UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

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

 

For the fiscal year ended December 31, 2019

 

or

 

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

 

For the transition period from                      to                     .

 

Commission File Number 000-55331

 

INSPYR THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-0438951

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer 

Identification No.) 

     

31200 Via Colinas Suite 200 

Westlake Village, CA 

  91365
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (818) 597-7552

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class   Trading Symbol   Name of Each Exchange on Which Registered
N/A   N/A   N/A

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐  Yes  ☒  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐  Yes  ☒   No 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒  Yes  ☐   No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer  Accelerated filer 
Non-accelerated filer  Smaller reporting company 
Emerging Growth Company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐  

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed using the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $645,000 based on a closing price of $0.1075 per share on such date. As of June 30, 2019, there were 6,000,000 shares of the registrant’s common stock outstanding (after applying 1-for-25 reverse stock split effective September 30, 2019).

As of May 1, 2020, the issuer had 150,000,000 common shares, $0.0001 par value, issued and outstanding. 

DOCUMENTS INCORPORATED BY REFERENCE 

None 

 

 

 

 

INSPYR THERAPEUTICS, INC. 

FORM 10-K  

FOR THE YEAR ENDED DECEMBER 31, 2019

 

INDEX

 

    Page
  PART I  
Item 1. Business 2
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosure 20
     
  PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6. Selected Financial Data 23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 30
Item 9A. Controls and Procedures 30
Item 9B. Other Information  31
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 32
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 42
Item 14. Principal Accounting Fees and Services 42
     
  PART IV  
Item 15. Exhibits, Financial Statement Schedules 43

 

 i

 

  

PART I

 

We urge you to read this entire Annual Report on Form 10-K, including the “Risk Factors” section and the financial statements and related notes included herein. As used in this Annual Report, unless context otherwise requires, the words “we,” “us”, “our,” “the Company,” “Inspyr Therapeutics, Inc.” and “Registrant” refer to Inspyr Therapeutics, Inc., and our wholly owned subsidiary, Lewis & Clark Pharmaceuticals, Inc. Also, any reference to “common shares,” or “common stock,” refers to our $.0001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.0001 par value Series A preferred stock, our $0.0001 par value series B preferred stock, our $0.0001 par value Series C preferred stock, and our $.0.0001 par value Series D preferred stock. All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:25 reverse stock split that became effective on September 30, 2019 as if it had taken place as of the beginning of the earliest period presented

 

Reliance on Securities and Exchange Commission Order

 

The Company is filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Report”) pursuant to the Securities and Exchange Commission (the “SEC”) Order dated March 4, 2020 (Release No. 34-88318) under Section 36 of the Exchange Act Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder, as superseded by SEC Order Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (together, the “Order”) to delay the filing of the Report due to circumstances related to the coronavirus pandemic (“COVID-19”). On March 30, 2020, the Company filed a Current Report on Form 8-K stating that it is relying on the Order to delay the filing of the Report by up to 45 days. As result of the global outbreak of the COVID-19 virus and out of an abundance of caution, members of the Company’s outside consultants, lawyers, and certain other employees, including financial reporting staff, began working remotely on or about March 15, 2020. The Company has been following the recommendations of local government and health authorities to minimize exposure risk for its employees, including the temporary closures of some of its offices and having employees work remotely. The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic that has spread throughout the United States and the world. The Company’s business was impacted by the COVID-19 pandemic as the Company’s headquarters, property management operations and other services offices located in Westlake Village, California, which were under stay-at-home orders resulting in staffing and work-from-home challenges which caused disruptions in communications and delayed completion of the audit. These disruptions to the process of preparing the Company’s financial statements as a result of the COVID-19 virus, are causing the Company’s Form 10-K for the 2019 fiscal year which was due on March 30, 2020 to be delayed. Consequently, the Company was unable to timely file the Report without the extension provided for by the Order. 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to our business development plans, clinical trials, regulatory reviews, timing, strategies, expectations, anticipated expense levels, business prospects and positioning with respect to the market for our proposed products, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations), express, our current intentions, beliefs, expectations, strategies or predictions, as well as historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, to be materially different from anticipated results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,” “believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:

 

  Resume our corporate operations that have been curtailed;

 

  attract, build and retain a senior management team;
     
  manage our business given continuing operating losses and negative cash flows;

