UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 31, 2016

or

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

For the transition period from to                            

Commission File No. 001-37411

BIOPHARMX CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 650-889-5020

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

Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

As of December 9, 2016, there were outstanding 67,719,577 shares of the registrant’s common stock, $0.001 par value.

BIOPHARMX CORPORATION

Form 10-Q

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BioPharmX Corporation

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

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

BioPharmX Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share data)

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

BioPharmX Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

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

BIOPHARMX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

BioPharmX Corporation (the “Company”) is incorporated under the laws of the state of Delaware and originally incorporated on August 30, 2010 in Nevada under the name Thompson Designs, Inc. The Company has one wholly-owned subsidiary, BioPharmX, Inc., a Nevada corporation. The Company is a specialty pharmaceutical company focused on utilizing its proprietary drug delivery technologies to develop and commercialize novel prescription and over-the-counter, or OTC, products that address large markets in dermatology and women’s health. The Company’s objective is to develop products that treat health or age-related conditions that (1) are not presently being addressed or treated at all or (2) are currently treated with drug therapies or drug delivery approaches that are suboptimal. The Company’s strategy is designed to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for FDA-approved active pharmaceutical ingredients, or APIs, and biological materials, while, in appropriate circumstances, reducing the time, cost and risk typically associated with new product development by repurposing drugs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act. The Company believes these approaches may reduce drug development risk and could reduce the time and resources it spends during development.  Its current platform technologies include innovative delivery mechanisms for antibiotics, biologic materials and molecular iodine (I₂).

Since the Company’s inception, substantially all of the Company’s efforts have been devoted to developing its product candidates, including conducting preclinical and clinical trials, and providing general and administrative support for its operations. The Company commercially launched its breast health supplement at the end of 2014, although to-date the Company has not generated significant revenue from product sales. The Company is not dependent on sales to any one customer. The Company has financed its operations primarily through the sale of equity and convertible debt securities.  In June 2015, the Company raised net proceeds of $7.8 million through the sale of its common stock in a public offering and concurrently completed an uplisting to the NYSE MKT. In December 2015 the Company raised net proceeds of $5.5 million in a private offering of its common stock and, in April 2016, it raised net proceeds of $3.6 million from an issuance of common stock and warrants to purchase common stock in a public offering.    In August 2016, the Company raised net proceeds of $1.3 million in a private offering of its common stock and $1.5 million through the sale of convertible promissory notes.  In September 2016, the Company raised net proceeds of $0.8 million in a registered direct offering.  In November 2016, the Company raised net proceeds of $11.7 million,  after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company, from a public offering of common stock, preferred stock and warrants to purchase common stock in a public offering. In December 2016, the underwriters exercised their option to purchase additional shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company.

Basis of Presentation and Principles of Consolidation

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of the Company and its subsidiary. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2016, filed on May 2, 2016. The condensed consolidated balance sheet as of January 31, 2016, included herein, was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary and have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the

Company’s statement of financial position as of October 31, 2016 and January 31, 2016, and the Company’s results of operations and its cash flows for the three and nine months ended October 31, 2016 and 2015.  The results for the three and nine months ended October 31, 2016 are not necessarily indicative of the results to be expected for the year ending January 31, 2017 or any future period.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the standard cost method which approximates actual cost on a first-in, first-out basis. Market value is determined as the lower of replacement cost or net realizable value. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date.

Advertising Expenses

The Company expenses the costs of advertising, including promotional expenses, as incurred. Advertising expenses were approximately $32,000 and $312,000 for the three months ended October 31, 2016 and 2015, respectively.  Advertising expenses were approximately $310,000 and $861,000 for the nine months ended October 31, 2016 and 2015, respectively.

