxable losses which have a full valuation allowance through December 31, 2015.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a full valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 39% marginal tax rate by the cumulative Net Operating Loss (“NOL”) of $11,740,754. The total valuation allowance is equal to the total deferred tax asset. The valuation allowance increased by $631,906 from $3,966,988 to $4,598,894 for the year ended December 31, 2015.
The tax effects of significant items comprising the Company’s net deferred taxes as of December 31, 2015 and 2014 were as follows:
| 2015 | 2014 | |||||||
| Cumulative NOL | $ | 11,790,754 | $ | 10,171,765 | ||||
| Deferred Tax assets: | ||||||||
| Net operating loss carry forwards | 4,598,894 | 3,966,988 | ||||||
| Valuation allowance | (4,598,894 | ) | (3,966,988 | ) | ||||
| $ | - | $ | - | |||||
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The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2015 and 2014 due to the following:
| 2015 | 2014 | |||||||
| Income tax benefit at U. S. federal statutory rates: | $ | (637,646 | ) | $ | (1,071,794 | ) | ||
| Stock-based compensation | 6,240 | - | ||||||
| Derivative liability | - | - | ||||||
| Modification of warrants | - | 5,121 | ||||||
| Change in valuation allowance | 631,906 | 1,066,673 | ||||||
| $ | - | $ | - | |||||
NOTE 9 – COMMITMENTS 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 Johns 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.
On December 23, 2015, the Company entered into an agreement with Annie Bouchard, a co-inventor of the SPP4040 drug candidate under development. In the Agreement, Ms. Bouchard agreed to assign all patent rights relating to cardiac arrhythmia mitigation drugs to SignPath and continue collaborations with SignPath regarding future development of cardiac arrhythmia therapies. In return, Ms. Bouchard is entitled to one third of any future profits earned from these cardiac arrhythmia therapies.
NOTE 10 – RELATED PARTY
Meyers Securities Corp. and Meyers Associates LP, the placement agent for its preferred stock offerings, have numerous relationships and related transactions. Meyers Associates LP receives a 10% sales commission of the gross proceeds from the sale of all Proffered Units, as well as a non-accountable expense allowance equal to 3% of the gross proceeds of the Offering and warrants to purchase 20% of the Securities sold in the Offering.
For the year ended December 31, 2015 and 2014, Meyers Associates LP received total commissions in the amount of $319,487, and $289,240, respectively, and were issued 254,884 and 443,800 in Placement Agent warrants for the year ended December 31, 2015 and 2014, respectively.
For the year ended December 31, 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.
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NOTE 11 – SUBSEQUENT EVENTS
On March 8, 2016, the Company amended its Certificate of Incorporation to authorize the creation of 6,000 shares of Series E Convertible Preferred Stock, $1,000 face value per share. The Series E Preferred Stock ranks junior to Series A Preferred Stock, pari passu, with Series B, C and D Preferred Stock and senior to all Common Stock. The Series E Preferred Stock will pay dividends of 6.5% or $65.00 per share, paid in cash or shares of Common Stock, at the Company’s option. The shares are convertible by the holder, at any time, at $2.00 per share.
The Company is offering $3,000,000 of Units, each consisting of $1,000 face value of one share of Series E Preferred Stock convertible into 500 shares of Common Stock and Class E Warrants exercisable at $3.00 per share to purchase 125 shares of Common Stock. There is an over-subscription option to sell up to an additional $2,000,000 of Units.
On March 21, 2016, the Board of Directors authorized options to purchase 50,000 shares of common stock to each of Jack Levine and Arthur Bollon, independent directors for 2016 compensation, exercisable at $2.00 per share for ten (10) years.
On March 21, 2016, the Board of Directors also authorized the grant of options to purchase 300,000 shares of common stock to Dr. Lawrence Helson, exercisable at $2.00 per share for ten (10) years, which will only vest in three (3) equal installments. The vesting schedule of such grant was as follows: 100,000 vested at grant, 100,000 vested as of initiation of a Phase 1 trial of SPP4040, and 100,000 vested as of initiation of a Phase 2 trial of SPP4040.
On March 21, 2016, the Board of Directors authorized 40,000 shares of common stock to Jack Levine in consideration of 2015 consulting and accounting services as Chairman of the Company’s Audit Committee.