 

  obtain sufficient capital or a strategic business arrangement to fund our operations and expansion plans;

 

1

 

 

  build the infrastructure necessary to support the growth of our business;
     
  manage competitive factors and developments beyond our control;

 

  manage scientific and medical developments which may be beyond our control;

 

  manage the governmental regulation of our business including state, federal and international laws;

 

  maintain and protect our intellectual property;

 

  obtain patents based on our current and/or future patent applications;

 

  obtain and maintain other rights to technology required or desirable to conduct or expand our business;

 

achieve any potential strategic benefits of licensing transactions, collaborations, acquisitions, or in-licensing of new technologies, if any; 
     
  successfully integrate the business of our wholly owned subsidiary, Lewis & Clark Pharmaceuticals, Inc.; and
     
  manage any other factors discussed in the “Risk Factors” section, and elsewhere in this Annual Report.

 

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise, except to the extent required by federal securities laws. The risks discussed in this report should be considered in evaluating our business and future prospects. 

  

ITEM 1. BUSINESS

 

Overview

 

We are a clinical-stage, pre-revenue, pharmaceutical company primarily focused on the development of therapeutics for the treatment of diseases. Through our acquisition of Lewis and Clark Pharmaceuticals, Inc., we currently are focusing on a pipeline of small molecule adenosine receptor modulators.

 

The adenosine receptor modulators include A2B antagonists, dual A2A/A2B antagonists, and A2A agonists that have broad development applicability including indications within immuno-oncology and inflammation. Adenosine is implicated in immunosuppression in the tumor microenvironment. Adenosine receptor antagonists may boost the host immune response against the tumor as a single-agent and in combination with other existing immuno-oncology agents leading to enhanced tumor killing and inhibition of metastasis. Adenosine also has anti-inflammatory properties in the acute and chronic setting. Adenosine receptor agonists may promote a decreased inflammatory response and can potentially treat a broad range of inflammatory and autoimmune based diseases and conditions (e.g., rheumatoid arthritis, joint injury, Crohn’s disease, psoriasis) as well as improve wound healing and decrease pain. 

 

During February 2018, due to a lack of capital, we curtailed substantially all our business operations. In the event that we are able to raise sufficient capital, our major focus would be to: (i) further characterization, in conjunction with Ridgeway Therapeutics, of anti-cancer activity of the current pipeline of A2B antagonists and dual A2A/A2B antagonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies, (ii) further characterization of the current pipeline of A2A agonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies; (iii) licensing and/or partnering the A2B antagonists, dual A2A/A2B antagonists, and/or A2A agonists for further development, (iv) through our newly acquired adenosine receptor chemistry technology platform, continue to produce next generation adenosine receptor modulators, (v) pursue licensing and/or partnering of mipsagargin, (vi) conduct a clinical study of mipsagargin in patients with advanced HCC, and (vii) explore collaborations utilizing mipsagargin in new, non-clinical solid tumor models with leading researchers in the oncology field.

 

Our ability to execute our business plan is dependent on the amount and timing of cash, if any, that we are able to raise. During February of 2018, we curtailed our operations due to our lack of cash. During July 2018, we were able to raise approximately $500,000 through the sale of debt securities and we raised $25,000 in December 2018 through the sale of notes. During March 2020, we sold $250,000 of debt securities. We are currently using such funds to maintain our SEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and other outstanding obligations, the payment of which we believe to be vital to our future operations. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and continue, to the best of our ability, our public company reporting requirements.

 

While we believe that the data from our nonclinical studies appear promising, the outcome of our ongoing or future studies may ultimately be unsuccessful. We are also currently in the process of looking for new clinical and pre-clinical assets to augment our current pipeline.

 

2

 

 

Our ability to execute our business plan is dependent on the amount and timing of cash, if any, that we are able to raise. Should we not raise sufficient funds to execute our business plan, our priority is the continued production of adenosine receptor modulator products for any existing material transfer agreements and continuing business development discussions with potential development partners.

 

Pre-Revenue

 

We are a pre-revenue, early stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.

 

Going Concern

 

Our auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. During February of 2018, we curtailed our operations due to our lack of cash. Notwithstanding our financing in March 2020 where we raised $250,000, our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2019. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

Recent Developments

 

  On March 6, 2020, we completed the private placement of $250,000 of non-interesting bearing senior convertible securities.
     
