WASHINGTON, D.C. 20549
SIGNPATH PHARMA INC.
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
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: (i) the 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; and (v) the failure of the Company to successfully complete clinical trials described herein on the terms currently contemplated. 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
SignPath Pharma Inc. (“us”, “we”, “SignPath” or the “Company”) is a development 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. 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 submitted Investigative New Drug (“IND”), and Investigated Medical Product Dossier (“IMPD”) applications and clinical trials 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. We believe that the liposomes, liposomal curcumin, and liposomal-PLGA-curcumin formulations we have licensed based on management’s experience and the opinions of our consultants may be useful in the treatment of cancer, diabetes and neurologic disorders. The Company is developing two different intravenous/subcutaneous nano-particle sized formulations and a specific liposome application. Proof of efficacy of these compounds against human tumor xenografts in mice and prevention of cardiac arrhythmias was patent submitted and published. 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 dogs and humans.
SignPath has licensed three proprietary intravenous formulations containing curcumin as the active therapeutic agent. The first is a liposomal version licensed from University of Texas MD Anderson Cancer Center (“UTMDACC”); the second is a nanosized version licensed from the Johns Hopkins University (“JHU”); and the third is an extended release Liposomal-PLGA formulation (curcumin-ER) licensed from the University of North Texas Health Science Center. The Company’s near term (next 12 months) goals are to complete preclinical development of curcumin-ER, to file an IND and to begin Phase I trials for safety and dosage studies in patients with cancer. The complete dossier for liposomal curcumin, our first formulation was submitted to the European Medicines Agency (the “EMA”) on June 8, 2011 for Phase Ia clinical trials and was completed in October 2012. The Company believes its licensed synthetic chemical formulations of curcumin will replace the naturally occurring extract mixture of curcuminoids, and its discovery of the anti-arrythmia effects of its liposomes will render them potentially patentable; patents for liposomal curcumin and nanocurcumin have already been issued. The Company plans to develop these new products which potentially will give SignPath proprietary curcumin preparations with applications in the treatment for a broad spectrum of neoplastic, neurologic, and metabolic indications.
The Company has assembled leaders experienced in pharmacologic development of natural products to advise it on the development of its curcumin formulations. This Scientific Advisory Board is comprised of individuals with specific experience with natural products, formulation development, neoplastic, metabolic 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 25 years of pharmaceutical development experience; Anirban Maitra, PhD, MPPH, of JHU, who has expertise in nanotechnology, development of nano, and liposomal curcumin testing for antitumor effects; Judith A. Smith, PhD, director of the UTMDACC preclinical development group for the liposomal formulation and Jamboor Vishwanatha of University of North Texas Health Science Center who has experience with extended release formulations.
The Company’s Scientific Advisory Board members all 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, is on the Staff of Medical Oncology and Hematology at Lenox Hill Hospital, New York as an experienced Oncologist. 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 individuals serving on the Scientific Advisory Board, 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.
During the fiscal years ended December 31, 2013 and 2012, the Company expended $841,502 and $939,296, 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.
Company Strategies and Status
Business Concept
SignPath is a clinical phase biotech company. We in-license formulated curcumin (API) compounds based upon intellectual property, manufacturing capability, acceptable toxicity, parenteral administration feasibility, unmet clinical needs, and extensive data documenting efficacy of curcumin in disease indications. Our modus operandi is to demonstrate safety and efficacy of the formulated compounds in Phase 1 and 2 clinical trials in order to facilitate Phase 3 clinical trials and registration approvals. Following Phase 2 trials, we plan to partner, joint venture and/or independently complete Phase 3 clinical trials, and upon approval commercialize the products. The possibilities of selling or licensing territory for our liposome indication, or curcumin products, to other Pharma prior to completion of clinical Phase 3 of any of the products is not excluded.
Goals and Objectives
Following in-licensing of these formulations of curcumin we expect to develop a robust IP profile, and complete requirements for an IND in the United States. Upon IND approval we plan to complete a phase 2a trial of advanced Parkinson’s disease in the US. We have an approved IMPD in Europe. Our immediate goals are to complete phase 1b clinical trials with liposomal curcumin by December 2014 for omnibus cancer indications in Austria. We have completed pre-clinical studies of liposomal mitigation of QTc prolongation by several currently marketed drugs, including nilotinib and crizotinib. Liposomal mitigation of QTc prolongation and sensitization in alloxinized rabbit diabetic models is under study. This cardian arrhythmia risk is observed in 25-31% of humans with diabetes.
Target Market
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 pancreatic 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. Three additional indications are Parkinson’s disease, Type 2 diabetes, and drug-induced cardiac arrhythmias.
Preclinical animal studies conducted by other scientists of curcumin-based treatments in cancer(2) therapy suggest it may have an application as a parenteral drug for both prophylaxis and therapy. While these preclinical data show potentially beneficial activity and exhibit multiple mechanisms of action,(2) 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.
In the United States an estimated 221,130 cases of lung cancer were diagnosed in 2011 with an estimated 156,940 deaths, accounting for approximately 27% of all cancer deaths. Despite incremental advances in treatment over many years, the 5-year survival rate for all stages combined remains unacceptably low at 16%. Lung cancer researchers have reported an increased expression and number of curcumin-sensitive signaling pathways, which the Company believes may make it susceptible to therapy with liposomal curcumin. This is further supported by pre-clinical studies conducted by SignPath scientists with our synthesized curcumin and other scientists with curcumin extracts. Our planned clinical trial of liposomal curcumin as second line therapy will focus on patients who have failed standard treatment, or as a controlled first line therapy in combination with standard drugs.
Pancreatic cancer, an unmet clinical need, is the fifth leading cause of cancer deaths, accounting for an estimated 45,600 deaths annually in the United States. 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. Most patients with this diagnosis could be candidates for trials in combination with gemcitabine, or trials of curcumin alone as second line therapy.
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1Ahn KS, AggarwalBB., 2005 Transcription factor NF-(kappa)B; A sensor for smoke and stress Signals. Ann N.Y. AcadSci 1056:218-233.
2Aggarwal B.B., Kumar A, Bharti C 2003. Anticancer potential of curcumin.Pre-clinical and clinical studies.nticancer Research 23:363-398.
Other potential susceptible tumor types are primary tumors. The incidence of glioblastoma multiforme and other malignant gliomas is 17,000 patients per year, or 59 per million of the population, according to the literature.(3) Although this represents just 2% of cancer deaths in the United States, survival rates and duration 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 who have poor survival rates, making primary and metastatic brain tumors a clear unmet need.
The Company believes that its parenteral formulations of curcumin can be compared or combined with standard of care when used in combination with front line standard chemotherapy in a number of other diseases. Given the aging of the population and annual incremental growth in the number of prospective patients in chronic disease categories such as Parkinson’s disease, the Company believes a minimally toxic agent like curcumin could gain wide acceptance and usage. In screening for an additional clinical indication in a review of the literature, we identified a compelling array of documented beneficial effects of curcumin and erythropoietin on Type 2 diabetes and insulin resistance. To date we noted 34 islet cell molecular, and tissue targets beneficially responding to curcumin and/or erythropoietin, eight possible drug actions either not impacting or potentially exacerbating the diabetic state, and five molecular targets with unreported interaction with curcumin.
Unlike insulin replacement treatment of diabetic disorders, our working hypothesis addresses diabetes as a disease characterized by heterogeneous intricacies. SignPath is investigating curcumin and cEPO-Fc in combination assuming the combination can navigate the transcription factor expression levels in appropriate sequences and within an appropriate timeline required for β-cell differentiation, insulin secretion, and the molecular regulation of β-cell mass maintenance, and expansion, i.e. differentiating β-cells from precursor populations in vivo and returning islets to a normal insulin-responsive homeostatic state. An additional related extra-islet goal is to mitigate pathologic causes of insulin resistance.
SWOT 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 a unique company developing parenteral curcumin administration methods because the oral route of administration of this compound lacks sufficient bioavailability for systemic disease therapy. The phase 1b liposomal curcumin formulation was initiated a cancer patient in Salzburg in October 2013. Based upon initial observations we altered the infusion delivery method and shortened the infusion duration from 24 to 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 34 publications regarding our products, 9 patents pending (and two issued). The formulations may be applicable for diseases affecting large numbers of people. GMP synthesis renders the curcumin API 99.2% pure. |
| 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 gravity drip 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, neurologic and diabetic 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: | None from established pharmaceutical companies worldwide. |
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 lung cancer, Type 2 diabetes and Parkinson’s disease (over 1,200,000 patients). Used alone or in combination with other drugs or radiation treatments, we anticipate 10-50% of market share depending upon the indications chosen and responses in phase II and phase III clinical trials.
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3 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.
Curcumin is not a branded name because of extensive use as a spice for over 3,000 years. As data is developed we anticipate presenting this information at large international and disease specialty meetings, e.g., ASCO, and EMSO. Pricing and sales are too early to identify at this stage of development.
Potential Products
As a drug development pharma, we have three lead candidates: liposomal curcumin (Lipocurc), Liposomal-PLGA-Curcumin (Curcumin-ER), and Liposomes alone. The liposomal curcumin development is the most advanced with a completed Phase 1a in 45 normal subjects. Phase 1b trials in cancer patients were initiated in Europe in October 2013. Manufacturing of the active pharmaceutical ingredient is by Sami Labs, Bangalore, India and the final liposomal product is made by Polymun GmbH, Klosterneuburg, Austria. All required blood analyses, and pharmacokinetics of Phase 1a, 1b and Phase 2 studies have been, or are to be outsourced to Dalton Inc. and Nucro Technics in Ontario, Canada. Clinical 1a studies in 45 normal subjects have been completed under the supervision of Dr. M.Wolzt at the University of Vienna hospital Phase1 clinic and reported at the April 2013 AACR convention in Washington, D.C. There are no known risks regarding competition since SignPath is the only company developing parenteral synthesized 99.2% pure curcumin formulations.
A liposomal curcumin for cancer patent was issued on June 29, 2011; a nanocurcumin patent was issued on November 20, 2012 and an additional nine curcumin-related patents have been submitted to the US Patent and Trademark Office.
Liposomal curcumin is planned to be used as a cancer therapeutic alone or in combination with other anti-cancer agents, as an anti-Parkinson’s disease, and an anti-diabetic, therapeutic. The liposome is planned to be used to mitigate current drug induced QTc prolonging toxicity. The nanosized formulation of curcumin composed of a lipid coating that encases the curcumin molecule increases solubility in blood, and distribution in the lungs, allowing more drug to reach pulmonary tumor sites. In a proof of principle study, positive pre-clinical studies of subcutaneous curcumin in human lung tumor xenotransplants, have been completed at the University of North Texas Health Sciences Center.
Product Risks
To date, at estimated therapeutic dosages of liposomal curcumin, no life threatening adverse events have been observed in 45 normal healthy subjects in a Phase 1a ascending dose trial. Intravenous curcumin causes dose dependent red blood cell membrane alterations, dose-dependent hemolysis, and increased bleeding diathesis.
Nanocurcumin
Nanocurc™, a polymeric parenteral formulation of curcumin has been found in human pancreatic cancer xenografts in nude mice to have anti-cancer effects which are synergistic when co-administered with Gemcitabine. This formulation also has activity against breast cancer and passes the blood brain barrier. This formulation is relegated to serve as a fail-safe drug.
Liposomal PLGA Curcumin (curcumin-ER)
This is an extended release formulation, (designed to prevent curcumin-induced QTc prolongation and possible cardiac adverse events by the incorporation of liposomes). It has activity with human lung cancer (A453) xenotransplants in nude mice.
Research
The Company currently outsources all of its preclinical research. This research is 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; Dry Heinz and Partner CRO in Europe; Schiff &Co for CRO( (for Phase 2) in the USA and Central European Society for Anticancer Research (CESAR) for Phase 1b -2 clinical trials in the EU.
The Company has a Scientific Advisory Board which helps oversee the preclinical research. A number of specialists in pre-clinical and clinical medicine sit on the Scientific Advisory Board, including Drs. T. Ahmed, R. Horne, A Maitre, J.A. .Smith, G. Shopp and Peter Sordillo.
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.
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 1b 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 typically compared with a placebo or the current standard of treatment to show that the drug is equal to (or an improvement upon) existing treatments. Once those studies have been completed, 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.
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.
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. GMP grade Nanocurcumin will be manufactured for the Company by Regis Pharmaceuticals. 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 injectible 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 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. Currently body tissue distribution of liposmal curcumin and repeat pharmacokinetic studies of two hour and eight hour infusions are being analyzed with a novel validated (patent being applied) method for drug levels.
SignPath is collaborating with Gibralter Labs, Regis Pharmaceuticals, Johns Hopkins University, Chemic and the NCI Nanocharacterization Laboratory for corroborative non-clinical and pre-clinical studies of polymeric nanocurcumin. GMP production is being done at Regis Pharmaceuticals.
Intellectual Property
The Company has rights to two issued patents: the first is entitled “Liposomal Curcumin for Treatment of Cancer (June 28, 2011), and the second is entitled “Water Dispersible oral parenteral and Topical Nanocurcumin” (November 20, 2012). We also have a pending patent application for depocurcTM. The U.S. Patent Office has returned office action on the depocurcTM application. Five additional provisional patent applications have been submitted; including use of calcium channel blockers for hemolysis, neuropathic applications, composition of matter of synthetic curcumin, prevention of diabetic drug complications, and liposomal prevention of cardiac potassium channel blockage.