Net Loss per Share

Basic net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of the Company’s common stock outstanding during the period. The weighted average shares outstanding for the three and nine months ended October 31, 2016 excludes 193,333 shares of unvested common stock. Diluted net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of the Company’s common stock outstanding and other dilutive securities outstanding during the period. The potential dilutive shares of common stock resulting from the assumed exercise of outstanding stock options, warrants, convertible promissory notes and the assumed conversion of preferred stock are determined under the treasury stock method.

For the three and nine months ended October 31, 2016 and 2015, approximately 12,860,000 and 5,454,000 potentially dilutive securities, respectively, were excluded from the computation of diluted loss per share because their effect on net loss per share would be anti-dilutive.

Convertible Notes Payable

The Company has issued convertible notes that have conversion prices which results in an embedded beneficial conversion feature.  The intrinsic value of the beneficial conversion feature is recorded as a debt discount with the corresponding amount to additional paid in capital.  The debt discount is amortized to interest expense over the life of the convertible notes using the effective interest method.

Warrant Liability

The Company accounts for certain of its warrants as derivative liabilities based on provisions relating to cash settlement options.  The Company records a liability for the fair value of the warrants at the time of issuance, and at each reporting date the warrant is revalued to the instrument’s fair value. The fair value of the warrant is estimated using the Black-Scholes pricing model. This liability is subject to fair value re-measurement until the warrants are exercised or expired, and any change in fair value is recognized as other income or expense in the condensed consolidated statement of operations and comprehensive loss.  

Summary of Significant Accounting Policies

These unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended January 31, 2016. There have been no significant changes in the Company’s significant accounting policies for the three months ended October 31, 2016, as compared to the significant accounting policies described in the Annual Report on Form 10-K for the fiscal year ended January 31, 2016.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which requires entities to recognize assets and liabilities for leases with lease terms greater than twelve months. The new guidance also requires quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. This standard provides guidance on simplifying several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, accounting for forfeitures and classification of excess tax benefits on the statement of cash flows.  This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which addresses certain implementation issues that have surfaced since the issuance of ASU No. 2014-09 in May 2014. ASU No. 2016-10 provides guidance in identifying performance obligations and determining the appropriate accounting for licensing arrangements. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU No. 2016-12 will affect all entities that enter into contracts with customers to transfer goods or services that are an output of the entity’s ordinary activities in exchange for consideration. The amendments in this update affect the guidance in ASU No. 2014-09 which is not yet effective. The amendments in this update also affect narrow aspects of Topic 606 including among others: assessing collectability criterion, noncash consideration, and presentation of sales taxes and other similar taxes collected from customers. The effective date of this update is the same as ASU No. 2014-09. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements. 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment gives guidance and reduces diversity in practice with respect to certain types of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.  

2. GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and will continue to conduct operations for the foreseeable future and realize assets and discharge liabilities in the ordinary course of operations. As of October 31, 2016, the Company had cash and cash equivalents of $0.5 million and a  working capital deficit of $4.2 million. In November 2016, the Company raised net proceeds of $11.7 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company, from a public offering of common stock, preferred stock and warrants to purchase common stock. In December 2016, the underwriters exercised their option to purchase additional shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company.

The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock in public and private offerings and the issuance of convertible notes, preferred stock and warrants. The Company incurred a net loss available to common stockholders of $3.9 million for each of the three months ended October 31, 2016 and 2015, and $13.4 million and $11.4 million during the nine months ended October 31, 2016 and 2015, respectively, and had an accumulated deficit of $39.6 million as of October 31, 2016.

The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in its industry. To date, the Company has generated a de minimis amount of revenue. The Company continues its research and development efforts for its product candidates, which will require significant funding. If the Company is unable to obtain additional financing in the future, or if revenues fall short of expectations or research and development efforts require higher than anticipated capital, there may be a negative impact on the financial viability of the Company.    The Company plans to increase working capital by managing its cash flows and expenses and raising additional capital through either private or public equity or debt financing. There can be no assurance that such financing will be available or on terms which are favorable to the Company. While management of the Company believes that it has a plan to fund ongoing operations, there is no assurance that its plan will be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

3. FAIR VALUE MEASUREMENTS

The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

As of October 31, 2016, the Company held $0.2 million in money market funds, which are classified as Level 1 within the fair value hierarchy. No unrealized gains or losses are recorded in connection with these amounts. 