  On September 30, 2019, we completed a 1-for-25 reverse stock split of our common stock.
     
  On July 26, 2019, we appointed Michael Cain as our interim Chief Executive Officer and as a member of the Board of Directors.

 

Product Development of Mipsagargin

 

Mipsagargin is a prodrug targeting the tumor vasculature that has therapeutic potential in a wide range of malignancies. We have currently curtailed our development of mipsagargin. We cannot predict if or when we will recommence development of mipsagargin.

 

Product Development of Adenosine Receptor Modulators

 

Adenosine is an extracellular signaling molecule that regulates multiple aspects of tissue function and specifically plays a role in immunity and inflammation. High levels of adenosine in the tumor microenvironment inhibits immune response mediated through the A2A and A2B receptors. Adenosine also plays a role in non-malignant conditions where it is rapidly increased in response to inflammation, hypoxia, ischemia, or trauma. Adenosine released in this setting has been shown to have a protective effect and limits excessive inflammatory damage to tissues.

 

3

 

 

The adenosine receptor antagonists have broad applicability as a potential immuno-oncology (IO) therapeutic agent in multiple tumor types both as a single agent and in combination with other IO agents, in addition to traditional cytotoxic chemotherapy. We are actively seeking licensing opportunities and/or partners to further development our A2B and dual A2A/A2B receptor antagonists. Our current product development plan for adenosine receptor antagonists contemplates the following major initiatives, subject to the Company receiving sufficient funds:

 

  Continue development of anti-cancer agents with partner company, Ridgeway Therapeutics, Inc.
     
  Further characterization of existing agents toward IND enabling studies and support ongoing licensing/partnership activities.
     
  Conduct IND enabling studies.
     
  Conduct clinical studies with one or more of the adenosine receptor antagonists.
     
  Continue generating additional adenosine receptor antagonists to expand our portfolio.

 

The adenosine receptor agonists have applicability in a broad range of non-oncology conditions including inflammatory and autoimmune diseases and conditions. We are actively seeking licensing opportunities and/or partners to further development our A2A receptor agonists. Our current product development plan for adenosine receptor agonists contemplates the following major initiatives subject to the Company receiving sufficient funds:

 

  License and/or partner to companies with development expertise in the intended indication.
     
  Further characterize existing agents to support licensing/partnership activities.
     
  Continue generating additional adenosine receptor agonists to expand our portfolio.

 

Asset Acquisition Strategy

 

In addition to the anticipated development of our current product candidates once we receive adequate capital to resume our operations, we have initiated a search for suitable pre-clinical and clinical assets to further expand our product pipeline. We are looking for assets with the potential to be complimentary to our current technologies or that could benefit from our development experience with the goal of developing such candidates for commercialization. We believe that this element of our corporate strategy could provide new opportunities for product development and diversify risks inherent in potentially focusing on a limited product portfolio and therapeutic areas, thus potentially increasing our probability of commercial success.

 

Our Technology

 

We have what we believe to be a robust intellectual property portfolio covering proprietary A2A agonists (LNC-001, see below), A2B antagonists (LNC-002, see below), and dual A2A/A2B antagonists (LNC-003, see below). We also have a substantial catalog of synthesized compounds, specifically A2A agonists and A2B antagonists that require further characterization and testing for potential clinical candidates. We believe that our proprietary dual A2A/A2B antagonists have great potential and should be further explored.

 

Patents and Proprietary Rights

 

Our success will likely depend upon our ability to preserve our proprietary technologies and operate without infringing the proprietary rights of other parties. However, we may rely on certain proprietary technologies and know-how that are not patentable or that we determine to keep as trade secrets. We protect our proprietary information, in part, using confidentiality agreements with our employees, consultants, significant scientific collaborators, and sponsored researchers that generally provide that all inventions conceived by the individual in the course of rendering services to us shall be our exclusive property.

 

4

 

 

The intellectual property underlying our technology is covered by certain patents and patent applications previously owned by Lewis and Clark Pharmaceuticals, Inc. (LNC) and now fully owned by the Company. All of the LNC intellectual property has been assigned to LNC, a fully owned subsidiary of the Company.