As discussed above, SignPath has licensed three proprietary intravenous formulations containing curcumin as the active therapeutic agent. The first is a liposomal version licensed from University of Texas MD Anderson Cancer Center; the second is a nanosized version licensed from the Johns Hopkins University; and the third is an extended release Liposomal-PLGA formulation (curcumin-ER) licensed from the University of North Texas Health Science Center.
Internet domains have been established for SignPathpharma.com; depocurc.com, lipocurc.com; nanocurc.com and nanocurcumin.com. The trademark “Nanocurc” (Sept. 15, 2009) has been registered with a six-month extension to use in commerce. The trademark Lipocurc (February 16, 2011) has been registered.
Employees
The Company currently has one employee, Dr. Lawrence Helson, its Chief Executive Officer. The Company expects to continue to use subcontractors and independent consultants and will hire a business development director when funds are available.
ITEM 1 A. RISK FACTORS
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 $1,956,872 and $1,310,934 for the years ended December 31, 2013 and 2012, respectively, and a loss from inception through December 31, 2013, of $10,668,408. 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, 2013 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, 2013, 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. 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, 2013. If we are unable to raise additional capital or borrow money we will not be able to complete and file INDs with the FDA in order to commence clinical trials. 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 2013, we were able to raise $3,380,000 of gross proceeds from the sale of convertible preferred stock which will allow 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; |
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| | ● | the lack of commercialized products; |
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| | ● | reliance on third parties for the development and commercialization of some of our proposed products; |
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| | ● | uncertain market acceptance of our proposed products; and |
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| | ● | reliance on our founder Dr. Lawrence Helson. |
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 President of Meyers Associates, owns 2,657,500 shares (20.6%) and Meyers Associates owns 2,305,000 shares (17.9%) of the 12,877,500 outstanding shares of the Company’s common stock. This concentration of ownership may not be in the best interests of the Company’s stockholders and Meyers Associates and may be subject to potential conflicts of interest. As a result of Meyers Associates’ ownership of the Company, it is likely that in the event the Company becomes a publicly-traded company, Meyers Associates’ would not be able to serve as a market maker in the Company’s common stock. See Item 12, “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
The Company does not have the financial resources necessary to successfully complete development and market any formulations of curcumin.
As of December 31, 2013, the Company had $1,241,397cash on hand. Since January 1, 2014, the Company has received gross proceeds of an additional $375,500 from the sale of convertible preferred stock. These funds are expected to be sufficient to conduct clinical trials in Europe and to file an IND to commence clinical trials in the U.S. However, in order to complete product development and marketing, the Company will need to attract sufficient additional capital. 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.
Our drug development program will require substantial additional capital to successfully complete it, arising from costs to:
| | ● | complete research, preclinical testing and human studies; |
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| | ● | establish pilot scale and commercial scale manufacturing processes; and |
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| | ● | 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; |
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| | ● | the scope and results of preclinical testing and human studies; |
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| | ● | the time and costs involved in obtaining regulatory approvals; |
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| | ● | the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; |
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| | ● | competing technological and market developments; |
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| | ● | our ability to establish additional collaborations; |
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| | ● | changes in our existing collaborations; |
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| | ● | the cost of manufacturing scale-up; and |
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| | ● | 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 will need to increase the size of our organization, and we may experience difficulties in managing growth.
We are a small company with one full-time employee, our CEO, as of the date of this report. To conduct our clinical trials and commercialize our product candidates, we will 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.
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 83. If we were to lose his services, 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.
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, nanocurcucmin, slow release PLGA formulation, or any other formulation of curcumin or any product whatsoever, or obtain FDA approval.
Two of our three curcumin formulations will require extensive additional development, including preclinical testing and human studies, as well as regulatory approvals, before we can commercialize and market them. 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; |
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| | ● | the products may fail to receive necessary regulatory approvals from the FDA in a timely manner, or at all; |
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| | ● | the products, if approved, may not be produced in commercial quantities or at reasonable costs; |
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| | ● | the potential products, once approved, may not achieve commercial acceptance; |
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| | ● | regulatory or governmental authorities may apply restrictions to our potential products, which could adversely affect their commercial success; or |
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| | ● | the proprietary rights of other parties may prevent us from marketing our potential products (negligible because there is no other commercial arenteral curcumin developer, and we have approved patent protection). |
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 business plan depends on developing products based on intellectual property licensed from The Johns Hopkins University (“JHU”), The University of Texas MD Anderson Cancer Center (“UTMDACC”), and the University of North Texas (“UNT”). See “Business - Intellectual Property.” The Company’s license agreements require the Company to make payments to the licensors in the future. The Company currently does not have sufficient resources to make all of such payments, and there can be no 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.
The Company’s license agreement with JHU is for the life of the last patent to expire or 20 years if no patents issue. It is terminable for a breach of contract by SignPath not cured within 30 days after receipt of notice.
The Company’s license agreement with UNT terminates the later of the expiration of any patent rights or 15 years, and if no patent is issued shall terminate 15 years after regulatory approval of any licensed product. The Company must evidence within three years that it is advancing and effectively attempting to license a commercialized product.
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 JHU, UTMDACC, UNT 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 JHU, UTMDACC, or UNT 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 contracts with Clinipace Inc. to analyze, prepare and present Investigational New Drug (“IND”) applications to the FDA and conduct clinical trials. 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 I clinical testing, in the United States, but has completed an EMA approved Phase 1a 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 I 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.
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 adverse effects in mice or rats with liposomal curcumin or nanocurcumin. 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; |
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| | ● | the results of preclinical studies may be inconclusive or they may not be indicative of results that will be obtained in human clinical trials; |
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| | ● | 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; |
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| | ● | 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 |
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| | ● | 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. |
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; |
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| | ● | a change in the way the product is administered; or |
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| | ● | 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; |
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| | ● | restrictions on the marketing of a product; |
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| | ● | warning letters; |
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| | ● | withdrawal of the products from the market; |
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| | ● | refusal to approve pending applications or supplements to approved applications that we submit; |
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| | ● | recall of products; |
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| | ● | fines, restitution or disgorgement of profits or revenue; |
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| | ● | suspension or withdrawal of regulatory approvals; |
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| | ● | refusal to permit the import or export of our products; |
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| | ● | product seizure; |
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| | ● | injunctions; or |
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| | ● | 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.
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 agreements with UTMDACC, JHU, and UNT these universities have certain rights to control product development and clinical programs for products developed under the collaborations. As a result, the universities may conduct these programs more slowly or in a different manner than we had expected. Even if clinical trials are completed, we or the universities 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, however, none of their compounds has the broad spectrum of activity of curcumin.
Many of the Company’s non-curcumin-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 putative 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. However, we will focus on unmet needs, and indications where FDA-approved therapies have failed. In addition, we will face competition based on many different factors, including:
| | ● | the safety and effectiveness of our products; |
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| | ● | the timing and scope of regulatory approvals for these products; |
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| | ● | the availability and cost of manufacturing, marketing and sales capabilities; |
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| | ● | the effectiveness of our marketing and sales capabilities; |
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| | ● | the price of our products; |
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| | ● | the availability and amount of third-party reimbursement; and |
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| | ● | the strength of our patent position. |
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 inflammatory 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, many 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 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; |
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| | ● | increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all; |
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| | ● | withdrawal of clinical trial volunteers or patients; |
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| | ● | damage to our reputation and the reputation of our products, resulting in lower sales; |
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| | ● | regulatory investigations that could require costly recalls or product modifications; |
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| | ● | litigation costs; and |
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| | ● | the diversion of management’s attention from managing our business. |
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 liposomal curcumin, nanocurcumin, slow release PLGA formulation or other formulations of curcumin or other products that it may develop; or |
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| | ● | 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 JHU, UTMDACC, and UNT. See “Business – Intellectual Property”.
In addition, JHU, UTMDACC, or UNT may develop products, either alone or with others, that 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 of our three licensors breach or terminate 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 JHU, UTMDACC, and UNT 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. Nanocurcumin will be manufactured by Regis Pharmaceuticals. The polymer was manufactured by Surmodics. See Item 1 “Description of Business – Potential Commercialization of Liposomal Curcumin and Nanocurcumin; 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.
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; |
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| | ● | cost effectiveness; |
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| | ● | adequate reimbursement by third parties; |
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| | ● | potential advantages over alternative treatments; |
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| | ● | relative convenience and ease of administration; and |
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| | ● | prevalence and severity of side effects. |
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.
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; |
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| | ● | putting a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors; or |
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| | ● | 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.
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; |
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| | ● | 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 |
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| | ● | 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 |
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| | ● | 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 attorneys 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.
If our common stock is traded on the OTC Bulletin Board, which is not a national securities exchange, it may be detrimental to investors
We have been 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 on the OTC Bulletin Board, 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 date of this report, there were, 3,255 shares of Series A Preferred Stock issued and outstanding convertible into approximately 3,831,376 shares of common stock and, 2,146 shares of Series B Preferred Stock convertible into approximately 2,525,842 Shares of Common Stock, and 3,755.5 shares of Series C Preferred stock convertible into 3,004,400 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.
A significant number of our shares are eligible for sale, and their sale could depress the market price of our stock.
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. Pursuant to our most recent Registration Statement of Form S-1 (No. 333-169386), an aggregate of 6,161,448 shares of common stock were registered in October of 2010 all of which would be free-trading upon resale pursuant to a current prospectus filed in a registration statement. As additional shares of our common stock become available for resale in the public market, 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 1,047,000 shares (as amended on January 1, 2014) of the Company’s common stock through the exercise of stock options that may be granted in the future of which 570,000 options are issued and outstanding. The Company’s stockholders will incur dilution upon exercise of such options. In addition, as of March 21, 2014, there were currently outstanding Class A, Class B and Class C warrants to purchase approximately 3,831,576, 2,525,842 and 1,502,200 shares of common stock, respectively, and Series A, Series B and Series C Convertible Preferred Stock convertible into approximately 3,831,576, 2,525,842 and 3,004,400 shares of Common Stock, respectively, plus placement agent warrants to purchase approximately 2,861,512 shares of common stock and vendor warrants to purchase 400,000 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 significantly to 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 a principal of Meyers Associates, a FINRA member firm, Dr. Lawrence Helson, CEO, and Dr. Arthur Bollon, Director, beneficially own 4,962,500, 2,310,000 and 800,000 shares, respectively, an aggregate of 8,072,500 shares or approximately 36.3% of the 22,239,318 outstanding voting securities of the Company. 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.”
Limitations on ability to pay 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.
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 2. DESCRIPTION OF PROPERTIES
The Company’s executive offices are located in a building owned by Dr. Lawrence Helson, Chief Executive Officer, and are located at 1375 California Road, Quakertown, Pennsylvania, 18951. The Company does not pay rent at this location.
ITEM 3. LEGAL PROCEEDINGS
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
PART II
| 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 have been 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”).
As of As of March 21, 2014, there were outstanding: 12,877,500 shares of common stock; options to purchase 570,000 shares of common stock 3,255, 2,146 and 3,755.5 shares of Series A, Series B and Series C Convertible Preferred Stock convertible into approximately 3,831,576, 2,525,842 and 3,004,400 shares, respectively, of common stock; Class A, Class B and Class C common stock purchase warrants to purchase approximately 3,831,576, 2,525,842 and 1,502,200 shares, respectively, of Common Stock, and placement agent warrants to purchase approximately 2,771,392 shares of Common Stock or an aggregate of approximately 19,992,562 shares of Common Stock.
(b) Holders of Record
As of March 21, 2014, there were approximately 40 different holders of record of our common stock.
(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
The following table provides information regarding the status of our existing equity compensation plans at December 31, 2013.
| 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) | |
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| Equity compensation plans approved by security holders (1) | 450,000 | | $ | 0.85 | | | | | |
| | 120,000 | | $ | 1.25 | | | | 477,000 | |
| Equity compensation plans not approved by security holders | -0- | | $ | -0- | | | | -0- | |
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| Total | 570,000 | | $ | 0.934 | | | | 477,000 | |
(1) Consists of our 2009 Employee Stock Incentive Plan, which authorized as of January 1, 2014, an aggregate of 1,047,000 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.
Liquidity and Capital Resources
Liquidity and Capital Resources at December 31, 2013 Compared with December 31, 2012
As of December 31, 2013 and December 31, 2012, the Company had $1,241,397 and $31,922, respectively, of cash on hand. The Company’s had positive working capital of $819,765 at December 31, 2013 compared to a deficit of ($6,549,671) as of December 31, 2012, resulting from decreases in accounts payables resulting from net cash used in operations of ($1,620,199) and the removal of the derivative liability. SignPath had a deficit accumulated during the development stage of $10,668,408 as of December 31, 2013.
During the 12 months ended December 31, 2013 (“Fiscal 2013”), SignPath sold 3,380 Units consisting of its securities at a price of $1,000 per Unit. The Units sold in 2013 consisted of Series C Convertible Preferred Stock Units. Each Unit consists of (i) one share of 6.5% Series C Convertible Preferred Stock convertible into 800 shares of common stock (equivalent to $1.25 per share of common stock) following the effective date of its Registration Statement (the “Effective Date”) subject to adjustment, and (ii) Warrants to purchase 400 shares of common stock at $1.875 per share for a five-year period following the Effective Date of a registration statement including the underlying securities. The Company received gross proceeds of $3,380,000 and incurred stock offering costs of $550,326 related to such offerings during Fiscal 2013.