The fair value of the warrant liability was classified as  a  Level 3 liability, as the Company uses unobservable inputs to value it.    The table below presents the activity within Level 3 of the fair value hierachy (in thousands):

4. BALANCE SHEET DETAILS

5. RELATED-PARTY PAYABLES

Since the beginning of 2014, a portion of the compensation of the founding executives of the Company has been deferred and is included in the related party payables balance.  The deferred compensation is non-interest bearing and has periodically been repaid to these executives.  Related party payables as of October 31, 2016 and January 31, 2016 were approximately $104,000 and $225,000, respectively.

6. COMMITMENTS AND CONTINGENCIES

Commitments

The following table summarizes the Company’s commitments as of October 31, 2016 (in thousands):

On August 23, 2013, Company signed a lease for 10,800 square feet of office and laboratory space in Menlo Park, California. The lease expired in November 2016. The Company has identified a comparable replacement space in Menlo Park, which it believes is suitable for its needed. Rent expense for the three months ended October 31, 2016 and 2015 was approximately $86,000 and $94,000, respectively. Rent expense for the nine months ended October 31, 2016 and 2015 was approximately $259,000 and $266,000, respectively. The purchase commitment relates to the manufacturing of VI₂OLET and is non-cancelable.

Legal Proceedings

The Company is not a party to any material legal proceeding that the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

Indemnification

The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.

License Agreement

In March 2013, the Company entered into an amended and restated collaboration and license agreement with Iogen LLC, which provides the Company with a license to certain rights to label, market, and resell the finished inventory and ongoing manufacturing of the Iogen molecular iodine technology for future product formulation development and commercialization. New formulation patents developed by the Company will be solely owned by the Company. The agreement gives the Company a perpetual, fully paid-up, exclusive license to make, have made, use, sell and offer for sale and import products.

Pursuant to the terms of the license, the Company must pay:

The Company capitalized as intangible assets, in the year ended December 31, 2013, the amount of $150,000 related to this agreement. As of October 31, 2016 and January 31, 2016, the balance, net of amortization, was approximately $97,000 and $119,000, respectively. No royalties have been paid as of October 31, 2016.

7. CONVERTIBLE NOTES PAYABLE

On August 17, 2016, the Company issued a secured convertible promissory note (the “Secured Note”) in the principal amount of $1.0 million.  The Secured Note included a term to maturity of 36 months and an interest rate of 10% per annum.  On August 17, 2016, the Company issued an unsecured convertible promissory note (the “Unsecured Note”) in the principal amount of $0.5 million.  The Unsecured Note included a term to maturity of 6 months and an interest rate of 10% per annum.  Both the Secured Note and Unsecured Notes (together, the “Notes”) were convertible into the Company’s common stock at a conversion price of $0.80 per share.  Upon issuance of the Notes, debt discounts of approximately $88,000 resulting from a beneficial conversion feature and debt issuance costs of approximately $16,000 were recorded and are being amortized to interest expense over the life of the Notes.  For the three months ended October 31, 2016, interest expense related to these debt discounts and issuance costs were approximately $16,000.  Accrued interest was approximately $30,000 as of October 31, 2016.

Pursuant to the conversion features included in the Notes, the Notes’ principal amount and unpaid accrued interest automatically converted into 1,926,711 shares of common stock immediately prior to the completion of the Company’s public offering on November 28, 2016.

8. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Common Stock

In June 2015, the Company uplisted to the NYSE MKT and simultaneously completed a public offering in which it issued 3,636,384 shares of common stock resulting in net proceeds of $7.8 million. Pursuant to the terms of a convertible note previously issued, immediately prior to the closing of the offering, the principal amount and all accrued and unpaid interest converted into 182,266 shares of common stock.  Pursuant to a subscription agreement dated October 24, 2014, Korea Investment Partners Overseas Expansion Platform Fund (“KIP”), an existing stockholder, agreed to purchase 1,081,081 shares of common stock from the Company at a price of $1.85 per share in a private placement (the “KIP private placement”) upon the earlier to occur of (i) the Company receiving revenues from VI₂OLET of $2,000,000 or (ii) receipt by the Company of approval to list on any tier of the NYSE or Nasdaq stock market at a market price of at least $3.70 per share. In addition, KIP has previously informed the Company of its intention to complete the KIP private placement even if the Company’s stock price was not at least $3.70 per share. As of the date of this report, this private placement has not closed, and the Company does not expect the private placement to close. As consideration for Ping Wang’s service as a director of the Company (Wang is no longer a director of the Company), 290,000 shares of the Company’s common stock were issued, of which 96,667 shares vested immediately and 193,333 shares will vest immediately upon completion of the $2.0 million purchase. The Company does not expect these shares to vest.

In December 2015, the Company sold 4,100,000 shares of common stock at a price per share of $1.43 resulting in net proceeds of $5.5 million in a private placement to investment funds managed by Franklin Advisers. For a period of five years, Franklin Advisers has the right to purchase up to an aggregate of 20% of the securities offered by the Company in any subsequent private placement.

In April 2016, the Company issued 3,600,000 shares of common stock at a price per share of $1.195 resulting in net proceeds of $3.6 million and warrants to purchase 1,952,000  shares of common stock in a public offering. These warrants have an exercise price of $1.20 per share and expire on April 1, 2021. As of October 31, 2016, all of these warrants were outstanding.

In August 2016, the Company issued 2,423,077 shares of common stock at a price per share of $0.65 resulting in net proceeds of $1.3 million in a private offering.

In September 2016, the Company issued 1,550,000 shares of common stock at a price per share of $0.60 resulting in net proceeds of $0.8 million and warrants to purchase 1,286,501 shares of common stock in a registered direct offering.  These warrants have an exercise price of $0.80 per share and expire in five years. As of October 31, 2016, all of these warrants were outstanding.

In November 2016, the Company issued 31,489,429 shares of common stock at a price per share of $0.35, 1,515 shares of preferred stock at a price per share of $1,000 and warrants to purchase 31,301,511 shares of common stock in a public offering resulting in net proceeds of $11.7 million, after deducting underwriting discounts and commissions and

before deducting other offering expenses payable by the Company. In December 2016, the underwriters exercised their option to purchase an additional 1,390,676 shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company. These warrants have an exercise price of $0.35 and expire in seven years from the date of exercisability.

Series A Preferred Stock

During 2014, the Company entered into subscription agreements for the private placement of 4,207,987 shares of its Series A preferred stock and warrants to purchase 2,042,589  shares of common stock at an exercise price of $3.70 per share. In connection with the uplisting to the NYSE MKT, the Series A preferred stock, including accrued and unpaid interest, converted into 4,319,426 shares of common stock. The warrant exercise agreements included a provision such that if the public offering price related to the offering was less than $3.125 per share, then immediately prior to the closing of the offering, additional shares of common stock would be issued at no additional consideration to each holder equal to: (i) the product of (A) the difference between $2.50 per share and 80% of the public offering price and (B) such holder’s shares of common stock received pursuant to exercise of the amended warrants, divided by (ii) 80% of the public offering price in the offering. Based on a public offering price of $2.75 per share, 77,006 shares of common stock were issued pursuant to this provision.