 

FILE NUMBER   FIELD   APPLICATION NO.   FILING DATE   ISSUE DATE   PATENT NO.
LNC-001-US   A2A AGONISTS   13956111   Jul 31, 2013   Jun 30, 2015   9067963
LNC-001-US-CNT1   A2A AGONISTS   14752861   Jun 27, 2015   Nov 21, 2017   9822141
LNC-002-AU   A2B ANTAGONISTS   2016246068   Apr 8, 2016        
LNC-002-BR   A2B ANTAGONISTS   BR1120170213869   Apr 8, 2016        
LNC-002-CN   A2B ANTAGONISTS   2016800268351   Apr 8, 2016        
LNC-002-EA   A2B ANTAGONISTS   201792156   Apr 8, 2016        
LNC-002-EP   A2B ANTAGONISTS   167774363   Apr 8, 2016        
LNC-002-IL   A2B ANTAGONISTS   254902   Apr 8, 2016        
LNC-002-IN   A2B ANTAGONISTS   201727039305   Apr 8, 2016        
LNC-002-JP   A2B ANTAGONISTS   2018504080   Apr 8, 2016        
LNC-002-KR   A2B ANTAGONISTS   1020177031978   Apr 8, 2016        
LNC-002-MX   A2B ANTAGONISTS   MXa2017012783   Apr 8, 2016        
LNC-002-NZ   A2B ANTAGONISTS   736705   Apr 8, 2016        
LNC-002-SG   A2B ANTAGONISTS   11201707753X   Apr 8, 2016        
LNC-002-US   A2B ANTAGONISTS   15094903   Apr 8, 2016   Feb 14, 2017   9593118
LNC-002-ZA   A2B ANTAGONISTS   201707248   Apr 8, 2016   Oct 31, 2018    
LNC-003-P2   DUAL A2A-A2B ANTAGONISTS   62791910   Jan 14, 2019        

 

When appropriate, we will continue to seek patent protection for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise believe will provide us with a competitive advantage. We will accomplish this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators and strategic partners. Typically, we plan to file patent applications in the United States and, for LNC-003, in the Patent Cooperation Treaty (PCT). In addition, we plan to obtain licenses or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing our research, development and commercialization initiatives and our strategic business interest.   

  

Development Strategy

 

While we curtailed our operations in February 2018 due to our cash position, in the event that we are able to raise sufficient capital to execute our clinical and pre-clinical development strategy, we anticipate that under the planning and direction of key personnel, we expect to outsource all our nonclinical development and manufacturing, and the majority of our clinical development activities to contract research organizations (CROs) and contract manufacturing organizations (CMOs). Our contract CROs and CMOs are required to comply with federal, state and United States Food and Drug Administration or FDA regulations including Good Manufacturing Practices (cGMP), Good Clinical Practices (GCP), and Good Lab Practices (GLP).

 

In the event that we are able to raise sufficient capital, we intend to conduct further characterization and testing of our A2B antagonists to select a candidate for pre-clinical and clinical trials in an oncology indication. This oncology work is expected to be run in conjunction with and oversight from Ridgeway Therapeutics, Inc. for the selection of an anti-cancer agent. Ridgeway Therapeutics, Inc. is currently delinquent in their quarterly payments. We expect them to fulfill their obligations once they have funding.

 

In-licensing or Acquisition Strategy

 

In addition to the development of our current product candidates, we have initiated an in-licensing or acquisition strategy to further expand our product pipeline. Our in-licensing strategy consists of evaluating early clinical or late preclinical stage opportunities in therapeutic areas that can benefit from our current product candidates or core expertise in drug development. We believe that this element of our corporate strategy could diversify some of the risks inherent in focusing on limited therapeutic areas and could increase our probability of commercial success.

 

Commercialization Strategy

 

In the event that we are able to raise sufficient capital to continue our currently curtailed operations, we intend to (i) license or sell the underlying technology of our therapeutics to third parties during or after our clinical trials, (ii) seek a corporate partner for further development, or (iii) continue developing our drug candidates ourselves. It is expected that such third parties would then continue to develop, market, sell, and distribute any resulting products. As part of our overall strategic plan, we are exploring our options and actively seeking to engage in a collaborative, strategic and/or licensing arrangement with another pharmaceutical company. If we enter into any such transaction, we may be required to give up certain rights to our technology and control over its future development.