The Company has no agreements, arrangements or understandings with any officer, director or shareholder as to any future financing, either equity or debt. The Company expects to continue to incur losses for the foreseeable future and it is possible the Company may never reach profitability. Therefore, the Company will require additional capital resources and financing to implement its business plan and continue its operations. The Company’s current burn rate for salaries, research programs and professional fees averages about $60,000 per month. Thus, it is expected that the Company currently does not have sufficient cash on hand to operate through the next 12 months. Management believes it has enough funds to complete its pre-clinical trials. Management believes that it has enough funds to complete its pre-clinical trials. If the Company receives favorable results, Management believes it will have the ability to raise additional funds to complete INDs. In view of general economic conditions, there can be no assurance that any additional financing will be available to us, that any affiliate will provide additional investments in the Company or that adequate funds for our operations will otherwise be available when needed or on terms acceptable to us.
Cash used in operating activities during Fiscal 2013 was ($1,620,199) compared to cash used of ($883,328) during Fiscal 2012. This resulted from a net loss of $1,956,872 in Fiscal 2013, offset by Common Stock and options issued for services of $701,449, a change in derivative liabilities of $3,926, and a decrease in accounts payable and accrued expenses of $368,846. This compared to a loss of $1,310,934 during Fiscal 2012, offset by common Stock and options issued for services of $23,147, a change in derivative liabilities of $8,154, and an increase in accounts payable and accrued expenses of $395,040.
The Series B Preferred Stock sold in 2012 is substantially the same as the Series C Preferred Stock with regard to dividends however is convertible into common shars at $0.85 per share. Both the Series C and B Prefered Stock are junior to the Series A Preferred Stock on liquidation and do not have anti-dilution price protection, nor do the Class C and B Warrants issued as part of the Units have anti-dilution price protection.
The Company had net cash provided by financing activities of $2,829,674 in Fiscal 2013 as a result of the $3,380,000 received in the 2013 Private Placement described above, reduced by $550,326 of offering costs. During Fiscal 2012, the Company had $894,826 of net cash provided by financing activities as a result of the $1,116,001 received from the 2012 Private Placement of Preferred Stock less the stock offering costs of $221,175.
As a result of the foregoing, the Company’s cash increased by $1,209,475 during Fiscal 2013 from $31,922 to $1,241,397.
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, 2012, as compared with year ended December 31, 2012
The Company does not expect to receive any revenues prior to 2015. Total operating expenses during Fiscal 2013 increased to $1,953,731 as compared with $1,312,405 during Fiscal 2012 primarily as a result of $841,502 of research and development expenses decreasing from $939,296 in Fiscal 2012 related to the continued manufacture and preclinical development of its lead curcumin formulations. General and administrative expenses increased to $53,957 in the 2013 period from $45,596 in Fiscal 2012, primarily as a result of an increase in travel and other office related expenses. Professional fees increased to $808,865 in the 2013 period from $121,586 in Fiscal 2012, primarily as a result of a increase primarily due to an increase in amortization of stock options as compared to 2012.
Research and Development fees in Fiscal 2013 included $59,739 paid to University of Texas, MD Anderson Cancer Center (“UTMDACC”) for non-clinical and mouse pre-clinical non-GLP studies of lipsomal curcumin. Other major research and development expenses included payments to Polymnun, Nucro Technology, University of North Texas, Dr. Robert Heinz, John’s Hopkin’s University, Medizinche University and Regis Pharmaceuticals for, $260,087, $149,036, $94,289, $40,000, $198,336, and $40,015, respectively, for lab fees and other costs related to the Company’s research and development efforts.
Research and Development fees in Fiscal 2012 included $34,739 paid to University of Texas, MD Anderson Cancer Center (“UTMDACC”) for non-clinical and mouse pre-clinical non-GLP studies of lipsomal curcumin. Other major research and development expenses included payments to Polymnun, Nucro Technology, University of North Texas, Dr. Robert Heinz, John’s Hopkin’s University, Medizinche University and Regis Pharmaceuticals for, $221,773, $174,297, $115,781, $61,273, $40,866, and $240,567, respectively, for lab fees and other costs related to the Company’s research and development efforts.
The amount paid for research and development in the 2013 Period consisted of payments for overhead and patent fees for non-clinical studies and pre-clinical studies in the nanocurcumin compound and to produce polymer under the JHU Agreement for animal studies of nanocurcumin. During Fiscal 2011, the Company paid UTMDACC for non-clinical and mouse pre-clinical pre-GLP studies of lipomal curcumin. It also includes expenses relating to development of depotcurcumin, a slow release formulation. Depotcurcumin was originally made at UNT under non-GLP conditions from curcumin extract (and PLGA, a chemical surrounding the curcumin) originally purchased from a U.S. chemical supplier, Sigma Aldrich Fine Chemicals (“SAFC”).
As a result of the foregoing, the Company had a net loss of $1,956,872 in Fiscal 2013 as compared to a net loss of $1,310,934 in Fiscal 2012. The Company recorded a deemed dividend, due to the extension of several warrant, in the amount of $2,445,621. The amount of loss attributable to common shareholders for the calendar year 2013 is $4,402,493. This translates to a loss per share of ($0.34) in Fiscal 2013 compared to ($0.10) in Fiscal 2012.
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 fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.
Revenue Recognition
As of the date of this disclosure, the Company has yet to recognize revenues. As the Company continues to develop and implement its business plan, revenue from the performance of services or sale of products will be recognized in accordance with FASB codification standards. Revenue will be recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is provided, and collectability is assured.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with FASB codification standards. The standard requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted FASB codification regarding the required tax asset benefit computations for net operating losses carry forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB codification standards, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.”
Plan of Operations
The Company’s current focus is on the manufacture and preclinical development of its lead curcumin formulations (intravenous liposomal curcumin, and a slow release PLGA formulation) with a view toward filing two IND applications with the FDA. The Company’s product candidates are still in the preclinical development phase.
The Company believes that a novel pharmaceutical preparation with enhanced absorption of the active compound could potentially have greater clinical efficacy than the oral versions. The laboratory and oral administration studies by other researchers to date suggest that curcumin has high potency. The Company believes that an alternate route for administering this compound, such as the Company’s parenteral (taken into the body other than through the digestive canal) formulation, could be more effective at lower dosages. SignPath intends to develop a parenteral liposomal formulation, to overcome the limitations of the oral form.
SignPath believes that the development and comparison of liposomal curcumin, and the PLGA formulation could expose potential differences in biological effects and distribution to different tissues. The Company intends to manufacture good manufacturing practice (GMP) grade of liposomal curcumin, and the PLGA formulation. These formulations will require outsourcing production to one or more commercial facilities. Our initial goals are to obtain sufficient material for in vitro and animal analysis and to develop these formulations in order to submit INDs to the FDA. Determination of safety, dosage, and efficacy of these formulations in a quantifiable manner will permit us to pursue clinical registration trials for a variety of malignant diseases. Following submission of the INDs, the Company plans to initially run Phase I studies with both of the parenteral formulations in patients with treatment refractory malignant disease. Subsequently, if the Phase I trials are successful, the Company plans to seek FDA authorization to run Phase II trials in selected malignancies.
Liposomal curcumin: The Company has agreements with contract manufacturers for the manufacture, chemistry, and controls for supplies of the drugs to be tested. Liposomal curcumin is manufactured by our contract manufacturer, Polymun, Inc. Initial quantities of GMP grade liposomal curcumin to conduct preclinical studies to corroborate previously published data from other researchers were obtained from Sigma Aldrich Fine Chemicals (“SAFC”) or from Sabinsa. Final production of liposmal curcumin GMP was completed at Polymun in Vienna, Austria during 2009. Using Iipocurc, anti-cancer activity without toxicity in human colon and pancreatic cancer xenograft models were published. Following the determination of safety and the optimum dosage and schedule in the most sensitive of the three species, we will be able to estimate starting dosages for Phase I trials in humans. We plan to outsource corroborative studies of Iiposomal absorption, distribution, metabolism, and excretion (ADME), and pharmacokinetics in rats with the aim of estimating optimum dosage schedules, as well as dosage and safety in mice, rats and dogs to satisfy IND regulations to GLP laboratories in M.D. Anderson Cancer Center in Houston, Texas.
Nanocurcumin: The Company intends to obtain commercial volumes of purified curcumin from third party manufacturer, Sabinsa, in quantities suitable to satisfy preclinical and clinical demands. The Company believes that the manufacture of Iiposomal curcumin can also be scaled up as necessary since these substances are readily available from commercial sources utilizing established production technologies. We have completed non-clinical and preclinical analyses of nanocurcumin at the NCI Nanocharacterization Laboratory. A parenteral formulation of nanocurcumin in human pancreatic cancer xenografts in nude mice has demonstrated anti-cancer effects. We will measure inhibiting effects of curcumin on disease progression in Parkinson’s Disease patients at the Thomas Jefferson University.
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 appears on page 44 and the Financial Statements and Notes to Financial Statements appear on in Part IV 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.
Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued 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 quarter ended December 31, 2013, 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, 2013. 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.
ITEM 9B. OTHER INFORMATION
NONE
PART III
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 | | | 83 | | Chief Executive Officer, Director, and President |
| | | | | | |
Arthur P. Bollon, Ph.D. | | | 71 | | Director |
| | | | | | |
Jack Levine, CPA | | | 63 | | Director |
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.
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 and since August 2010, he is a consultant 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.
From 1979 through 1987, Dr. Bollon served as Chairman of the Department of Molecular Genetics and Director of Genetic Engineering at the Wadley Cancer Center focusing on the cloning of human cytokine genes for treatment of cancer. Prior to Wadley, he was a faculty member at the University of Texas Southwestern Medical School and Adjunct Professor in the Department of Molecular and Cell Biology at the University of Texas at Dallas. He is the author of multiple scientific communications including Editor of “Recombinant DNA Products: Insulin, Interferon and Growth Hormone,” by CRC Press. Dr. Bollon received his Ph.D. in molecular genetics from the Waxman Institute of Microbiology at Rutgers University and was a Post-Doctoral Fellow at Yale University.
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 and Chairman of the Nominating and Corporate Governance 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. He has been a director of Biscayne Pharmaceuticals, Inc. since January 2013. Biscayne is a biopharmaceutical company discovering and developing novel therapies based on growth hormone-releasing hormone(GHRH) analogs. The company’s technology stems from the discoveries of Dr. Andrew V. Schally, a Nobel laureate and pioneering endocrine drug developer. From 1999 to 2007 he served as an Independent Board Member to Pharmanet, Inc. (Nasdaq) 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. 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 has been a licensed CPA in Florida since 1983 and in New York since 2009. 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.
Scientific Advisory Board
SignPath has established a Scientific Advisory Board (“SAB”) to review the research projects of SignPath and of partnerships in which SignPath is a partner and analyze the progress and direction of the research projects; to consider and advise SignPath with respect to any proposed or future research projects; and to consider and suggest general areas of research to be pursued or significant products that should be developed.
Members of the SAB, acting as independent contractors, shall provide consulting services to the Company from time to time as requested. Members are expected to be available for telephonic conversations and for review of proposed products from time to time. The consulting agreements are renewable on an annual basis and are subject to termination on 30 days prior written notice by either party. The Company will pay its SAB members a reasonable royalty, to be negotiated on a case by case basis, from revenues derived by the Company as a result of any inventions, improvements or projects submitted by the advisors. The current members of the SAB and their biographical information are as follows:
Lawrence Helson, MD, See “Management” above.
Arthur Bollon, PhD, See “Management” above.
Anirban Maitra, MBBS, is its recipient of the Sponsored Research Agreement Johns Hopkins Hospital Preclinical nanocurcumin development. Dr. Maitra holds a Medical degree from All India Institute of Medical Sciences at New Delhi, India in 1996. He then had a residency in Anatomic Pathology from University of Texas Southwestern Medical Center Dallas followed by a Fellowship in Pediatric Pathology Dallas Childrens Medical Center and Gastrointestinal/liver Pathology clinical research fellowship at Johns Hopkins in 2001, with a faculty appointment in 2002. Currently, he is Associate Professor of Pathology and Oncology, and on the faculty of McKusick-Nathans Institute of Genetic Medicine. He is associate editor of Current Molecular Medicine and has five major awards for his research contributions. His research activities include mechanism-based cancer-specific therapies for pancreatic cancer exploring small molecule inhibitors of developmental signaling pathways, high-throughput approaches for identification of abnormal pancreatic cancer genes, and using targeted nanoparticles as novel drug delivery systems to enhance therapeutic efficacy while restricting side effects. This latter research is supported by a Sponsored Research Agreement with SignPath Pharma Inc.
Tauseef Ahmed, MD, is the medical director of the Zalman A. Arlin Cancer Institute at Westchester County Medical Center. He also serves as Chief to the division of oncology at New York Medical College as well as Professor of Medicine. He stands on 11 cancer-related committees including serving as Chair of the Cancer Committee and the Oncology Steering Committee at Westchester Medical Center. Dr. Ahmed is widely published with over 130 peer reviewed articles appearing in various medical journals.
Judith A. Smith, Pharm.D. FCCP, BCOP, is Asst. Professor Dept. Gynecology, Division of Surgery, MD Anderson Director, Translational Research Fellowship Division of Pharmacy and Head, Curcumin Group UT MD Anderson Cancer Center. Dr. Smith received a Bachelor of Science in Pharmacy from Union University Albany College of Pharmacy in 1996 and completed a Doctor of Pharmacy degree in 1997. She completed a residency in Oncology Pharmacy Practice with a Pharmacy Practice equivalent at the National Institutes of Health. After residency, Dr. Smith completed a two-year fellowship in Clinical Pharmacology at the University of Texas M.D. Anderson Cancer Center (MDACC), then joined the Faculty at UT MD Anderson Cancer Center. Currently, Dr. Smith is Director of Pharmacology Research and an Associate Professor in the Department of Gynecologic Oncology, Division of Surgery at MDACC. In addition, she has a joint-faculty appointment as an Assistant Professor in the Department of Obstetrics and Gynecology at the University of Texas Health Science Center (UTHSC) at Houston Medical School and also in the Department of Clinical Sciences and Administration at the University of Houston College of Pharmacy where Dr. Smith is the course coordinator for two graduate elective courses. She is an active clinical pharmacist in the Gynecology Oncology Center at MDACC as well as the Core Pharmacology Laboratory Director at UTHSC Medical School at Houston. Her research focus is on drug development for gynecologic cancers and conditions with a specific focus on drug interactions/drug resistance with a focus on integration of herbal and nutritional supplements for treatment of cancer.