In March and April 2015, the Company amended certain of the warrants issued in connection with the Series A preferred stock financing to reduce the exercise price of such warrants from $3.70 to $2.50 per share with a corresponding increase in the number of shares of common stock exercisable under the warrants so that the aggregate exercise value of such warrants remained the same. As of January 31, 2016, certain holders had exercised such warrants for an aggregate of 564,662 shares of common stock for an aggregate cash exercise price of  $1,411,655.  The Company recorded a charge for the incremental fair value of $436,000 in other expense related to the amended warrants in the first quarter of fiscal year 2016. The fair value of the warrants exercised was computed as of the date of modification using the following assumptions: dividend rate of 0%, risk-free rate of 1.6%, contractual term of four to five years and expected volatility of 85.9%.  As of October 31, 2016, of the warrants issued in connection with the Series A preferred stock financing, warrants to purchase 1,661,055 shares of common stock remain outstanding.

Pursuant to the Certificate of Elimination filed with the Secretary of State of the State of Delaware on March 17, 2016, all shares of Series A preferred stock previously designated were returned to the status of authorized but unissued shares of preferred stock, without designation as to series or rights, preferences, privileges or limitations.

Warrants

In addition to the warrants issued in conjunction with the Series A preferred stock subscription agreements, the Company issued warrants on May 15, 2014, to a service provider for 316,395 shares of common stock at an exercise price of $2.035 per share, which were valued at $99,000 and expensed. As of October 31, 2016, all were outstanding. On May 14, 2014, the Company also issued warrants valued at $105,000 for 343,559 shares of common stock at an exercise price of $1.85 per share to a qualified investor as a part of his convertible loan package. These warrants expire five years after the date of issuance and are immediately exercisable. In June 2015, a portion of the warrants were exercised for 54,054 shares of common stock and as of October 31, 2016, warrants exercisable for 289,505 shares of common stock remain outstanding.

In connection with the offering completed in June 2015, warrants to purchase 109,091 shares of common stock were issued to the underwriters at the public offering price of $2.75.  These warrants expire five years after the date of issuance.  As of October 31, 2016, all of these warrants were outstanding.

In connection with the sale of common stock in April 2016, warrants to purchase 1,952,000 shares of common stock were issued at an exercise price of $1.20.  As of October 31, 2016, all of these warrants were outstanding.

In connection with the sale of common stock in September 2016, warrants to purchase 1,286,501 shares of common stock were issued at an exercise price of $0.80.  As of October 31, 2016, all of these warrants were outstanding. These warrants included a cash settlement option requiring the Company to record a liability for the fair value of the warrants at the time of issuance and at each reporting period with any change in the fair value reported as other income or expense.  The Company used the Black-Scholes pricing model to value the warrant liability with the following assumptions: risk-

free interest rate of 1.1%, contractual term of 5 years, expected volatility of 95.8% and a dividend rate of 0%. At the time of issuance, approximately $566,000 was recorded as warrant liability.  As of October 31, 2016, the fair value of the warrant liability was approximately $232,000 and was included as a long-term liability.

Equity Incentive Plan

On July 5, 2016, the Company adopted the 2016 Equity Incentive Plan, or 2016 Plan, which permits the Company to grant equity awards to directors, officers, employees and consultants. In connection with the adoption of the 2016 Plan, the Company ceased to grant equity awards under its 2014 Equity Incentive Plan, or 2014 Plan, which was adopted on January 23, 2014. All grants and awards under the 2014 Plan, including stock options previously issued under BioPharmX, Inc.’s 2011 Equity Incentive Plan that were substituted with stock options issued under the 2014 Plan, remain in effect in accordance with their terms. Stock options generally vest in two to four years and expire ten years from the date of grant.  Under the 2016 Plan, 4,000,000 shares were reserved for issuance.  The 2014 Plan and 2016 Plan are referred to collectively as the “Plans.”

