| Nature of Operations, Basis of Presentation and Significant Accounting Policies | Note
1 – Nature of Operations, Basis of Presentation and Significant Accounting Policies Reverse Merger with IThenaPharma On November 15,
2016, Marina Biotech, Inc. and subsidiaries (“Marina” or the “Company”) entered into, and consummated the transactions
contemplated by, an Agreement and Plan of Merger between and among IThenaPharma Inc., a Delaware corporation (“IThena”),
IThena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Marina (“Merger Sub”), and Vuong
Trieu as the IThena representative (the “Merger Agreement”), pursuant to which IThena merged into Merger Sub (the “Merger”).
Upon completion of the Merger and subject to the applicable provisions of the Merger Agreement, Merger Sub has ceased to exist
and IThena continues as the surviving corporation of the Merger and as a wholly-owned subsidiary of Marina. As consideration for
the Merger, Marina issued to the former shareholders of IThena 58,392,828 shares of the Company’s common stock, representing
approximately 65% of the issued and outstanding shares of Marina’s common stock following the completion of the Merger. Outstanding
warrants to purchase 300,000 shares of common stock of IThena were converted into warrants to purchase common stock of Marina.
In addition, Marina appointed Vuong Trieu, the president of IThena, as the Chairman of the Board of Directors of Marina, effective
November 15, 2016. Dr. Trieu, in his capacity as the IThena representative, later appointed Philippe P. Calais, Ph.D., as a member
of the Board of Directors of Marina effective December 8, 2016, pursuant to the rights granted to the former shareholders of IThena
in the Merger Agreement. As the former shareholders
of IThena control greater than 50% of the Company subsequent to the Merger, for accounting purposes, the Merger was treated as
a “reverse acquisition” and IThena is considered the accounting acquirer. Accordingly, IThena’s historical results
of operations replace Marina’s historical results of operations for all periods prior to the Merger, and for all periods
following the Merger, the results of operations of both companies are included. IThena accounted for the acquisition of Marina
under the purchase accounting method following completion. The purchase price
of approximately $3.7 million represents the consideration in the reverse merger transaction and is calculated based on the number
of shares of common stock of the combined company that Marina stockholders owned as of the closing of the transaction and the fair
value of assets and liabilities assumed by IThena. The number of shares
of common stock Marina issued to IThena stockholders is calculated pursuant to the terms of the Merger Agreement based on Marina
common stock outstanding as of November 15, 2016, as follows:
Shares of Marina common stock outstanding as of November 15, 2016 31,378,551
Divided by the percentage of Marina ownership of combined company 35 %
Adjusted total shares of common stock of combined company 89,771,379
Multiplied by the assumed percentage of IThena ownership of combined company 65 %
Shares of Marina common stock issued to IThena upon closing of transaction 58,392,828 The application
of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. The
purchase price allocation will remain preliminary until IThena management determines the fair values of assets acquired and liabilities
assumed. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion
of the transaction and will be based on the fair values of the assets acquired and liabilities assumed as of the transaction closing
date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented. The purchase price
as of March 31, 2017 has been allocated based on a preliminary estimate of the fair value of assets acquired and liabilities assumed:
Assets and Liabilities Acquired:
Cash $ 5,867
Net current liabilities assumed (excluding cash) (1,871,725 )
Identifiable intangible assets 2,361,066
Debt (326,037 )
Net assets acquired 169,170
Goodwill 3,502,829
Purchase price $ 3,672,000 The above estimated
purchase allocation and goodwill valuation reflects changes in fair value determinations of $55,246 for the three months ended
March 31, 2017 and approximately $1,238,000 since the merger date. In connection with
the Merger, Marina entered into a License Agreement with Autotelic LLC, a stockholder of IThena and an entity in which Dr. Trieu
serves as Chief Executive Officer, pursuant to which (A) Marina licensed to Autotelic LLC certain patent rights, data and technology
relating to Familial Adenomatous Polyposis and nasal insulin, for human therapeutics other than for oncology-related therapies
and indications, and (B) Autotelic LLC licensed to Marina certain patent rights, data and know-how relating to IT-102 and IT-103,
in connection with individualized therapy of pain using a non-steroidal anti-inflammatory drug and an anti-hypertensive without
inducing intolerable edema, and treatment of certain aspects of proliferative disease, but not including rights to IT-102/IT-103
for Therapeutic Drug Monitoring (“TDM”) guided dosing for all indications using an Autotelic Inc. TDM Device. We also
granted a right of first refusal to Autotelic LLC with respect to any license by us of the rights licensed by or to us under the
License Agreement in any cancer indication outside of gastrointestinal cancers. On November 15,
2016, simultaneously with the Merger, Autotelic Inc., a related party, acquired a technology asset (IT-101) from IThena, and IThena’s
investment of $479 in a foreign entity from the Company. In exchange for the asset, Autotelic Inc. agreed to cancel its stock purchase
warrant agreements (see below), received all of IThena’s then cash balance as payment against the liabilities and agreed
to assume the remaining debts and liabilities of IThena, including accounts payable of $71,560, accrued expenses of $11,470, due
to related party of $5,375, other liabilities of $118,759, convertible note of $50,000, and accrued interest payable of $567. IThena
recognized contributed capital of $257,252 in connection with this transaction. In connection with
the Merger, Marina entered into a Line Letter dated November 15, 2016 with Dr. Trieu, our Chairman of the Board, for an unsecured
line of credit to be used for current operating expenses in an amount not to exceed $540,000, of which $475,064 had been drawn
at March 31, 2017 and $250,000 had been drawn at December 31, 2016. Dr. Trieu considered requests for advances under the Line Letter
until April 30, 2017. Dr. Trieu has the right at any time for any reason in his sole and absolute discretion to terminate the line
of credit available under the Line Letter or to reduce the maximum amount available thereunder without notice; provided, that Dr.