Muhammad Majeed, PhD., is the Founder, President, and Chief Executive Officer, Sabinsa Corporation, a manufacturer of fine chemicals for nutritional, pharmaceutical and food industries. Dr. Majeed received a B. Pharm. from Trivandrum Medical College, India; MS in Pharmacy and PhD in Industrial Pharmacy in New York in 1975. He worked in Pfizer, Carter Wallace and other major companies on drug formulations prior to establishing Sabinsa Corp. whose goal was to integrate modern pharmaceutical technology with Ayurvedic medicine. He developed methods to extract and synthesize medicinal products such as Boswellin, curcuminoids, gugulipids, bioperine, citrine, petro Selenic acid, and 50 other standardized products which are marketed globally with the US and Japan as the major markets. Currently Sabinsa manufactures synthetic intermediates used in pharmaceutical herb powders. Manufacturing, Research and Development is in India. His company has 32 U.S. and international patents.
George M. Shopp, PhD. DABT is a private consultant assisting clients in the nonclinical discovery and development of small molecule and biological therapeutics. He has 33 years experience in the fields of toxicology, pharmacology, pharmacokinetics and drug development. This includes two years at toxicology contract research organizations (CRGs), 12 years in grant and contract supported basic and applied research (Medical College of Virginia and Lovelace Medical Foundation). Fourteen years in industrial drug development including: 3 years at Synergen responsible for all regulatory and research investigational toxicology; 2 years at Genentech directing the research toxicology group, and responsible for nonclinical development of growth factors and monoclonal antibodies; and Elan Pharmaceuticals for 9 years responsible for global nonclinical development and research toxicology of small molecule drugs and biopharmaceutics. Therapeutic areas include: Alzheimer’s disease, Parkinson’s disease, pain, migraine, oncology, diabetes, epilepsy, stroke, rheumatoid arthritis, inflammatory bowel disease, and sepsis. Drug classes include: enzyme inhibitors, ion channel blockers, anti-angiogenesis factors, growth factors, monoclonal antibodies, human proteins, and polyethylene glycol conjugated molecules. Areas of expertise include: building and managing skilled and efficient nonclinical safety groups in the pharmaceutical industry, global nonclinical development of small molecule and protein drugs, regulatory toxicology (FDA, ED and Japan), performing due diligence on potential in licensed programs, conducting inhouse and contract GLP pharmacology/toxicology/ADME/PK studies, in vitro toxicity testing and screening, in vivo disease models, research and investigational toxicology, assessment of immunotoxicologic/host resistance/hematopoietic effects of drugs and chemicals, flow cytometry, and pulmonary toxicology/immunology. Dr. Shopp was President of the Board of Directors for the American Board of Toxicology in 2003. He has a PhD in Pharocolgy Toxicology from the Medical College of Virginia, post doctoral work in pulmmary immunology/ toxicology and a BS in Biology and Chemistry from Bucknell University.
Robert H. Horne, MD has been an orthopedic and hand surgeon since 1966. Since 2009 he has been on the staff of Mee Memorial Hospital, King City, Oklahoma and prior thereto Claxton-Hepburn Hospital, Ogdensberg, New York from 1968 to 2008 he was in private practice in Salt Lake City, Utah. Prior thereto, he was Chief of Surgical Services at McClellan U.S. Air Force Base from 1963 to 1965. From 2007 to 2008, Dr. Horne was Honorary President, Utah Medical Association. Dr. Horne received his Doctor of Medicine from Cornell University Medical College in 1960.
Peter Sordillo MD PhD has been on the attending staff of Hematology and Medical Oncology at Lenox Hill Hospital, New York, New York since 1987. He is also a consultant to Institute for Ultrafast Spectroscopy and Lasers, Physics Department of City University of New York. From 1981 to 1989, he was an oncologist on the attending staff of Solid Tumor Service, Department of Medicine, Memorial Sloan-Kettering Cancer Center. Dr. Sordillo received his Diplomate of American Board of Medical Oncology in 1981 and his Diplomate of American Board of Internal Medicine in 1977. Dr. Sordillo received his Doctor of Medicine from New York Medical College in 1974, his Ph.D. in Physics from Columbia University in 1990 and his M.S. in Physics from New York University in 2001.
Business Advisory Board
Adam Scheer was elected a member of the Company’s Business Advisory Board in January 2012. He is a consultant to the equities business. From January, 2010 until January 2011 he was a consultant to Magnetar Capital in Chicago. From September 2007 until January 2010, he was a managing principal and Chief Investment Officer to Aldebaran Investors, a SPAC (Special Purpose Acquisition Company). From January, 2005 until September 2007, Mr. Scheer was portfolio manager for SPACs at Fir Tree Partners. He started his career at Goldman Sacks/SpeerLeeds and Kellog as a trader trainee in 2002. Mr. Sheen holds a B.A. in International Economics & Commerce from Lafayette College.
Contingency Plan
In the event that Dr. Helson, our current CEO is unable to fulfill his duties, the Company expects that Dr.Tauseef Ahmed will serve as acting CEO until a permanent replacement is found.
ITEM 11. EXECUTIVE COMPENSATION
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 February 20, 2013, he agreed to waive $104,000 of his accrued $204,000 salary for 2012 and received options to purchase 200,000 shares of Common Stock exercisable at $0.85 per share. As of December 31, 2012, the Company booked an accrual for the waived compensations totaling $104,000. On December 28, 2010 and December 22, 2011, the Board of Directors awarded Dr. Helson (and/or his assignees) 300,000 restricted shares of Common Stock on each date in lieu of all accrued and unpaid salary and any bonus.
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 1(b) trials and approvals from either the U.S. FDA to initiate Phase 2 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 2 trials and approvals from (either or both the FDA and EMA to initiate Phase 3 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, both 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 are in competition with the Company’s products or the Company was in the process of developing at termination.
Members of the Scientific Advisory Board (SAB) are reimbursed for reasonable expenses incurred in connection with travel to attend SAB meetings. We expect a maximum of one SAB meeting will be held per year. Advisors will be paid $2,000 for attending each meeting called by SignPath. Options to purchase common shares of SignPath may be made available to the Advisor under the 2009 Option Plan.
The following table sets forth, with respect to the Company’s fiscal years ended December 31, 2013 and 2012, all compensation earned by each person who is required to be listed pursuant to Item 402(m)(2) of Regulation S-K.
Name and Principal Position | Year | | Salary ($) | | Bonus($) | | Stock Awards ($)(1)(2) (3) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($)(4) | | All Other Compensation ($)(5) | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | |
| Lawrence Helson | 2013 | | $ | | | | | | | | | | | | | | | | |
| President and Chief | 2012 | | | 96,000 | | 0 | | 0 | | | 104,000 | | 0 | | 0 | | $ | 200,000 | |
| Executive Officer | 2011 | | | | | 150,000 | | | | | 150,000 | | | | | | | | |
(1) Under Dr. Helson’s prior employment contract he received a base salary of $200,000 per annum. He received $96,000, in cash during each of 2013 and 2012. In 2012, Dr. Helson earned $104,000 of his salary and received options to purchase 200,000 shares of common stock exercisable at $0.85 per share in February 2013. In 2011, Dr. Helson was awarded 150,000 shares of common stock to settle the remaining $104,000 of his unpaid base salary and an additional 150,000 shares as a stock bonus.
Director’s Compensation
Members of the Board of Directors are reimbursed for reasonable expenses incurred in connection with travel to attend board meetings. Options to purchase 60,000 shares of Common Stock of SignPath were granted to each of Jack Levine and Arthur Bollon, independent directors, under the 2009 Option Plan for 2012 exercisable for five (5) years at $0.85 per share. An additional 60,000 options were granted to each of Jack Levine and Arthur Bollon, which vested in quarterly increments during 2013 and are exercisable for five (5) years at $1.25 per share. No cash compensation has been paid to directors. See “2009 Employee Stock Incentive Plan” below.
Pursuant to the terms of a Letter Agreement dated July 12, 2010, Jack Levine was granted options to purchase 100,000 shares of common stock at $0.85 per share upon his joining the Board of Directors. The option vests in three equal installments on each of the first three anniversary dates of the date of grant and is exercisable for ten (10) years from the date of grant. He also received 30,000,40,000, 40,000 and 40,000 restricted shares of Common Stock on December 28, 2010, December 22, 2011, February 20, 2013 and March 28 , 2014 in consideration of consulting and accounting services as chairman of the Company’s Audit Committee. He will be reimbursed for reasonable expenses incurred, however will not receive any other cash compensation.
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 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 1,047,000 (as of January 1, 2014) 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 340,000 options have been granted under the 2009 Plan to independent directors of the Company 200,000 options to the Company's CEO and 30,000 options to the Company’s outside law firm. See “Director’s 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 as of date of this report, 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. 1375 California Road, Quakertown, PA 18951.
| 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 | | | 2,510,000 | | (3 | ) | | | 11.3 | % |
| Dr. Arthur Bollon | | | 915,000 | | (4 | ) | | | 4.1 | % |
| Jack Levine | | | 370,000 | | (4 | )(5) | | | 1.6 | % |
| Meyers Associates, L.P. (6) | | | 2,305,000 | | (7 | ) | | | 10.5 | % |
| Bruce Meyers (6) | | | 4,962,500 | | (8 | ) | | | 22.6 | % |
| Imtiaz Khan (6)(9) | | | 2,450,000 | | | | | | 11.2 | % |
| All Executive Officers and Directors as a Group (3 persons) | | | 3,645,000 | | | | | | 16.2 | % |
| (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 21, 2014, there were 12,877,500 shares of our common stock issued and outstanding. As of that date, (i) 1,047,000 shares of common stock were authorized for issuance under our 2009 Option Plan of which 570,000 options had been granted; (ii) approximately 3,831,576 shares of our common stock were reserved for issuance pursuant to conversion of Series A Preferred Stock; (iii) approximately 3,831,576 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 Dividend Shares; (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) 3,004,400 shares of Common Stock were reserved for issuance pursuant to conversion of Series C Preferred Stock; (viii) 1,502,200 shares of Common Stock were reserved for issuance pursuant to exercise of Class C Warrants; (ix) there were Placement Agent Warrants to purchase approximately 2,771,392 shares of common stock pursuant to the Units sold in the 2008 - 2013 Private Placements; and (x) 600,000 shares issuable upon exercise of vendor warrants granted in 2013. |
| |
| (2) As of March 21, 2014, based on an aggregate of 22,239,318 voting shares, consisting of 12,877,500 shares of Common Stock, 3,831,576 shares of Common Stock issuable upon conversion of Series A Preferred Stock, and 2,525,842 shares of Common Stock issuable upon conversion of Series B Preferred Stock, and 3,004,400 shares of Common Stock issuable upon conversion of Series C Preferred Stock. |
| |
| (3) Dr. Helson disclaims beneficial ownership of an aggregate of 90,000 shares of Common Stock gifted for estate planning purposes. Includes option to purchase 200,000 shares of Common Stock granted on February 20, 2013, in lieu of $104,000 of accrued compensation for 2012. |
| |
| (4) Includes options to purchase: (A) 60,000 shares of Common Stock issuable at $0.85 per share for 2012 compensation as an independent director, (B) 60,000 shares of Common Stock, issuable at $1.25 per share for 2013 compensation granted on February 20, 2013 and (c) 100,000 shares issuable at $0.85 per share upon his joining the board of directors in July 2010. |
| |
| (5) Includes options to purchase an aggregate of 220,000 shares of common stock, all of which are current exercisable. |
| |
| (6) The address of each of these persons is 45 Broadway, 2nd Fl., New York, NY 10006. |
| |
| (7) Does not include 2,771,392 shares of common stock issuable upon exercise of Meyers Associates’ Placement Agent Warrants and additional shares of common stock beneficially owned by Bruce Meyers, the President of Meyers Associates. Bruce Meyers has the power to vote and dispose of the Shares owned by Meyers Associates. |
| |
| (8) Mr. Meyers is Principal and Chief Executive Officer of Meyers Associates. This amount includes shares owned by Meyers Associates set forth in note (7) above. |
| |
| (9) Mr. Kahn is Vice President of Meyers Associates. |
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
As described elsewhere in this report, the Company 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 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.
Each Unit consists of one share of a 6.5% Series B Convertible Preferred Stock convertible into 1,177 shares of common stock on the same terms described above plus one warrant to purchase 1,177 shares of common stock at $1.27 per share. The Series B Units were sold to 13 different investors. During Fiscal 2011 Meyers Associates L.P., received aggregate sales commissions of 10% ($144,850) of the gross proceeds of $1,448,500 from the sale of Units, as well as a non-accountable expense allowance equal to 3% of proceeds of the offering, and a Unit Purchase Option to purchase 15% of the Units sold in the offering.