The following table summarizes the Company’s stock option activities under the Plans:

Inducement Grants

The Company has also awarded inducement option grants to purchase common stock to new employees outside of the 2016 Plan as permitted under Section 711(a) of the NYSE MKT Company Guide. Such options vest at the rate of 25% of the shares on the first anniversary of the commencement of such employee’s employment with the Company, and then one forty-eighth (1/48) of the shares monthly thereafter subject to such employee’s continued service.  The following table summarizes the Company’s inducement grant stock option activities:

The following table summarizes significant ranges of outstanding and exercisable options as of October 31, 2016:

The total intrinsic value of stock options exercised during the three and nine months ended October 31, 2016 was approximately $26,000 and $65,000, respectively. The total intrinsic value of stock options exercised during the three and nine months ended October 31, 2015 was approximately $72,000 and $1.4 million, respectively.

9. STOCK-BASED COMPENSATION

The following table summarizes the stock-based compensation expenses included in the condensed consolidated statement of operations and comprehensive loss (in thousands):

The Company estimates the fair value of stock options granted using  the Black-Scholes pricing model. This model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly

affect the calculated values. For employee grants, the fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. As of October 31, 2016, total compensation costs related to unvested, but not yet recognized, stock-based awards was $1.9 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.63 years and will be adjusted for subsequent changes in estimated forfeitures.

Valuation Assumptions

The following assumptions were used to calculate the estimated fair value of awards granted during the three and nine months ended October 31, 2016:

Expected Term

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data.

Expected Volatility

The Company uses the historical volatility of the price of shares of common stock of selected public companies, including the Company’s stock price, in the biotechnology sector due to its limited trading history.

Risk-Free Interest Rate

The Company bases the risk-free interest rate used in the Black-Scholes pricing model upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

Expected Dividend

The Company has never paid dividends on its shares of common stock and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.

10. INCOME TAXES

The Company evaluates its ability to recover deferred tax assets, in full or in part, by considering all available positive and negative evidence, including past operating results and its forecast of future taxable income on a jurisdictional basis. The Company bases its estimate of current and deferred taxes on the tax laws and rates that are currently in effect in the appropriate jurisdiction. Changes in laws or rates may affect the tax provision as well as the amount of deferred tax assets or liabilities.

Current tax laws impose substantial restrictions on the utilization of net operating loss and credit carry-forwards in the event of an “ownership change,” as defined by the Internal Revenue Code. If there should be an ownership change, the Company’s ability to utilize its carry-forwards could be limited.

As of October 31, 2016 and January 31, 2016, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions. The 2011 to 2015 tax years remain open for examination by the federal and state authorities.

11. SUBSEQUENT EVENTS

In November 2016, the Company raised net proceeds of $11.7 million,  after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company, in a public offering of 31,489,429 shares of its common stock at $0.35 per share, 1,515 shares of preferred stock at $1,000 per share and warrants to purchase 31,301,511  shares of common stock with an exercise price of $0.35 per share. For 18 months following the date of issuance of the preferred stock, holders of shares of preferred stock will be prohibited from converting such shares into shares of the Company’s common stock if and to the extent, as a result of such conversion, the holder, together with its affiliates, would beneficially own more than 19.9% of the total number of shares of the Company’s common stock outstanding at the time of such conversion. Each share of preferred stock is convertible into 2,857 shares of common stock.  The preferred stock generally have no voting rights unless and until converted into shares of our common stock, except as required by law and except that the consent of the holders of the majority of the outstanding preferred stock will be required under certain circumstances affecting the rights of holders of preferred stock.  Warrants are exercisable on the later of the one year anniversary of the issuance date and the first trading day following the Company’s stockholder meeting in which the stockholders approve an increase to the number of authorized shares of common stock needed to cover the shares issuable upon exercise of the warrants. Once exercisable, if at all, the holder of warrants will be prohibited from exercising the warrants if and to the extent, as a result of such exercise, the holder, together with its affiliates, would own more than 19.9% of the total number of shares of the Company’s common stock issued and outstanding at the time of exercise; provided; however such limitation on exercise shall not apply in the event of a fundamental transaction of the Company, as such term is defined in the warrants. The warrants expire 7 years after the exercisability date.  In December 2016, the underwriters exercised their option to purchase additional shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by the Company.