Trieu agreed that he shall not demand the repayment of any advances that are made under the Line Letter prior to the earlier of:
(i) May 15, 2017; and (ii) the date on which (x) we make a general assignment for the benefit of our creditors, (y) we apply for
or consent to the appointment of a receiver, a custodian, a trustee or liquidator of all or a substantial part of our assets or
(z) we cease operations. Dr. Trieu has advanced an aggregate of $475,064 under the Line Letter. Advances made under the Line Letter
bear interest at the rate of five percent (5%) per annum, are evidenced by the Demand Promissory Note issued by us to Dr. Trieu,
and are due and payable upon demand by Dr. Trieu. Dr. Trieu has the
right, exercisable by delivery of written notice thereof (the “Election Notice”), to either: (i) receive repayment
for the entire unpaid principal amount advanced under the Line Letter and the accrued and unpaid interest thereon on the date of
the delivery of the Election Notice (the “Outstanding Balance”) or (ii) convert the Outstanding Balance into such number
of shares of our common stock as is equal to the quotient obtained by dividing (x) the Outstanding Balance by (y) $0.10 (such price,
the “Conversion Price”); provided, that in no event shall the Conversion Price be lower than the lower of (x) $0.28
per share or (y) the lowest exercise price of any securities that have been issued by us in a capital raising transaction (and
that would otherwise reduce the exercise price of any other outstanding warrants issued by us) during the period between November
15, 2016 and the date of the delivery of the Election Notice. No capital raising transactions have occurred through the date of
this filing with securities at a price lower than $0.28 per share. Further, we entered
into a Master Services Agreement (“MSA”) with Autotelic Inc., a stockholder of IThena, pursuant to which Autotelic
Inc. agreed to provide certain business functions and services from time to time during regular business hours at our request.
See Note 3 for specific terms of the MSA. On November 15,
2016, Marina agreed to issue to Novosom Verwaltungs GmbH (“Novosom”) 1.5 million shares of common stock upon the closing
of the Merger in consideration of Novosom’s agreement that the consummation of the Merger would not constitute a “Liquidity
Event” under that certain Asset Purchase Agreement dated as of July 27, 2010 between and among Marina, Novosom and Steffen
Panzner, Ph.D., and thus that no additional consideration under such agreement would be due to Novosom as a result of the consummation
of the Merger. In July 2016, Marina
pledged to issue common stock valued at approximately $15,000 to Novosom for the portion due under our July 2010 Asset Purchase
Agreement with Novosom, related to Marina’s license agreement with an undisclosed licensee that grants such licensee rights
to use Marina’s technology and intellectual property to develop and commercialize products combining certain molecules with
Marina’s liposomal delivery technology known as NOV582. In November 2016, we issued 119,048 shares with a value of approximately
$15,000 to Novosom as the equity component owed under our July 2016 license agreement. Business Operations IThenaPharma, Inc. IThena is a developer
of personalized therapies for combined pain/hypertension through its proprietary Fixed Dose Combination (“FDC”) technology
and point of care TDM. Through the combination of these technologies, IThenaPharma is looking to deliver therapies with improved
compliance and personalized dosing. IThena’s lead products are the celecoxib FDCs which include IT-102 and IT-103, fixed
dose combinations of celecoxib and lisinopril and celecoxib and olmesartan, respectively. IT-102 and IT-103 are being developed
as celecoxib without the drug induced edema associated with celecoxib alone. IT-102 and IT-103 are being developed initially for
combined arthritis / hypertension and subsequently for treatment of pain, or cancer, or other indications requiring high doses
of celecoxib. Marina Biotech, Inc Marina Biotech,
Inc. (“Marina”) is a biopharmaceutical company engaged in the discovery, acquisition, development and commercialization
of proprietary drug therapeutics for addressing significant unmet medical needs in the U.S., Europe and additional international
markets. Marina’s primary therapeutic focus is the disease intersection of hypertension, arthritis, pain, and oncology allowing
for innovative combination therapies of the plethora of already approved drugs and the proprietary novel oligotherapeutics of Marina. Marina currently
has three clinical development programs underway: (i) next generation celecoxib program drug candidates IT-102 and IT-103, each
of which is a fixed dose combination of celecoxib and either lisinopril (IT-102) or olmesartan (IT-103); (ii) CEQ508, an oral delivery
of small interfering RNA (“siRNA”) against beta-catenin, combined with IT-102 to suppress polyps in the precancerous
syndrome and orphan indication of Familial Adenomatous Polyposis (“FAP”); and (iii) CEQ508 combined with IT-103 to
treat Colorectal Cancer (“CRC”). Summary of Significant Accounting
Policies Basis of Presentation The accompanying
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted
accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying unaudited financial information
should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the
year ended December 31, 2016, included in our 2016 Annual Report on Form 10-K filed with the SEC. The information furnished in
this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary
for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results
of operations for the three months ended March 31, 2017 are not necessarily indicative of the results for the year ending December
31, 2017 or for any future period. Principles of Consolidation The consolidated