During fiscal 2012, the Company sold 1,116 Units of Series B Preferred Stock at $1,000 per Unit, to 17 different investors for aggregate proceeds of $1,116,000. Each Unit consists of one share of a 6.5% Series B Convertible Preferred Stock convertible into 1,177 shares of common stock plus one warrant to purchase 1,177 shares of common stock at $1.27 per share. Meyers Associates, L.P. received sales commission of 10% ($111,600) of the gross proceeds from 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 to purchase 15% of the Units sold in the offering.
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 to purchase 20% of the Units sold in the Offering.
On February 20, 2013, 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.
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); |
| | · | 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. |
We have determined that Arthur P. Bollon and Jack Levine are independent.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During Fiscal 2013 and 2012, M&K CPAS, PLLC (“M&K”) served as our independent auditors. The following table presents fees for professional audit services rendered by M&K for the audit of our annual financial statements for the years ended December 31, 2013 and 2012, and fees for other services rendered by such firm during those periods.
| | | 2013 | | | 2012 | |
| Audit Fees | | $ | 26,500 | | | $ | 23,500 | |
| Audit Related Fees | | | -0- | | | | -0- | |
| Tax Fees | | | -0- | | | | -0- | |
| All Other Fees | | | -0- | | | | -0- | |
| Total | | $ | 26,500 | | | $ | $23,500 | |
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 during Fiscal year 2013 and 2012 were zero.
We have been advised by M&K that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor
The entire Board of Directors (the “Board”) is responsible for appointing, setting compensation and overseeing the work of the independent 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 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 M&K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SignPath Pharma, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of SignPath Pharma, Inc. (A Development Stage Company) as of December 31, 2013 and 2012, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. The financial statements for the period from inception (May 15, 2006) to December 31, 2007 were audited by other auditors whose report expressed an unqualified opinion on those statements. These financial statements are the responsibility of the Company's management. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes 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 internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes 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 the SignPath Pharma, Inc. as of December 31, 2013 and 2012, 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.
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 has an accumulated deficit of $10,960,243, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 31, 2014
| SIGNPATH PHARMA, INC. |
| (A Development Stage Company) |
| Balance Sheets |
| | | | | | | | | | |
| | | | | | | | | | |
| ASSETS | | | | | | | | |
| | | | | | | | | | |
| | | | December 31, | | | December 31, | |
| | | | | 2013 | | | | 2012 | |
| CURRENT ASSETS | | | | | | | | |
| | | | | | | | | | |
| Cash | | $ | 1,241,397 | | | $ | 31,922 | |
| | | | | | | | | | |
| | Total Current Assets | | | 1,241,397 | | | | 31,922 | |
| | | | | | | | | | |
| EQUIPMENT, net | | | - | | | | 144 | |
| | | | | | | | | | |
| | TOTAL ASSETS | | $ | 1,241,397 | | | $ | 32,066 | |
| | | | | | | | | | |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 421,632 | | | $ | 894,475 | |
| Derivative liability | | | - | | | | 5,687,262 | |
| | | | | | | | | | |
| | Total Current Liabilities | | | 421,632 | | | | 6,581,737 | |
| | | | | | | | | | |
| | | | | | | | | | |
| STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
Preferred stock; $0.10 par value, 5,000,000 shares authorized 8,532 and 4,286 shares issued andoutstanding, respectively | | | 879 | | | | 541 | |
Common stock; $0.001 par value, 45,000,000 shares authorized; 12,877,500 and 12,837,500 shares issued and outstanding, respectively | | | 12,879 | | | | 12,839 | |
| Accrued dividends | | | 1,353,961 | | | | 861,872 | |
| Additional paid-in capital | | | 10,120,454 | | | | 1,286,613 | |
| Deficit accumulated during the development stage | | | (10,668,408) | | | | (8,711,536) | |
| | | | | | | | | | |
| | Total Stockholders' Equity (Deficit) | | | 819,765 | | | | (6,549,671) | |
| | | | | | | | | | |
| | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | $ | 1,241,397 | | | $ | 32,066 | |
The accompanying notes are an integral part of these financial statements.
| SIGNPATH PHARMA, INC. |
| (A Development Stage Company) | |
| Statements of Operations | |
| (unaudited) | |
| | | | | | | | | | |
| | | | | | | | | From Inception | |
| | | | | | | | | on May 15, 2006 | |
| | | For the Years Ended | | | | | | Through | |
| | | December 31, | | | | | | December 31, | |
| | | 2013 | | | 2012 | | | 2013 | |
| | | | | | | | | | |
| REVENUES | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| General and administrative | | | 53,957 | | | | 45,596 | | | | 1,303,596 | |
| Professional fees | | | 808,865 | | | | 121,586 | | | | 1,784,218 | |
| Financing expense | | | - | | | | - | | | | 1,063,401 | |
| Research and development | | | 841,502 | | | | 939,296 | | | | 4,297,433 | |
| Salaries and wages | | | 249,407 | | | | 205,927 | | | | 1,249,329 | |
| | | | | | | | | | | | | |
| Total Operating Expenses | | | 1,953,731 | | | | 1,312,405 | | | | 9,697,977 | |
| | | | | | | | | | | | | |
| OPERATING LOSS | | | (1,953,731 | ) | | | (1,312,405 | ) | | | (9,697,977 | ) |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Gain (loss) on derivative liability | | | (3,926 | ) | | | (8,154 | ) | | | (998,403 | ) |
| Gain on shares issued for services | | | - | | | | 9,625 | | | | 9,625 | |
| Grant income | | | - | | | | - | | | | 81,556 | |
| Interest income | | | 785 | | | | - | | | | 785 | |
| Interest expense | | | - | | | | - | | | | (63,995 | ) |
| | | | | | | | | | | | | |
| Total Other Income (Expense) | | | (3,141 | ) | | | 1,471 | | | | (970,432 | ) |
| | | | | | | | | | | | | |
| NET LOSS BEFORE INCOME TAXES | | | (1,956,872 | ) | | | (1,310,934 | ) | | | (10,668,408 | ) |
| Provision for income taxes | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | |
| NET LOSS | | $ | (1,956,872 | ) | | $ | (1,310,934 | ) | | $ | (10,668,408 | ) |
| | | | | | | | | | | | | |
| DEEMED DIVIDEND ON WARRANTS | | | (2,445,621 | ) | | | - | | | | (2,445,621 | ) |
| | | | | | | | | | | | | |
| NET LOSS ATTRIBUTABLE TO | | | | | | | | | | | | |
| COMMON STOCKHOLDERS | | $ | (4,402,493 | ) | | $ | (1,310,934 | ) | | $ | (13,114,029 | ) |
| | | | | | | | | | | | | |
| BASIC AND DILUTED LOSS PER SHARE | | $ | (0.34 | ) | | $ | (0.10 | ) | | | | |
| | | | | | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | | | 12,877,500 | | | | 12,833,258 | | | | | |
The accompanying notes are an integral part of these financial statements.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
| | | | | | | | | | | | | | | | | | Deficit | | | |
| | | | | | | | | | | | | | | | | | Accumulated | | |
| | | | | | | | | | | | | | | Additional | | During the | | Total |
| | Preferred Stock | | Common Stock | | Accrued | | Paid-in | | Development | Stockholders' |
| | Shares | | Amount | | Shares | | Amount | | Dividends | | Capital | | Stage | | Equity (Deficit) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, May 15, 2006 | - | | $ | - | | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock issued to founders for cash at $0.001 per share | - | | | - | | 10,000,000 | | | 10,000 | | | - | | | - | | | - | | | 10,000 |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2006 | - | | | - | | - | | | - | | | - | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | - | | | - | | 10,000,000 | | | 10,000 | | | - | | | - | | | - | | | 10,000 |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for bridge debt at $0.85 per share | - | | | - | | 257,500 | | | 258 | | | - | | | 218,617 | | | - | | | 218,875 |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2007 | - | | | - | | - | | | - | | | - | | | - | | | (526,833) | | | (526,833) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | - | | | - | | 10,257,500 | | | 10,258 | | | - | | | 218,617 | | | (526,833) | | | (297,958) |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued for bridge debtat $1,000 per share | 890 | | | 89 | | - | | | - | | | - | | | 889,786 | | | - | | | 889,875 |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued for cash at $1,000 per share | 562 | | | 56 | | - | | | - | | | - | | | 561,944 | | | - | | | 562,000 |
| | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for bridge debt at $0.85 per share | - | | | - | | 1,082,500 | | | 1,083 | | | - | | | 919,043 | | | - | | | 920,126 |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (270,948) | | | - | | | (270,948) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 9,308 | | | (9,308) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2008 | - | | | - | | - | | | - | | | - | | | - | | | (1,695,766) | | | (1,695,766) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 (restated) | 1,452 | | | 145 | | 11,340,000 | | | 11,341 | | | 9,308 | | | 2,309,134 | | | (2,222,599) | | | 107,329 |
| Cumulative effect of adoption of ASC 815 | - | | | - | | - | | | - | | | - | | | (1,632,825) | | | (43,808) | | | (1,676,633) |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued for cash at $1,000 per share | 810 | | | 81 | | - | | | - | | | - | | | (178,632) | | | - | | | (178,551) |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (166,154) | | | - | | | (166,154) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 124,576 | | | (124,576) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year endedDecember 31, 2009 | - | | | - | | - | | | - | | | - | | | - | | | (730,743) | | | (730,743) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2009 (restated) | 2,262 | | | 226 | | 11,340,000 | | | 11,341 | | | 133,884 | | | 206,947 | | | (2,997,150) | | | (2,644,752) |
| | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued for cash at $1,000 per share | 575 | | | 58 | | - | | | - | | | - | | | 574,942 | | | - | | | 575,000 |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (121,709) | | | - | | | (121,709) |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for services | - | | | - | | 850,000 | | | 850 | | | - | | | 721,650 | | | - | | | 722,500 |
| | | | | | | | | | | | | | | | | | | | | | |
| Amortization of options issued for services | - | | | - | | - | | | - | | | - | | | 39,210 | | | - | | | 39,210 |
| | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for derivative liability | - | | | - | | - | | | - | | | - | | | (852,346) | | | - | | | (852,346) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 157,609 | | | (157,609) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2010 | - | | | - | | - | | | - | | | - | | | - | | | (2,119,059) | | | (2,119,059) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2010 (restated) | 2,837 | | | 284 | | 12,190,000 | | | 12,191 | | | 291,493 | | | 411,085 | | | (5,116,209) | | | (4,401,156) |
Preferred stock issued for cash at $1,000 per share | 1,449 | | | 145 | | - | | | - | | | - | | | 1,448,355 | | | - | | | 1,448,500 |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (267,966) | | | - | | | (267,966) |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for services | - | | | - | | 640,000 | | | 640 | | | - | | | 543,360 | | | - | | | 544,000 |
| | | | | | | | | | | | | | | | | | | | | | |
| Amortization of options issued for services | - | | | - | | - | | | - | | | - | | | 23,368 | | | - | | | 23,368 |
| | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for derivative liability | - | | | - | | - | | | - | | | - | | | (917,263) | | | - | | | (917,263) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 219,082 | | | (219,082) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2011 | - | | | - | | - | | | - | | | - | | | - | | | (2,284,393) | | | (2,284,393) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2011 (restated) | 4,286 | | | 429 | | 12,830,000 | | | 12,831 | | | 510,575 | | | 1,021,857 | | | (7,400,602) | | | (5,854,910) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock issued for cash | 1,116 | | | 112 | | - | | | - | | | - | | | 1,115,889 | | | - | | | 1,116,001 |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (221,175) | | | - | | | (221,175) |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for services | - | | | - | | 7,500 | | | 8 | | | - | | | 6,367 | | | - | | | 6,375 |
| | | | | | | | | | | | | | | | | | | | | | |
| Amortization of options issued for services | - | | | - | | - | | | - | | | - | | | 16,772 | | | - | | | 16,772 |
| | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for derivative liability | - | | | - | | - | | | - | | | - | | | (301,800) | | | - | | | (301,800) |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 351,297 | | | (351,297) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2012 | - | | | - | | - | | | - | | | - | | | - | | | (1,310,934) | | | (1,310,934) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2012 | 5,402 | | | 541 | | 12,837,500 | | | 12,839 | | | 861,872 | | | 1,286,613 | | | (8,711,536) | | | (6,549,671) |
| Preferred stock issued for cash | 3,380 | | | 338 | | - | | | - | | | - | | | 3,379,662 | | | - | | | 3,380,000 |
| | | | | | | | | | | | | | | | | | | | | | |
| Stock offering costs | - | | | - | | - | | | - | | | - | | | (550,326) | | | - | | | (550,326) |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for services | - | | | - | | 40,000 | | | 40 | | | - | | | 33,960 | | | - | | | 34,000 |
| | | | | | | | | | | | | | | | | | | | | | |
| Executive forfeited salary | - | | | - | | - | | | - | | | - | | | 104,000 | | | - | | | 104,000 |
| | | | | | | | | | | | | | | | | | | | | | |
| Amortization of options issued for services | - | | | - | | - | | | - | | | - | | | 667,449 | | | - | | | 667,449 |
| | | | | | | | | | | | | | | | | | | | | | |
| Preferred dividend accrued | - | | | - | | - | | | - | | | 492,089 | | | (492,089) | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for derivative liability | - | | | - | | - | | | - | | | - | | | 5,691,185 | | | - | | | 5,691,185 |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2013 | | | | | | | | | | | | | | | | | | (1,956,872) | | | (1,956,872) |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | 8,782 | | $ | 879 | | 12,877,500 | | $ | 12,879 | | $ | 1,353,961 | | $ | 10,120,454 | | $ | (10,668,408) | | $ | 819,765 |
The accompanying notes are an integral part of these financial statements.