 

5

 

 

Intellectual Property

 

We regard the protection of patents and other intellectual property rights that we own or license as critical to our business and competitive position. To protect our intellectual property, we rely on patent, trade secret, and copyright law, as well as confidentiality, nondisclosure, assignment of invention and other contractual arrangements with our officers, directors, employees, consultants, investigators, clinical trial sites, contractors, collaborators and other third parties to whom we disclose confidential information. Our policy is to pursue patent applications on inventions and discoveries that we believe are commercially important to the development and growth of our business. We solely own or have exclusive licenses to our patents and patent applications.

 

Our pipeline currently includes a substantial catalog of synthesized compounds, specifically A2A agonists and A2B antagonists that require further characterization and testing for potential clinical candidates. Our proprietary dual A2A/A2B antagonists have great potential and need to be further explored.

 

Our intellectual property estate, shown above, has eight (8) issued patents in six (6) different jurisdictions and twenty-one (21) currently pending applications. With appropriate funding and upon further research into our dual A2A/A2B antagonists, we intend to file a regular US and a Patent Cooperation Treaty (PCT) applications to enable worldwide protection of these antagonists.

 

When appropriate and funding permitting, we plan to continue to seek patent protection for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise believe would provide us with a competitive advantage. We expect to be able to accomplish this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators and strategic partners. Typically, we plan to file patent applications in the United States as well as foreign countries, where applicable. In addition, we may obtain licenses or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing our research, development and commercialization initiatives and our strategic business interest. 

 

Manufacturing and Supply

 

We do not plan to develop company-owned or company-operated manufacturing facilities. We historically have and we plan to in the future, outsource all drug manufacturing to contract manufacturers that are required to operate in compliance with cGMP. We may also seek to refine the current manufacturing process in order to achieve improvements in efficiency, costs, purity and the like as well as address different drug formulations to achieve improvements in stability and/or drug delivery.

  

Governmental Regulations

 

FDA Approval Process

 

Prior to commencement of clinical studies involving humans, preclinical testing of new pharmaceutical products is generally conducted on animals in the laboratory to evaluate the potential efficacy and safety of the product candidate. The results of these studies are submitted to the FDA as part of an Investigational New Drug (IND) application, which must become effective before clinical testing in humans can begin. Typically, human clinical evaluation involves a time-consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of people to assess safety, tolerability and to evaluate the pattern of drug distribution within the body. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. (In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and preliminary safety, in which case it is referred to as a Phase I/II trial.) In Phase III, large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical testing and may, at its discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data which have been accumulated to that point and its assessment of the risk/benefit ratio to the patient. All adverse events must be reported to the FDA. Monitoring of all aspects of the study to minimize risks is a continuing process.

 

6

 

 

The results of the preclinical and clinical testing on non-biologic drugs and certain diagnostic drugs are submitted to the FDA in the form of a New Drug Application (NDA) for approval prior to commencement of commercial sales. In responding to an NDA submission, the FDA may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not provide an adequate basis for filing and review. There can be no assurance that approvals would be granted on a timely basis, if at all, for any of our proposed products.  

 

Orphan Drugs

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same orphan indication, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

 

European and Other Regulatory Approval

 

Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities in Europe and other countries is necessary prior to commencement of marketing the product in such countries. The regulatory authorities in each country may impose their own requirements and may refuse to grant an approval, or may require additional data before granting it, even though the relevant product has been approved by the FDA or another authority. As with the FDA, the regulatory authorities in the European Union (EU), and other developed countries have lengthy approval processes for pharmaceutical products. The process for gaining approval in particular countries varies, but generally follows a similar sequence to that described for FDA approval. In Europe, the European Committee for Proprietary Medicinal Products provides a mechanism for EU-member states to exchange information on all aspects of product licensing. The EU has established a European agency for the evaluation of medical products, with both a centralized community procedure and a decentralized procedure, the latter being based on the principle of licensing within one member country followed by mutual recognition by the other member countries.   

 

Reimbursement and Health Care Cost Control

 

Reimbursement for the costs of treatments and products such as ours from government health administration authorities, private health insurers and others, both in the United States and abroad, is a key element in the success of new health care products. Significant uncertainty often exists as to the reimbursement status of newly approved health care products. The revenue and profitability of some health care-related companies have been affected by the continuing efforts of governmental and third party payors to contain or reduce the cost of health care through various means. Payors are increasingly attempting to limit both coverage and the levels of reimbursement for new therapeutic products approved for marketing by the FDA, and are refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control.