financial statements include the accounts of IThenaPharma Inc. and Marina Biotech, Inc. and the wholly-owned subsidiaries, Cequent,
MDRNA, and Atossa, and eliminate any inter-company balances and transactions. Going Concern and Management’s
Liquidity Plans The accompanying
condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates
realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2017, we had an accumulated
deficit of $3,033,860 and a negative working capital of $2,297,576. We anticipate that we will continue to incur operating losses
as we execute our plan to raise additional funds and investigate strategic and business development initiatives. In addition, we
have had and will continue to have negative cash flows from operations. We have previously funded our losses primarily through
the sale of common and preferred stock and warrants, the sale of notes, revenue provided from our license agreements and, to a
lesser extent, equipment financing facilities and secured loans. In 2016 and 2015, we funded operations with a combination of the
issuance of notes and preferred stock, and license-related revenues. At March 31, 2017, we had a cash balance of $216,441. Our
operating activities consume the majority of our cash resources. There is substantial
doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing or engage in strategic
transactions, and may require us to curtail our operations. We cannot predict, with certainty, the outcome of our actions to generate
liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity
as currently planned. Use of Estimates The preparation
of the accompanying condensed consolidated financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas
requiring the use of management estimates include valuation allowance for deferred income tax assets. Actual results could differ
from such estimates under different assumptions or circumstances. Fair Value of Financial Instruments We consider the
fair value of cash, accounts payable, due to related parties, notes payable, convertible notes payable and accrued liabilities
not to be materially different from their carrying value. These financial instruments have short-term maturities. We follow authoritative
guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial
assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures.
The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such
as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief
description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. Our cash is subject
to fair value measurement and is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed
share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes,
using the probability adjusted Black-Scholes option pricing model (“Black-Scholes”), which management has determined
approximates values using more complex methods, using Level 3 inputs. The following tables summarize our liabilities measured at
fair value on a recurring basis as of December 31, 2016 and March 31, 2017:
Balance at December 31, 2016 Level 1 Quoted prices in active markets for identical assets Level 2 Significant other observable inputs Level 3 Significant unobservable inputs
Liabilities:
Fair value liability for price adjustable warrants $ 141,723 $ - $ - $ 141,723
Total liabilities at fair value $ 141,723 $ - $ - $ 141,723
Balance at March 31, 2017 Level 1 Quoted prices in active markets for identical assets Level 2 Significant other observable inputs
Level 3 inputs
Liabilities:
Fair value liability for price adjustable warrants $ 244,795 $ - $ - $ 244,795
Total liabilities at fair value $ 244,795 $ - $ - $ 244,795 The following presents
activity of the fair value liability of price adjustable warrants determined by Level 3 inputs for the period ended March 31, 2017:
Fair value liability for price adjustable warrants
Balance at December 31, 2016 $ 141,723
Fair value of warrants issued -
Exercise of warrants -
Change in fair value included in condensed consolidated statement of operations 103,072
Balance at March 31, 2017 $ 244,795 The fair value liability
of price adjustable warrants for the three months ended March 31, 2017 was determined using the probability adjusted Black-Scholes
option pricing model using exercise prices of $0.28 to $0.75, stock price of $0.28, volatility of 123% to 184%, contractual lives
of 2.5 to 6 years, and risk free rates of 0.62% to 1.93%. Impairment of Long-Lived Assets We review all of
our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment indicators
are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets at least annually at December
31. When necessary, we record charges for impairments. Specifically:
● For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
● For indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any. Management determined
that no impairment indicators were present and that no impairment charges were necessary as of March 31, 2017 or December 31, 2016. Net Income (Loss) per Common Share Basic net income
(loss) per common share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share includes the effect of common stock equivalents (stock options, unvested
restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would
be dilutive. Net income (loss) is adjusted for the dilutive effect of the change in fair value liability for price adjustable warrants,
if applicable. The following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
Three Months Ended March 31,
2017 2016
Stock options outstanding 2,334,000 -
Warrants 27,029,995 139,173
Convertible Notes Payable 1,716,123 -
Total 31,080,118 139,173 Subsequent Events Except for the
event(s) discussed in Note 9, there were no subsequent events that required recognition or disclosure. The Company evaluated subsequent
events through the date the financial statements were issued and filed with the Securities and Exchange Commission. |