| SIGNPATH PHARMA, INC. | |
| (A Development Stage Company) | |
| Statements of Cash Flows | |
| | | | | | | | | | |
| | | | | | From Inception | |
| | | | | | on May 15, 2006 | |
| | | For the Years Ended | | | Through | |
| | | December 31, | | | December 31, | |
| | | 2013 | | | 2012 | | | 2013 | |
| | | | | | | | | | |
| OPERATING ACTIVITIES | | | | | | | | | |
| | | | | | | | | | |
| Net loss | | $ | (1,956,872 | ) | | $ | (1,310,934 | ) | | $ | (10,668,408 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| Common stock issued for services | | | 34,000 | | | | 6,375 | | | | 1,306,875 | |
| Options issued for services | | | 667,449 | | | | 16,772 | | | | 746,799 | |
| Common stock issued with bridge financing | | | - | | | | - | | | | 1,139,001 | |
| Depreciation expense | | | 144 | | | | 1,265 | | | | 5,390 | |
| Change in derivative liability, net of bifurcation | | | 3,926 | | | | 8,154 | | | | 998,403 | |
| Changes in operating assets and liabilities | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | | (368,846 | ) | | | 395,040 | | | | 525,629 | |
| | | | | | | | | | | | | |
| Net Cash Used in Operating Activities | | | (1,620,199 | ) | | | (883,328 | ) | | | (5,946,311 | ) |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Purchase of equipment | | | - | | | | - | | | | (5,390 | ) |
| | | | | | | | | | | | | |
| Net Cash Used in Investing Activities | | | - | | | | - | | | | (5,390 | ) |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Preferred stock issued for cash | | | 3,380,000 | | | | 1,116,001 | | | | 7,891,501 | |
| Stock offering costs paid | | | (550,326 | ) | | | (221,175 | ) | | | (1,598,278 | ) |
| Common stock issued for cash | | | - | | | | - | | | | 10,000 | |
| Proceeds from related party notes payable | | | 30,000 | | | | | | | | 30,000 | |
| Proceeds from notes payable | | | - | | | | 55,075 | | | | 944,950 | |
| Repayment of related party notes payable | | | (30,000 | ) | | | - | | | | (30,000 | ) |
| Repayment of notes payable | | | - | | | | (55,075 | ) | | | (55,075 | ) |
| | | | | | | | | | | | | |
| Net Cash Provided by Financing Activities | | | 2,829,674 | | | | 894,826 | | | | 7,193,098 | |
| | | | | | | | | | | | | |
| NET INCREASE IN CASH | | | 1,209,475 | | | | 11,498 | | | | 1,241,397 | |
| CASH AT BEGINNING OF PERIOD | | | 31,922 | | | | 20,424 | | | | - | |
| | | | | | | | | | | | | |
| CASH AT END OF PERIOD | | $ | 1,241,397 | | | $ | 31,922 | | | $ | 1,241,397 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF | | | | | | | | | | | | |
| CASH FLOW INFORMATION: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| CASH PAID FOR: | | | | | | | | | | | | |
| Interest | | $ | - | | | $ | - | | | $ | - | |
| Income taxes | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| NON CASH FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Preferred stock issued for bridge financing | | $ | - | | | $ | - | | | $ | 889,875 | |
| Derivative liability | | $ | - | | | $ | 301,800 | | | $ | 4,692,786 | |
| Executive forfeited salary | | $ | 104,000 | | | $ | - | | | $ | 104,000 | |
| Settlement of derivative liability | | $ | 5,691,185 | | | $ | - | | | $ | 5,691,185 | |
| Preferred dividend accrual | | $ | 492,089 | | | $ | 351,298 | | | $ | 1,353,961 | |
The accompanying notes are an integral part of these financial statements.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
NOTE 1 – NATURE OF OPERATIONS
SignPath Pharma, Inc., (the “Company”) was incorporated under the laws of the State of Delaware on May 15, 2006. The Company was organized to develop proprietary formulations of curcumin (diferuloylmethane), a naturally occurring compound found in the root of the Curcuma longa (turmeric) plant, for applications in malignant diseases. The Company’s product candidates are currently in the pre-clinical testing phase.
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, 2013, the Company recognized sales revenue of $-0- and incurred a net loss of $1,956,872. As of December 31, 2013, the Company had an accumulated deficit of $10,668,408. 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 minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – 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.
Accounting Basis
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The Company has elected a December 31 fiscal year end.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents as of December 31, 2013 or 2012.
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 $991,397 and $0 of cash balances in excess of federally insured limits at December 31, 2013 and 2012, respectively.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:
| Description | Useful Lives |
| Computers | 3 years |
| Equipment | 5 years |
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. The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2013, on a recurring basis:
| Description | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Derivative Liability | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Total | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2012, on a recurring basis:
| Description | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Derivative Liability | | $ | - | | | $ | - | | | $ | (5,687,262 | ) | | $ | (5,687,262 | ) |
| Total | | $ | - | | | $ | - | | | $ | (5,687,262 | ) | | $ | (5,687,262 | ) |
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Derivative Liability: Market prices are not available for the Company's warrants nor are market prices of similar warrants available. The Company assessed that the fair value of this liability approximates its carrying value since carrying value has been adjusted to fair value.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
The method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If a readily determined market value became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
The following tables present the fair value of financial instruments as of December 31, 2013, by caption on the condensed balance sheet and by ASC 820 valuation hierarchy described above.
| | Stock Warrant | |
| Level 3 Reconciliation: | Derivative | |
| Level 3 assets and liabilities at December 31, 2012 | | $ | (5,687,262 | ) |
| Purchases, sales, issuances and settlements (net) | | | 5,687,262 | |
| Total level 3 assets and liabilities at December 31, 2013 | | $ | - | |
Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.
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 $841,502 and $939,296 during the years ended December 31, 2013 and 2012, respectively.
Stock-Based Compensation
The Company follows the provisions of ASC 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.
Equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier.
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.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
For the years ended December 31, 2013 and 2012, all of the Company’s potentially dilutive securities (warrants, options, and convertible preferred stock) were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive shares that were excluded was 18,162,608 and 12,814,874 at December 31, 2013 and 2012, respectively.
Deemed Dividend on Warrant Amendment
During the year ended December 31, 2013, the Company amended the terms of its Class A, B, C and PAW Warrants with certain investors who held warrants to purchase 11,364,453 shares of our common stock to extend the terms of the Warrants such that none of the Warrants expire before the 5th anniversary of the date on which the Common Stock begins public trading on a national securities exchange. The modification of the expiration date of the warrant resulted in a deemed dividend to warrant holders of approximately, $2,445,621 which was calculated as the difference between fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model. The deemed dividends have been included in the calculation of the net loss attributable to common stockholders of approximately $4,402,493 or $0.34 per share, the the year ended December 31, 2013. The deemed dividends are exluded form our net loss (from operating activities) of approximately $4,402,493, or $0.34 per share, for the year ended December 31, 2013.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
In February 2013, FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
| - | Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and |
| - | Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense. |
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, "Technical Corrections and Improvements" in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
In August 2012, the FASB issued ASU 2012-03, "Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)" in Accounting standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, "Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operation
NOTE 4 – EQUIPMENT
Property and equipment consists of the following as of December 31, 2013 and 2012. Depreciation expense was $144 and $1,265 for the years ended December 31, 2013 and 2012, respectively.
| | | 2013 | | | 2012 | |
| Computer equipment | | $ | 5,390 | | | $ | 5,390 | |
| Accumulated Depreciation | | | (5,390 | ) | | | (5,246 | ) |
| Net Book Value | | $ | - | | | $ | 144 | |
NOTE 5 – ACCRUED LIABILITIES
Pursuant to the applicable Codification literature, the Company has concluded it is probable that it will pay $85,738 in liquidated damages pursuant to the registration rights clause in certain of the securities sold in fiscal years 2008 and 2009, the Company was required to file a registration statement by January 27, 2009. The Company failed to do so until April 7, 2009, resulting in liquidated damages of 2% per month of the gross proceeds, which approximated $1.8 million as of that date. During the year ended December 31, 2009, the Company’s registration statement covering the securities was declared effective by the SEC. Each holder is entitled to $47.32 per share owned. The Company has resolved to pay the liquidated damages in shares of Common Stock valued at $1.00 per share, pursuant to the terms and provisions of the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock.
NOTE 6 – NOTE PAYABLE
In January 2012, the Company received cash pursuant to a short-term promissory note with a related party. The note was repaid in full in February 2012. The note did not bear interest.
On September 27, 2012, the Company received $55,075 in cash pursuant to a short-term promissory note with a related party. The note did not bear interest and was due on demand. In December 2012, the balance on the note was repaid in full.
In January 2013, the Company received $25,000 in cash pursuant to a short-term promissory note with a related party. In March 2013 the Company received $5,000 in cash pursuant to a short-term promissory note with the same related party. The note did not bear interest. The Company assessed the imputed interest and found the balance to be immaterial. In April 2013, the balance on the note was repaid in full.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
NOTE 7 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS
The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with its Series A Preferred Stock and associated warrants to purchase common stock. On May 7, 2013, the Company amended its Certificate of Incorporation to eliminate anti-dilution price protection from its Series A Preferred Stock and associated derivative liability. On January 1, 2009, the Company adopted ASC Topic No. 815-40 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. As of January 1, 2009, the Company had issued 3,572,714 warrants which have exercise prices that are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than $0.85 and $1.27, respectively. If these provisions are triggered, the exercise price of all of those warrants will be reduced. As a result, the warrants are not considered to be solely indexed to the Company’s own stock and are not afforded equity treatment.
As a result, on January 1, 2009, 3,572,714 of the Company’s outstanding warrants containing exercise price reset provisions, originally classified as permanent equity, were reclassified to derivative liability. These warrants had exercise prices ranging from $0.85 - $1.27 and expire starting in December 2013. As of January 1, 2009, the fair value of these warrants of $1,676,633 was recognized and resulted in a cumulative effect adjustment to retained earnings of $43,808. On May 7, 2013, the Company effectively removed the derivative provision from the warrants and convertible debt and valued the derivatives market to market as of that date. The derivative liability was then converted to additional paid-in-capital. The change in fair value during years ended December 31, 2013 and 2012 of ($3,926) and ($8,154), respectively, is recorded as a derivative loss in the accompanying Statements of Operations.
During the year ended December 31, 2012, the Company issued 1,313,533 warrants which were attached to 1,116 shares of convertible preferred stock. The Company issued an additional 757,223 warrants as stock offering costs to the Company’s placement agent. The combined fair market value of the derivative liability associated with these issuances at the date of issuance was $301,800.
During the year ended December 31, 2011, the Company issued 1,704,884 warrants which were attached to 1,449 shares of convertible preferred stock. The Company issued an additional 1,022,931 warrants as stock offering costs to the Company’s placement agent. The combined fair market value of the derivative liability associated with these issuances at the date of issuance was $2,184,753.
During the year ended December 31, 2010, the Company issued 676,775 warrants which were attached to 575 shares of convertible preferred stock. The Company issued an additional 391,353 warrants as stock offering costs to the Company’s placement agent. The Combined fair market value of the derivative liability associated with these issuances for the year ended December 31, 2010 was $852,346.
During the year ended December 31, 2009, the Company issued 953,370 warrants which were attached to 810 shares of convertible preferred stock. The Company issued an additional 286,011 warrants as stock offering costs to the Company’s placement agent. The Combined fair market value of the derivative liability associated with these issuances for the year ended December 31, 2009 was $988,552.
The Company classifies the fair value of these warrants under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a lattice model that values the compound embedded derivatives based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the conversion feature with the full ratchet reset, and the redemption options.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
The Series A Preferred Derivatives were valued using the following assumptions:
| · | The Company was 3 months from being publicly traded and the Company/Holder would convert the Preferred Stock based on 200% of the adjusted conversion price; |
| · | The Preferred maturity date used was 7 years following the Company being publicly traded (rolling 6 years from the Valuation Date); |
| · | The stock price of $0.85 was used as the fair value of the common stock based on the previous common stock transaction; |
| · | The projected volatility curve was based on the average of 15 comparable biotech companies historical volatility: |
| · | The Holder would automatically convert at a stock price of $1.70 if the Company was not in default; |
| · | The Holder would convert on a quarterly basis in equal amounts to maturity if in the money; and |
| · | Capital raising events would occur annually, generating reset events based on pricing not greater than 100% of market. |
The warrants were valued at issuance and marked to market quarterly for the period 2009 through December 2011. The five-year warrants are options to purchase shares of common stock at an exercise price of $0.85 per share and $1.27, subject to adjustments. The following assumptions were used for the valuation of the derivative:
| · | The stock price of $0.85 was used as the fair value of the common stock based on the previous common stock transaction; |
| · | The projected volatility curve was based on the average of comparable companies as provided in the Preferred assumptions above; |
| · | The Holder would exercise the warrant at maturity if the stock price was above the exercise price; |
| · | The Holder would exercise the warrant at target prices starting at $1.58 for the Investor Warrants and $1.40 for the Placement Agent Warrants, and lowering such target as the warrants approached maturity. |
| · | The Holder would automatically convert all of the shares at a stock price of $1.58 for the Investor Warrants and $1.40 for the Placement Agent Warrants; |
| · | The Holder would convert on a quarterly basis in amounts not to exceed the average quarters trading volume based on historical performance, assuming the volume would increase by 5% each quarter; and |
| · | Capital raising events would occur annually, generating reset events based on pricing not greater than 100% of market for the Placement Agent Warrants and for the Investor Warrants the reset would be 150% of the Preferred. |
The Company determined the fair value of the preferred stock to be $0 and $3,182,380 and the fair value of the warrants to be $0 and $2,504,879 at December, 2013 and December 31, 2012, respectively.