  

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In the United States, there have been a number of federal and state proposals to implement government control over health care costs. The U.S. Patient Protection and Affordance Care Act and the Health Care and Education Reconciliation Act were signed into law in March 2010. A number of provisions of those laws require further rulemaking action by governmental agencies to implement. The laws change access to health care products and services and create new fees for the pharmaceutical and medical device industries. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. The laws also include new authorization to the FDA to approve companies to market biosimilar products within the United States, although to date FDA rulemaking under this legislation has been limited. We cannot predict the timing or impact of any such future rulemaking on our business.

 

Other Regulations

 

We are also subject to various U.S. federal, state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our business. Additionally, we are subject to regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and Securities and Exchange Commission regulations. We cannot accurately predict the extent of government regulation which might result from future legislation or administrative action.   

 

Employees

 

As of December 31, 2019 we employed no full-time individuals. As of July 26, 2019, Mr. Cain, our newly appointed interim chief executive officer, is our only remaining employee. In addition, we contract with a limited number of consultants to assist in activities related to our operations.

 

Corporate History

 

We were incorporated in the State of Delaware in November 2003 and our principal office is located in Westlake Village, California. On September 30, 2019, we completed a 1:25 reverse stock split of our common stock. Since our inception, we have invested a substantial portion of our efforts and financial resources in the development of mipsagargin (G-202). As of February 2018, we have curtailed our operations due to our cash position. In the event that we receive sufficient funding, we plan to focus our efforts on our Adenosine Receptor Modulators. We have generated no revenues from the sale of our product candidates and have experienced substantial net operating losses.

 

Where to Find More Information

 

We make our public filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These materials are available on the SEC’s web site, http://www.sec.gov.

 

You may also read and copy any materials you file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1–800–SEC–0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Internet site is located at http://www.sec.gov. Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at: 

 

INSPYR THERAPEUTICS 

31200 Via Colinas Suite 200 

Westlake Village, CA 91362 

Attn: Chief Executive Officer 

Tel: (818) 597-7552 

 

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ITEM 1A. RISK FACTORS

 

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition.  The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

 

Risks Related to our Financial Position and Need to Raise Additional Capital

 

We were forced to curtail our operations due to a lack of operating capital and we will not be able to continue as a going concern if we do not obtain additional financing. 

 

Since our inception, we have funded our operations through the sale of our securities. Our cash and restricted cash balances at December 31, 2019 was approximately $23,000. In February 2018 we were forced to curtail our operations. Despite raising $250,000 in gross proceeds through the sale of convertible debentures in March 2020, our ability to continue as a going concern is still wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure capital in the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, or through other means such as the licensing of our technology or grants. In the event that we are not able to secure additional funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Our auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2020. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

Risks Relating to Our Stage of Development and Business

 

If we are unable to successfully build a new management team and secure additional members and employees, our business could be harmed.

  

On July 15, 2019, Christopher Lowe, our chief executive officer, president and principal accounting officer resigned. In February 2018, Ronald Shazer, MD, resigned as our chief medical officer. Effective July 26, 2019, we appointed Michael Cain as our interim Chief Executive Officer and Chief Financial Officer. We will need to continue to augment senior management as well as additional personnel to execute our business plan and grow our business. Our success depends largely on the development and execution of our business strategy by our senior management team. The recent transitions in our executive team may be disruptive to our business, and if we are unable to manage an orderly transition, our business may be adversely affected. Additionally, since our management team consists of only one individual, Mr. Cain, the loss of Mr. Cain would likely harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms, if at all. Additionally, we cannot assure you that management will succeed in working together as a team. In the event that we are unsuccessful, our business and prospects could be harmed.  

 

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We are an early-stage company, have no product revenues, are not profitable and may never be profitable.