Immediately prior to the completion of the Company’s public offering in November 2016, the principal and unpaid accrued interest of the Notes automatically converted into 1,926,711 shares of common stock. 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,” “project” the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company’s filings with the SEC, especially the Company’s Annual Report on Form 10-K and the Company’s Quarterly Reports on Form 10-Q. In various filings the Company has identified important factors that could cause actual results to differ from expected or historic results. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete list of all potential risks or uncertainties.

The following discussion is presented on a consolidated basis and analyzes our financial condition and results of operations for the three and nine months ended October 31, 2016 and 2015. Unless the context indicates or suggests otherwise, reference to “we”, “our”, “us” and the “Company” in this section refers to the consolidated operations of BioPharmX Corporation, as defined in Note 1 —Description of Business.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements and other disclosures included in this Quarterly Report on Form 10-Q. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

Overview

We are a specialty pharmaceutical company focused on utilizing our proprietary drug delivery technologies to develop and commercialize novel prescription and over-the-counter, or OTC, products that address large markets in dermatology and women’s health. Our objective is to develop products that treat health or age-related conditions that: (1) are not presently being addressed or treated at all or (2) are currently treated with drug therapies or drug delivery approaches that are sub-optimal. Our strategy is designed to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for United States Food and Drug Administration, or FDA, approved active pharmaceutical ingredients, or APIs, and biological materials, while, in appropriate circumstances, reducing the time, cost and risk typically associated with new product development by repurposing drugs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDC Act. We believe these approaches may reduce drug development risk and could reduce the time and resources we spend during development. Our current platform technologies include innovative delivery mechanisms for antibiotics, biologic materials and molecular iodine (I2).

Our management team has experience in formulation development, intellectual property generation, clinical trial execution, regulatory strategy definition and licensing and direct to consumer product commercialization. Our business model is to outsource our manufacturing and at times commercialization activities in order to maintain our focus on technology sourcing, acquisitions and strategic partner development to create new products to address unmet needs in well-defined global markets. The product candidates in our current portfolio target significant market opportunities and includes two clinical stage product candidates, BPX01, a topical antibiotic for the treatment of acne based on a unique formulation of minocycline, and BPX03, a molecular iodine (I2) tablet for the treatment of benign breast pain associated with fibrocystic breast condition, or FBC, and cyclic mastalgia, as well as one development-stage product candidate, BPX02, an injectable product utilizing biological materials for aesthetic dermatology applications. The molecular iodine product candidate includes an OTC dietary supplement version, or VI2OLET, for the alleviation of symptoms of FBC, as well as a prescription drug version for the treatment of moderate to severe, periodic breast pain associated with FBC and

cyclic mastalgia.  VI2OLET is currently the subject of a non-IND clinical trial overseen by Health Canada and an Institutional Review Board to provide additional insight on how to design a Phase 3 safety and efficacy clinical trial.

Since inception, we have devoted substantially all of our efforts to developing our product candidates, including conducting preclinical and clinical trials, and providing general and administrative support for these operations. We began shipping VI2OLET through online stores in December 2014 and have since expanded into over 7,000 retail pharmacies, specialty pharmacy and grocery chain outlet stores throughout the United States. We continue to pursue additional channel distribution expansion for VI2OLET to provide even broader access to consumers. To date, we have generated a de minimis amount of revenue from product sales while we focus on building market awareness for our product. We are not dependent on sales to any one customer. We have financed our operations primarily through the sale of equity and convertible debt securities. In June 2015, we raised net proceeds of $7.8 million through the sale of our common stock and concurrently completed an uplisting to the NYSE MKT. In December 2015 we raised net proceeds of $5.5 million in a private offering of our common stock and, in April 2016, we raised net proceeds of $3.6 million from the issuance of common stock and warrants to purchase common stock in a public offering. In August 2016, we raised net proceeds of $1.3 million in a private offering of our common stock and $1.5 million through the sale of convertible promissory notes.  In September 2016, we raised net proceeds of $0.8 million in a registered direct offering of 1,550,000 shares of our common stock and concurrent private placement of warrants to purchase up to 1,286,501 shares of our common stock. In November 2016, we raised net proceeds of $11.7 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by us, from an issuance of 31,489,429 shares of common stock, 1,515 shares of preferred stock and warrants to purchase up to 31,301,511 shares of common stock in a public offering. In December 2016, the underwriters exercised their option to purchase 1,390,676 additional shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by us.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States, or GAAP. GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our condensed consolidated financial statements.