The following shows the changes in the level three liability measured on a recurring basis from December 31, 2012 through December 31, 2013:
| Balance, December 31, 2012 | | $ | 5,687,262 | |
| Derivative loss | | | 3,923 | |
| Derivative liability for warrants removed during the period | | | (5,691,185 | ) |
| Balance, December 31, 2013 | | $ | - | |
NOTE 8 – CAPITAL STOCK
The Series A Convertible Preferred Stock (“Preferred Stock”) has been authorized by resolutions adopted by the Company’s Board of Directors and set forth in a Certificate of Designation, Preferences and Rights (“Certificate of Designation”), filed with the Secretary of State of Delaware on November 26, 2008, and as last amended on July 17, 2013, which contains the designations, rights, powers, preferences, qualifications and limitations of the Series A Preferred Stock. The shares of Preferred Stock are fully paid and non-assessable. As of December 31, 2013, the Company has issued 3,255 shares of Series A Preferred Stock.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
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 shares of common stock, 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. 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 Conversion Rate initially will be 1,177 shares of common stock ($.85 per share) for each share of Preferred Stock.
The Conversion Price is 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 300% of the Conversion Rate per share for a period of 20 consecutive trading days.
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.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
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.
Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock (“Series B Preferred Stock”) has been authorized by resolutions adopted by the Company’s Board of Directors and set forth in a Certificate of Designation, Preferences and Rights (“Certificate of Designation”), filed with the Secretary of State of Delaware on September 2, 2011, which contains the designations, rights, powers, preferences, qualifications and limitations of the Series B Preferred Stock. The shares of Series B Preferred Stock are fully paid and non-assessable. As of December 31, 2013, the Company had issued 2,146 shares of Series B Preferred Stock.
Rank
The Series B 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 Series B Preferred Stock or not specifically ranking by its terms senior to or on parity with the Series B 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 Series B Preferred Stock, and (iii) junior to Series A Preferred Stock, in each case, as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.
Dividends
The holders of the Series B Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% of the liquidation preference of the Series B 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 Series B Preferred Stock. Such dividends are payable in cash or shares of common stock, at the option of the Company. The holders of the Series B 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 Series B 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. 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 Series B 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 Series B Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Series B Preferred Stock have been, or contemporaneously are, declared and paid in full.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
Conversion
At the election of the holder thereof, each share of Series B 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 Conversion Rate initially will be 1,177 shares of common stock ($.85 per share) for each Share of Series B Preferred Stock.
The Conversion Price is 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 but does not contain the same price protection ratchets as the Series A Preferred 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.
Voting Rights
The affirmative vote of the holders of at least a majority 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 Series B Preferred Stock that would adversely affect the Series B 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 Series B 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 Series B 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, after payment to the holders of Series A 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.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
Series C Convertible Preferred Stock
The Series C Convertible Preferred Stock (“Series C Preferred Stock”) has been authorized by resolutions adopted by the Company’s Board of Directors and set forth in a Certificate of Designation, Preferences and Rights (“Certificate of Designation”), filed with the Secretary of State of Delaware on March 12, 2013, which contains the designations, rights, powers, preferences, qualifications and limitations of the Series C Preferred Stock. The shares of Series C Preferred Stock are fully paid and non-assessable. As of December 31, 2013, the Company had issued 3,380 shares of Series C Preferred Stock.
Rank
The Series C 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 Series C Preferred Stock or not specifically ranking by its terms senior to or on parity with the Series C Preferred Stock, (ii) on parity with the Series B Preferred Stock and any class or series of the Company’s capital stock specifically ranking by its terms on parity with the Series C Preferred Stock, and (iii) junior to Series A Preferred Stock, in each case, as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.
Dividends
The holders of the Series C Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% of the liquidation preference of the Series C 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 Series C Preferred Stock. Such dividends are payable in cash or shares of common stock, at the option of the Company. The holders of the Series C 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 Series C 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. 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 Series C 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 Series C Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Series C Preferred Stock have been, or contemporaneously are, declared and paid in full.
Conversion
At the election of the holder thereof, each share of Series C 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 Conversion Rate initially will be 800 shares of common stock ($1.25 per share) for each Share of Series C Preferred Stock.
The Conversion Price is 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 300% of the Conversion Rate per share for a period of 20 consecutive trading days.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
Voting Rights
The affirmative vote of the holders of at least a majority 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 Series C Preferred Stock that would adversely affect the Series C 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 Series C 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 Series C 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, after payment to the holders of Series A 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.
During the year ended December, 2013, the Company issued 3,380 shares of its par value $0.10 Series C Convertible Preferred Stock for cash at $1,000 per share.
During the year ended December 31, 2012, the Company issued 1,116 shares of its par value $0.10 convertible Series B preferred stock for cash at $1,000 per share.
During the year ended December 31, 2011, the Company issued 419 shares of its par value $0.10 Series A Convertible Preferred Stock and 1,030 shares of its par value $0.10 Series B Convertible Preferred Stock, for a total of 1,449 shares of Preferred Stock, for cash at $1,000 per share.
During the year ended December 31, 2010, the Company issued 575 shares of its par value $0.10 Series A Convertible Preferred Stock for cash at $1,000 per share.
During the year ended December 31, 2009, the Company issued 810 shares of its par value $0.10 Series A Convertible Preferred Stock at $1,000 per share.
On November 25, 2008, the Company issued 562 shares of its par value $0.10 Series A Convertible Preferred Stock for cash at $1,000 per share.
On November 25, 2008, the Company issued 890 shares of its par value $0.10 Series A Convertible Preferred Stock to extinguish bridge debt financing totaling $889,875.
Between January 24 and April 15, 2008, the Company issued 1,082,500 common shares of the Company at $0.85 per common share in accordance with the Bridge Note agreements.
As of December 31, 2013 and 2012, the Company has accrued $1,353,961 and $861,872 and has not paid any dividends, respectively.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
Common Stock
During year ended December 31, 2013, the Company issued 40,000 shares of common stock, for services performed at $0.85 per share. The Chairman of the Audit Committee also received 30,000, 40,000 and 40,000 restricted shares of Common Stock on December 28, 2010, December 22, 2011 and February 20, 2013, in consideration of consulting and accounting services as chairman of the Company’s Audit Committee. The 40,000 issued in the quarter ended March 31, 2013 were not issued until the current quarter and were booked initially as a stock payable in the amount of $34,000 valued at the stock price on February 20, 2013 of $0.85. As of December 31, 2013, stock payable was $-0-. He will be reimbursed for reasonable expenses incurred, however will not receive any other cash compensation.
During the year ended December 31, 2012, the Company issued 7,500 shares of common stock to a consultant of the Company in exchange for services valuing $16,000. The shares were valued based on the last sale price of $0.85 per share. The difference of $9,625 was recognized as a gain.
During the year ended December 31, 2011, the Company issued 640,000 shares of common stock to officers and consultants in exchange for services provided. The shares were valued based on the price of $0.85 per share and the Company recognized $151,000 in salaries and wages, $289,000 in consulting expense, and extinguished $104,000 in accrued officer salary.
On September 16, 2010 the Company issued 400,000 shares of common stock to officers and consultants of the Company in exchange for services provided. The shares were valued based on the price of $0.85 per share and the Company recognized $340,000 in consulting expense.
On December 28, 2010 the Company issued 450,000 shares of common stock to officers and consultants of the Company in exchange for services provided. The shares were valued based on the price of $0.85 per share and the Company recognized $382,500 in consulting expense.
NOTE 9 – WARRANTS
A summary of the status of the Company's warrants as of December 31, 2013 and changes from inception through December 31, 2012 are presented below:
| Date of | | Warrant | | | Exercise | | | Value if | |
| Issuance | | Shares | | | Price | | | Exercised | |
| 11/25/08 | | | 1,259,639 | | | | 1.27 | | | $ | 1,599,742 | |
| 11/25/08 | | | 530,314 | | | | 0.85 | | | | 450,767 | |
| 11/26/08 | | | 449,220 | | | | 1.27 | | | | 570,509 | |
| Outstanding at 12/31/2008 | | | 2,239,173 | | | | 1.17 | | | | 2,621,018 | |
| 03/05/09 | | | 347,215 | | | | 1.27 | | | | 440,963 | |
| 03/05/09 | | | 104,165 | | | | 0.85 | | | | 88,540 | |
| 04/01/09 | | | 17,655 | | | | 1.27 | | | | 22,422 | |
| 04/01/09 | | | 5,296 | | | | 0.85 | | | | 4,502 | |
| 06/17/09 | | | 235,400 | | | | 1.27 | | | | 298,958 | |
| 06/17/09 | | | 70,620 | | | | 0.85 | | | | 60,027 | |
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
| Date of | | Warrant | | | Exercise | | | Value if | |
| Issuance | | Shares | | | Price | | | Exercised | |
| 07/23/09 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 07/23/09 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 08/20/09 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 09/09/09 | | | 235,400 | | | | 1.27 | | | | 298,958 | |
| 09/09/09 | | | 70,620 | | | | 0.85 | | | | 60,027 | |
| Outstanding at 12/31/2009 | | | 3,478,554 | | | | 1.17 | | | | 4,074,909 | |
| 02/11/10 | | | 29,425 | | | | 1.27 | | | | 37,370 | |
| 02/11/10 | | | 17,655 | | | | 0.85 | | | | 15,007 | |
| 05/21/10 | | | 29,425 | | | | 1.27 | | | | 37,370 | |
| 05/21/10 | | | 17,655 | | | | 0.85 | | | | 15,007 | |
| 08/10/10 | | | 88,275 | | | | 1.27 | | | | 112,109 | |
| 08/10/10 | | | 52,965 | | | | 0.85 | | | | 45,020 | |
| 09/15/10 | | | 264,825 | | | | 1.27 | | | | 336,328 | |
| 09/15/10 | | | 52,965 | | | | 0.85 | | | | 45,020 | |
| 09/24/10 | | | 105,930 | | | | 0.85 | | | | 90,041 | |
| 10/27/10 | | | 147,125 | | | | 1.27 | | | | 186,849 | |
| 10/27/10 | | | 73,563 | | | | 0.85 | | | | 62,529 | |
| 11/19/10 | | | 117,700 | | | | 1.27 | | | | 149,479 | |
| 11/24/10 | | | 70,620 | | | | 0.85 | | | | 60,027 | |
| Outstanding at 12/31/2010 | | | 4,546,682 | | | | 1.16 | | | | 5,267,063 | |
| 01/26/11 | | | 117,700 | | | | 1.27 | | | | 149,479 | |
| 01/26/11 | | | 60,027 | | | | 1.27 | | | | 76,234 | |
| 01/26/11 | | | 106,636 | | | | 0.85 | | | | 90,641 | |
| 03/15/11 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 03/15/11 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 04/06/11 | | | 70,620 | | | | 0.85 | | | | 60,027 | |
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
| Date of | | Warrant | | | Exercise | | | Value if | |
| Issuance | | Shares | | | Price | | | Exercised | |
| 04/06/11 | | | 117,700 | | | | 1.27 | | | | 149,479 | |
| 06/08/11 | | | 51,200 | | | | 0.85 | | | | 43,520 | |
| 06/08/11 | | | 85,333 | | | | 1.27 | | | | 108,373 | |
| 06/20/11 | | | 17,655 | | | | 0.85 | | | | 15,007 | |
| 06/20/11 | | | 29,425 | | | | 1.27 | | | | 37,370 | |
| 07/26/11 | | | 23,540 | | | | 1.27 | | | | 29,896 | |
| 07/26/11 | | | 14,124 | | | | 0.85 | | | | 12,005 | |
| 08/22/11 | | | 29,424 | | | | 1.27 | | | | 37,368 | |
| 08/22/11 | | | 17,655 | | | | 0.85 | | | | 15,007 | |
| 08/30/11 | | | 105,930 | | | | 0.85 | | | | 90,041 | |
| 09/02/11 | | | 176,550 | | | | 1.27 | | | | 224,219 | |
| 09/09/11 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 09/09/11 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 09/22/11 | | | 441,375 | | | | 1.27 | | | | 560,546 | |
| 09/22/11 | | | 264,825 | | | | 0.85 | | | | 225,101 | |
| 11/02/11 | | | 141,240 | | | | 0.85 | | | | 120,054 | |
| 11/02/11 | | | 235,400 | | | | 1.27 | | | | 298,958 | |
| 11/23/11 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 11/23/11 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 12/27/11 | | | 127,116 | | | | 0.85 | | | | 108,049 | |
| 12/27/11 | | | 211,860 | | | | 1.27 | | | | 269,062 | |
| Outstanding at 12/31/11 | | | 7,274,497 | | | | 1.14 | | | | 8,301,757 | |
| 01/31/12 | | | 117,700 | | | | 1.27 | | | | 149,479 | |
| 01/31/12 | | | 70,620 | | | | 0.85 | | | | 60,027 | |
| 02/02/12 | | | 76,505 | | | | 1.27 | | | | 97,161 | |
| 02/02/12 | | | 45,903 | | | | 0.85 | | | | 39,018 | |
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
| Date of | | Warrant | | | Exercise | | | Value if | |
| Issuance | | Shares | | | Price | | | Exercised | |
| 02/10/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 02/10/12 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 04/10/12 | | | 41,666 | | | | 0.85 | | | | 35,416 | |
| 04/10/12 | | | 69,443 | | | | 1.27 | | | | 88,193 | |
| 05/11/12 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 05/11/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 06/04/12 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 06/04/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 06/19/12 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| 06/19/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 07/24/12 | | | 44,138 | | | | 1.27 | | | | 56,055 | |
| 07/24/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 07/24/12 | | | 30,896 | | | | 0.85 | | | | 26,262 | |
| 07/30/12 | | | 235,400 | | | | 1.27 | | | | 298,958 | |
| 07/30/12 | | | 141,240 | | | | 0.85 | | | | 120,054 | |
| 08/28/12 | | | 258,352 | | | | 1.27 | | | | 328,107 | |
| 08/28/12 | | | 155,011 | | | | 0.85 | | | | 131,759 | |
| 10/18/12 | | | 158,895 | | | | 1.27 | | | | 201,797 | |
| 10/18/12 | | | 95,337 | | | | 0.85 | | | | 81,036 | |
| 11/26/12 | | | 58,850 | | | | 1.27 | | | | 74,740 | |
| 11/27/12 | | | 35,310 | | | | 0.85 | | | | 30,014 | |
| Outstanding at 12/31/12 | | | 9,345,253 | | | | 1.14 | | | | 10,613,584 | |
| 02/28/13 | | | 400,000 | | | | 0.85 | | | | 340,000 | |
| 03/01/13 | | | (1,625,192 | ) | | | 0.85 | | | | (1,381,413 | ) |
| 03/01/13 | | | 1,625,192 | | | | 0.85 | | | | 1,381,413 | |
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
| Date of | | Warrant | | | Exercise | | | Value if | |
| Issuance | | Shares | | | Price | | | Exercised | |
| 03/13/13 | | | 800,000 | | | | 1.88 | | | | 1,500,000 | |
| 03/13/13 | | | 480,000 | | | | 0.85 | | | | 408,000 | |
| 06/19/13 | | | 127,200 | | | | 0.85 | | | | 108,120 | |
| 06/19/13 | | | 212,000 | | | | 1.88 | | | | 397,500 | |
| 07/24/13 | | | 60,000 | | | | 1.88 | | | | 112,500 | |
| 07/24/13 | | | 100,000 | | | | 1.88 | | | | 187,500 | |
| 07/24/13 | | | 96,000 | | | | 1.25 | | | | 120,000 | |
| 08/29/13 | | | 80,000 | | | | 1.88 | | | | 150,000 | |
| 08/29/13 | | | 48,000 | | | | 1.25 | | | | 60,000 | |
| 08/29/13 | | | (48,000 | ) | | | 1.25 | | | | (60,000 | ) |
| 10/24/13 | | | 61,764 | | | | 0.85 | | | | 52,499 | |
| 10/24/13 | | | 10,588 | | | | 0.85 | | | | 9,000 | |
| 10/24/13 | | | 1,552,840 | | | | 0.85 | | | | 1,319,914 | |
| 10/24/13 | | | (1,552,840 | ) | | | 0.85 | | | | (1,319,914 | ) |
| 10/24/13 | | | 10,000 | | | | 1.25 | | | | 12,500 | |
| 10/24/13 | | | 38,000 | | | | 1.25 | | | | 47,500 | |
| 11/08/13 | | | 100,000 | | | | 1.88 | | | | 187,500 | |
| 11/08/13 | | | 60,000 | | | | 1.25 | | | | 75,000 | |
| 12/18/13 | | | 78,000 | | | | 1.25 | | | | 97,500 | |
| 12/18/13 | | | 78,000 | | | | 1.25 | | | | 97,500 | |
| 12/18/13 | | | 15,000 | | | | 0.85 | | | | 12,750 | |
| 12/18/13 | | | 1,537,840 | | | | 0.85 | | | | 1,307,164 | |
| Outstanding at 12/31/2013 | | | 13,689,648 | | | | 1.13 | | | | 15,849,164 | |
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
The warrants were issued in connection with the Preferred Stock Offering and were valued using the Lattice model and accounted for as described in Note 7.