 

From inception through December 31, 2019, we have raised approximately $37.2 million through the sale of our securities and exercise of outstanding warrants. During this same period, we have recorded an accumulated deficit of approximately $60.7 million. Our net losses for the two most recent fiscal years ended December 31, 2019 and 2018 were $934,000 and $12,000, respectively. Our increase in net losses is primarily the result of decreases in gains from the change in fair value of our derivative instruments and gains on conversions of debt, and increases in professional fees and interest expense, all partially offset by a decrease in compensation expense. None of our products in development have received approval from the United States Food and Drug Administration or FDA, or other regulatory authorities; we have no sales and have never generated revenues nor do we expect to for the foreseeable future. We have currently curtailed our pre-clinical and clinical trials related to mipsagargin and are currently focusing our efforts on the development of our adenosine receptor modulators. We expect to incur significant operating losses for the foreseeable future as we continue the research, pre-clinical and clinical development of our product candidates as well as the possible in-licensing of additional clinical and pre-clinical assets. Accordingly, we will need additional capital to fund our continuing operations and any expansion plans. Since we do not generate any revenue, the most likely sources of such additional capital include the sale of our securities, a strategic licensing collaboration transaction or joint venture involving the rights to one or more of our product candidates, or from grants. To the extent that we raise additional capital by issuing equity securities, our stockholders are likely to experience dilution with regard to their percentage ownership of the company, which may be significant. If we raise additional funds through collaborations or licensing arrangements, we may be required to relinquish some or all the rights to our technologies, product candidates, or grant licenses on terms that are not favorable to us. If we raise additional capital by incurring debt, we could incur significant interest expense and become subject to covenants that could affect the manner in which we conduct our business, including securing such debt obligations with our assets.

 

Our product candidates are at various stages of early development and significant financial resources are required to develop commercially viable products and obtain regulatory approval to market and sell such products. We will need to devote significantly more research and development efforts, financial resources and personnel to develop commercially viable products and obtain regulatory approvals. We may encounter hurdles and unexpected issues as we proceed in the development of our other product candidates. While initial data from our research appear promising, the outcome of the pre-clinical and development work is uncertain and future trials may ultimately be unsuccessful. If we fail to develop and successfully commercialize our product candidates, our business may be materially harmed and could fail.

 

We have a limited operating history as a company, and may not be able to effectively operate our business.

 

Our limited staff and operating history means that there is a high degree of uncertainty regarding our ability to:

 

  develop and commercialize our technologies and proposed products;

 

  obtain regulatory approval to commence the marketing of our products;

 

  identify, hire and retain the needed personnel to implement our business plan;

 

  manage growth;

 

  achieve market acceptance or insurance reimbursement for any of our proposed products, if successfully developed; or

 

  respond to competition.

 

No assurances can be given as to exactly when, if at all, we will be able to fully develop, and take the necessary steps to derive any revenues from our proposed product candidates.

 

Raising capital may be difficult as a result of our history of losses and limited operating history in our current stage of development.

 

When making investment decisions, investors typically look at a company’s management, earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses, new senior management team and relatively limited operating history in our current stage of development makes such evaluation, as well as any estimation of our future performance, substantially more difficult. As a result, investors may be unwilling to invest in us or on terms or conditions which are acceptable. If we are unable to secure additional financing, we may need to materially scale back our business plan and/or operations or cease operations altogether. 

 

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A pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our facilities or advisors could adversely impact our business.

 

If a pandemic, epidemic, or outbreak of an infectious disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) or other public health crisis were to affect our facilities or those of our suppliers, our business could be adversely affected. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, management, support staff and professional advisors. These factors, in turn, may not only materially impact our operations and financial condition, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.

 

Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For example, in November 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread around the world, including to the United States. To date, this outbreak has already resulted in extended shutdowns of many businesses around the world, including in the United States. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope, severity and longevity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage or plan to engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business or plan to conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical sites in which we conduct or plan to conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operation and financial condition. 

 

Risks Related to Commercialization

 

The market for our proposed products is rapidly changing and competitive.

 

The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change and innovation. Developments by others may render our proposed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments and other market factors. Competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

 

As a pre-revenue company, our resources are limited and we may experience challenges inherent in the early development of novel therapeutics. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic efforts compared to our proposed products. Our competitors may develop therapies that are safer, more effective and less costly than our proposed products and therefore, present a serious competitive threat to us.

  

The acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications and treatments. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of other competing therapies may limit the potential for our proposed products, even if commercialized.

 

Our proposed products may not be accepted by the healthcare community.