On March 31, 2016 and April 1, 2016 the Company sold an aggregate of 120 Units consisting of 120 shares of Series E Preferred Stock convertible into 60,000 shares of Common Stock and warrants to purchase 15,000 shares of Common Stock. The Company paid Meyers Associates L.P. 10% sales commissions, expenses and placement agent warrants to purchase 15,000 shares of Common Stock.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| 3.1 | Certificate of Incorporation of the registrant (1) | |
| 3.2 | Amended and Restated Certificate of Incorporation of the registrant dated August 2, 2006 (1) | |
| 3.3 | Certificate of Amendment to the Certificate of Incorporation dated May 27, 2008 (1) | |
| 3.4 | Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock (1) | |
| 3.5 | Certificate of Amendment to Certificate of Incorporation (3) | |
| 3.6 | Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock (4) | |
| 3.7 | Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock (5) | |
| 3.8 | Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (6) | |
| 3.9 | By-Laws of the registrant (1) | |
| 3.10 | Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock (8) | |
| *3.11 | Certificate of Designation, Preferences and Rights of Series E Convertible Preferred Stock | |
| 4.1 | Form of Common Stock Certificate (1) | |
| 4.2 | Form of Class C Common Stock Purchase Warrant (5) | |
| 4.3 | Form of Bridge Note (1) | |
| 4.4 | Form of Registration Rights Agreement (1) | |
| 4.5 | Form of Subscription Agreement (1) | |
| 4.6 | Form of Series B Subscription Agreement (3) | |
| 4.7 | Form of Series C Subscription Agreement (5) | |
| 4.8 | Form of Registration Rights Agreement (5) | |
| 4.9 | Form of Class D Common Stock Purchase Warrant (9) | |
| 4.10 | Form of Series D Subscription Agreement(9) | |
| *4.11 | Form of Series E Subscription Agreement. | |
| *4.12 | Form of Series E Common Stock Purchase Warrant. | |
| 10.1 | Employment Agreement dated as of February 20, 2013 between the registrant and Dr. Lawrence Helson (7) | |
| 10.2 | 2009 Employee Stock Incentive Plan (1) | |
| 10.3 | License Agreement dated February 21, 2007, with University of Texas MD Anderson Career Center (1) | |
| 10.4 | License Agreement dated October 2, 2007, with The Johns Hopkins University (1) | |
| 10.5 | September 6, 2007 Liposomal Formulation Manufacturing Agreement with Polymun Scientific Immunbiologische Forschung (GmbH) (1) | |
| 10.6 | Amendment dated April 12, 2012 to the Lipsomal Foundation Manufacturing Agreement with Polymun Scientific Immunbiologische Forchung GmbH.(9) | |
| 10.7 | Amendment, dated August 23, 2012, to the Liposomal Formulation Manufacturing Agreement with Polymun Scientific Immunbiologische Forschung GmbH.(9) |
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| 10.8 | Form of Consulting Agreement for Scientific Advisory Board Members (1) | |
| 10.9 | Exclusive License Agreement, dated June 5, 2013, with Johns Hopkins University. (9) | |
| 10.10 | Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth. (1) | |
| 10.11 | Patent and Technology License Agreement dated November 25, 2015, between the registrant and the University of North Texas Health Science Center.(9) | |
| 10.12 | Placement Agency Agreement dated as of September 17, 2014 by and between SignPath Pharma Inc. and Meyers Associates L.P. (9) | |
| 10.13 | Amendment No. 1 to Sponsored Laboratory Research Agreement dated as of August 26, 2009 by and between the registrant and The University of Texas M.D. Anderson Cancer Center. | |
| 10.14 | Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth dated December 2010. (2). | |
| 10.15 | Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth dated August 1, 2013. (9) | |
| 10.16 | Amendment No. 1, dated July 18, 2014, to the Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth dated August 1, 2013.(9) | |
| 10.17 | Amendment No. 1, dated December 12, 2014, to the Employment Agreement by and between the registrant and Dr. Lawrence Helson.(9) | |
| 10.18 | Employment Agreement, dated May 1, 2015, by and between SignPath Pharma Inc. and Kai Larson.(10) | |
| *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 | Certificate 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. | |
| *101.ins | XBRL Instance | |
| *101.xsd | XBRL Schema | |
| *101.cal | XBRL Calculation | |
| *101.def | XBRL Definition | |
| *101.lab | XBRL Label | |
| *101.pre | XBRL Presentation |
* As 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 Annual Report on Form 10-K for the year ended December 31, 2010. | |
| (3) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 21, 2011. | |
| (4) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 21, 2011. | |
| (5) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2013. | |
| (6) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2013 | |
| (7) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2014. | |
| (8) | Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration Number 333-198110), filed on December 12, 2014. | |
| (9) | Incorporated by reference to the Company’s Annual report on Form 10-K filed on April 9, 2015. | |
| (10) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 1, 2015. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SIGNPATH PHARMA INC. | ||
| Dated: April 8, 2016 | By: | /s/ Lawrence Helson, M.D. |
| Lawrence Helson, M.D. | ||
| Chief Executive Officer | ||
| Chief Financial Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signatures | Title | Date | ||
| /s/ Lawrence Helson, M.D | Chief Executive Officer, Chief Financial Officer, and Director | |||
| Lawrence Helson, M.D | (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) | April 8, 2016 | ||
| /s/ Arthur P. Bollon, Ph.D. | Director | April 8, 2016 | ||
| Arthur P. Bollon, Ph.D. | ||||
| /s/ Jack Levine | Director | April 8, 2016 | ||
| Jack Levine |
| 64 |