As of December 1, 2013, the Company’s Board of Directors extended the terms of all outstanding warrants, some of which were set to expire in 2014 or 2015, such that none of the warrants expire before the fifth anniversary of the date on which the Company’s common stock begins trading on a national securities exchange, the OTC Bulletin Board or OTC Pink. The Company valued these warrants using the Black-Scholes option pricing model under the following assumptions: $0.85 and $1.27stock price, $0.85 and $$1.27 exercise price, the Warrants expire before the 5th anniversary of the date on which the Common Stock begins public trading on a national securities exchange, 107.73% volatility, .10% to 1.43% risk free rate.
During the period ended December 31, 2013, the Company extended the exercise period of 3,226,032 Class A warrants with an exercise prices of $0.85 to expire on the fifth anniversary of the next registration statement to be filed. 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, 107% to 112% volatility, .96% to 2.26%risk free rate. As a result of the modification the Company recognized a loss on equity modification of $156,477.
On February 20, 2013, the Company issued 400,000 warrants to its vendor for curcumin. The warrants have an exercise price of $0.85 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, $0.85 exercise price, 5 years to maturity, 885% volatility, .85% risk free rate. The Company recorded expense of $339,997 related to these warrants for the year ended December 31, 2013.
During the period ended December 31, 2013, the Company issued 1,087,552 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.
The Company will issue cash or warrants as stock offering costs. The Company recognizes the cost upon completion of the share purchase. Warrants are valued and recorded using the lattice model. Total stock issuance costs for December 31, 2013 and 2012 were $550,326 and $221,175, respectively.
The holders of the Series C Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% and a liquidation preference , 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 Series C Preferred Stock but junior to the Series A Preferred Stock. Such dividends are payable in cash or shares of common stock, at the option of the Company. The holders of the Series C 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 Series C 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. 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 Series C 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 Series B Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Series C Preferred Stock have been, or contemporaneously are, declared and paid in full.
The Company’s balance, for dividends payable, as of December 31, 2013 and 2012 is, $1,353,960 and $861,872, respectively.
NOTE 10 – STOCK 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, as amended on February 13, 2013, which is administered by our Board of Directors, authorizes the issuance of a maximum of 1,000,000 shares of our common stock, plus on a yearly basis an additional amount equal to 10% of the amount of shares issued during the prior year. Thus, as of January 1, 2014, a maximum of 1,047,000 shares were authorized for issuance under the 2009 Plan. 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, 2013, the following options had been granted under the plan:
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
On July 12, 2010 the Company issued 100,000 options to a member of its board of directors under the 2009 plan. The options have an exercise price of $0.85 per share and have a life of ten years. The options vest as follows: one third on the date of grant, one third on each of the second and third anniversary dates from the date of grant. The Company valued these options using the Black-Scholes option pricing model totaling $84,300 under the following assumptions: $0.85 stock price, $0.85 stock price, 10 years to maturity, 400% volatility, 2.02% risk free rate. The Ccompany recorded amortization expense of $4,952 and 16,772 related to these options for the years ended December 31, 2013 and 2011.
On February 20, 2013 the Company issued 60,000 options to a member of its board of directors under the 2009 plan for services to be rendered during 2013. 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 $51,000 under the following assumptions: $0.85 stock price, $1.25 exercise price, 5 years to maturity, 649% volatility, .35% risk free rate. The Company recorded amortization expense of $50,928 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 60,000 options to a member of its board of directors under the 2009 plan for services rendered during 2012. The options have an exercise price of $0.85 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 $51,000 under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 years to maturity, 649% volatility, .35% risk free rate. The Company recorded amortization expense of $50,941 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 60,000 options to a member of its board of directors under the 2009 plan for services to be rendered during 2013. 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 $51,000 under the following assumptions: $0.85 stock price, $1.25 exercise price, 5 years to maturity, 649% volatility, .35% risk free rate. The Company recorded amortization expense of $50,928 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 60,000 options to a member of its board of directors under the 2009 plan for services rendered during 2012. The options have an exercise price of $0.85 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 $51,000 under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 years to maturity, 649% volatility, .35% risk free rate. The Company recorded amortization expense of $50,928 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 82,400 incentive stock options to its CEO and a member of its board of directors 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 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 $70,040 under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 years to maturity, 626% volatility, .35% risk free rate. The Company recorded amortization expense of $69,918 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 117,600 options to its CEO and a member of its board of directors 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 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 $99,960 under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 years to maturity, 626% volatility, .35% risk free rate. The Company recorded amortization expense of $99,786 related to these options for the year ended December 31, 2013.
On February 20, 2013 the Company issued 30,000 options to its law firm 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 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 $25,500 under the following assumptions: $0.85 stock price, $0.85 exercise price, 5 years to maturity, 885% volatility, .88% risk free rate The Company recorded amortization expense of $25,471 related to these options for the year ended December 31, 2013.The Company has recorded amortization expense of $667,449 and $16,772 related to these options for the year ended December 31, 2013 and 2012.
NOTE 11 – INCOME TAXES
The Company’s provision for income taxes was $0 for the years ended December 31, 2013 and 2012 respectively since the Company incurred net operating losses which have a full valuation allowance through December 31, 2012.
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 $7,436,707. The total valuation allowance is equal to the total deferred tax asset. The valuation allowance increased by $488,084 from $2,412,232 to $2,903,316 for the year ended December 31, 2013.
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2013 and 2012
The tax effects of significant items comprising the Company's net deferred taxes as of December 31, 2013 and 2012 were as follows:
| | | 2013 | | | 2012 | |
| Cumulative NOL | | $ | 7,436,707 | | | $ | 6,185,210 | |
| Deferred Tax assets: | | | | | | | | |
| Net operating loss carry forwards | | | 2,900,316 | | | | 2,412,232 | |
| Valuation allowance | | | (2,900,316 | ) | | | (2,412,232 | ) |
| | | $ | - | | | $ | - | |
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, 2013 and 2012 due to the following:
| | | 2013 | | | 2012 | |
| Income tax benefit at U. S. federal statutory rates: | | $ | (763,180 | ) | | $ | (511,264 | ) |
| Stock-based compensation | | | 273,565 | | | | 9,027 | |
| Derivative liability | | | 1,531 | | | | 3,180 | |
| Change in valuation allowance | | | 488,084 | | | | 499,057 | |
| | | $ | - | | | $ | - | |
The Company adopted the provisions of ASC 740 at the beginning of fiscal year 2008. As a result of this adoption, the Company has not made any adjustments to deferred tax assets or liabilities. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the years ended December 31, 2013 and 2012, nor were any interest or penalties accrued as of December 31, 2013.
The Company has filed income tax returns in the United States and Florida. All tax years prior to 2009 are closed by expiration of the statute of limitations. The years ended December 31, 2013, 2012, and 2011 is open for examination.
The Company’s net state and federal operating loss carry forwards of approximately $7,436,707 expire in various years beginning in 2027 and carrying forward through 2033.
The Company has had numerous transactions in its common stock. Such transactions may have resulted in a change in the Company's ownership, as defined in the Internal Revenue Code Section 382. Such change may result in an annual limitation on the amount of the Company's taxable income that may be offset with its net operating loss carry forwards. The Company has not evaluated the impact of Section 382, if any, on its ability to utilize its net operating loss carry forwards in future years.
NOTE 12 – RELATED PARTY TRANSACTIONS
On January 31, 2013, the Company signed a demand promissory note with a related party. The principal sum of the note was $25,000, bearing no interest.
On March 4, 2013, the Company signed a demand promissory note with a related party. The principal sum of the note was $5,000, bearing no interest.
On March 1, 2013, the Company paid the principal sum of $30,000 on demand promissory notes
NOTE 13 – SUBSEQUENT EVENTS
In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and had no material subsequent events to report.
PART IV
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) |
| 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) |
| *10 | .1 | | Employment Agreement dated as of February 20, 2013 between the registrant and Dr. Lawrence Helson |
| 10 | .2 | | 2009 Employee Stock Incentive Plan (1) |
| 10 | .3 | | License Agreement from University of Texas MD Anderson Career Center (1) |
| 10 | .4 | | License Agreement from The Johns Hopkins University (1) |
| 10 | .5 | | September 6, 2007 Liposomal Formulation Manufacturing Agreement with Polymun Scientific Immunbiologische Forschung (GmbH) (1) |
| 10 | .6 | | January 30, 2008 Service Agreement with Brookwood Pharmaceuticals (1) |
| 10 | .7 | | Sponsored Research Agreement dated as of September 18, 2007, by and between The Johns Hopkins University, employer of Dr. Anirban Maitra and the registrant. (1) |
| 10 | .8 | | Form of Consulting Agreement for Scientific Advisory Board Members filed with this Report (1) |
| 10 | .9 | | Patent and Technology License Agreement dated August 18, 2008 between the registrant and the University of North Texas Health Science Center. (1) |
| 10 | .10 | | Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth. (1) |
| 10 | .11 | | Agreement dated June 30, 2007 by and between the Registrant and SAFC. (1) |
| *10 | .12 | | Placement Agency Agreement dated as of March 5, 2013 by and between SignPath Pharma Inc. and Meyers Associates L.P. |
| 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 | | Agreement dated June 30, 2009 by and between the registrant and Topaz Technology, Inc. |
| 10 | .15 | | Sponsored Research Agreement by and between the registrant and University of North Texas Health Science Center at Fort Worth dated December 2010. (2) |
| *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. |
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: March 31, 2014 | 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 (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) | | March 31, 2014 |
| Lawrence Helson, M.D | | | | |
| | | | | |
/s/ Arthur P. Bollon, Ph.D. | | Director | | March 31, 2014 |
| Arthur P. Bollon, Ph.D. | | | | |
| | | | | |
| /s/ Jack Levine | | Director | | March 31, 2014 |
| Jack Levine | | | | |
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