Our significant accounting policies are summarized in Note 1 of our audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended January 31, 2016. While all of these significant accounting policies impact our financial condition and results of operations, we view the revenue recognition, inventory and stock-based compensation policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.

Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, meaning we will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As of October 31, 2016, we had cash and cash equivalents of $0.5 million and a  working capital deficit of $4.2 million. In August 2016, we raised net proceeds of $1.3 million in a private offering of 2,423,077 shares of our common stock and $1.5 million from the issuance of convertible promissory notes. In September 2016, we raised net proceeds of $0.8 million in a registered direct offering of 1,550,000 shares of our common stock and concurrent private placement of warrants to purchase up to 1,286,501 shares of our common stock. In November 2016, we raised net proceeds of $11.7 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by us, from the issuance of 31,489,429 shares of common stock, 1,515 shares of preferred stock and warrants to purchase up to 31,301,511 shares common stock in a

public offering. In December 2016, the underwriters exercised their option to purchase additional shares of common stock to cover over-allotments resulting in net proceeds of $0.5 million, after deducting underwriting discounts and commissions and before deducting other offering expenses payable by us.

We have incurred recurring losses and negative cash flows from operations since inception and have funded our operating losses through the sale of common stock in public and private offerings and the issuance of convertible notes, Series A convertible preferred stock and warrants. We incurred a net loss available to common stockholders of $3.9 million for each of the three months ended October 31, 2016 and 2015, and $13.4 million and $11.4 million during the nine months ended October 31, 2016 and 2015, respectively, and had an accumulated deficit of $39.6 million as of October 31, 2016.

We have a limited operating history and our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in our industry. To date, we have generated a de minimis amount of revenue. We continue our research and development efforts for our product candidates, which will require significant funding. If we are unable to obtain additional financing in the future, or if revenues fall short of expectations or research and development efforts require higher than anticipated capital, there may be a negative impact on our financial viability.

We plan to increase working capital by managing our cash flows and expenses and raising additional capital through either private or public equity or debt financing. There can be no assurance that such financing will be available or on terms which are favorable to us. While our management believes that we have a plan to fund ongoing operations, there is no assurance that our plan will be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives. These factors raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

Results of Operations

Three and nine months ended October 31, 2016 and 2015

Revenue

We recognize revenue on a sell-through basis if we do not have sufficient historical information to estimate product returns, pricing discounts or other concessions. If sufficient historical information is available, we recognize revenue upon shipment, net of reserves. We shipped our first product to an online retailer in December 2014 and recognized our first revenue in January 2015. The increase in revenues in the third quarter and first nine months of fiscal year 2017 compared to the prior year periods was due to the expansion into retail pharmacies, specialty pharmacy and grocery chain outlet stores in the United States and increased adoption by consumers.

Cost of Goods Sold

Cost of goods sold includes direct costs related to the sale of VI2OLET, our iodine dietary supplement, which began in January 2015, write-downs of excess and obsolete inventories and amortization of our intangible assets. The increase in cost of goods sold in the third quarter and first nine months of fiscal year 2017 compared to the prior year periods was primarily related to the increase in recognized revenue related to our product.

Research and Development Expenses