 

Our proposed products, if approved for marketing, may not achieve market acceptance by the healthcare community since hospitals, physicians, patients or the medical community in general may decide not to utilize them. We are attempting to develop products that are likely to be first approved for marketing as a treatment for late stage cancer where there is no truly effective standard of care. If approved for use in late stage cancer, our proposed products might then be evaluated in earlier stages where they could represent a substantial departure from established treatment methods and would most likely compete with a number of more conventional drugs and therapies which are manufactured and marketed by major pharmaceutical companies. It is too early in the development cycle of our proposed products for us to predict our major competitors. The degree of market acceptance of our products, if developed, will depend on a number of factors, including but not limited to:

 

  our ability to demonstrate the clinical efficacy and safety of our proposed products to the medical community;

 

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  our ability to create products that are superior to alternative products;

 

  our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

 

  the reimbursement policies of government and third-party payors.

 

If the healthcare community does not accept our products, our business could be materially harmed.

 

Our potential competitors in the biotechnology and pharmaceutical industries have significantly greater resources than we have.

 

We compete against numerous companies, many of which have substantially greater resources than we have. Several such competitors have research programs and/or efforts to treat the same diseases we target. Companies such as Roche, Novartis, Celgene, Merck & Co., Inc., Johnson & Johnson, and Sanofi S.A., as well as others, have substantially greater financial, research, manufacturing and marketing resources than we do. As a result, such competitors may find it easier to compete in our industry and bring competing products to market.

 

Risks Related to the Development and Manufacturing of Our Product Candidates

  

We intend to rely exclusively upon third-party FDA-regulated manufacturers and suppliers for our proposed products.

 

We currently have no internal manufacturing capability, and intend to rely exclusively on FDA-approved licensees, strategic partners or third party contract manufacturers or suppliers for the foreseeable future. Because manufacturing facilities are subject to regulatory oversight and inspection, the failure of any of our third-party FDA regulated manufactures or suppliers to comply with regulatory requirements could result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development plans. Should we be forced to manufacture our proposed products, we cannot give any assurance that we would be able to develop internal manufacturing capabilities or secure third party suppliers for raw materials. In the event that we seek third party suppliers or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event could materially impact our business prospects and could delay the development of our proposed products. Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products in a timely or cost effective manner or in accordance with applicable regulatory requirements or our own specifications.

  

We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize our product candidates.

 

As needed, we plan to rely heavily on third party collaborators, partners, licensees, clinical research organizations, clinical investigators, vendors or other third parties to support our research and development efforts and to conduct clinical trials for our product candidates. We cannot guarantee that we will be able to successfully negotiate agreements for, or maintain relationships with, these third parties on a commercially reasonable basis, if at all. Additionally, to commercialize our proposed products, we intend to rely on third party licensees or the outright sale of our proposed products to pharmaceutical partner(s). If we fail to establish or maintain such third-party relationships as anticipated, our business could be adversely effected.

 

We are dependent upon third parties to develop our product candidates, and such parties are, to some extent, outside of our control.

 

We depend and plan to depend upon independent contract research organizations, investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical studies. These individuals and/or entities are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These third parties may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If these third parties fail to devote sufficient time and resources to our programs, or if their performance is substandard, the development of our drug candidates and corresponding FDA approval could be delayed or fail entirely.

 

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Our therapeutic compounds may not be able to be manufactured profitably on a large enough scale to support commercialization.

 

To date, prior to our curtailment of operations, our therapeutic compounds have only been manufactured at a scale which is adequate to supply our research activities and early-stage clinical trials. There can be no assurance that the procedures currently used to manufacture our therapeutic compounds will work at a scale which is adequate for commercial needs. In the event our therapeutic compounds cannot be manufactured in sufficient quantities for commercialization, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

 

Risks Relating to our Intellectual Property

  

Our competitive position is dependent on our intellectual property and we may not be able to withstand challenges to our intellectual property rights.

 

We rely on our intellectual property, including our issued and applied for U.S. and foreign patents as well as our licenses, as the foundation of our business. If our intellectual property rights are challenged, no assurances can be given that our patents or licenses would survive claims alleging invalidity or infringement on other patents and/or licenses. In addition, disputes may arise regarding inventorship of our intellectual property. It is possible that our intellectual property may be infringing upon existing patents that we are not currently unaware of. As the number of participants in the marketplace grows, the possibility of patent infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes would be resolved. Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk that some of our confidential information could be required to be publicly disclosed. Any litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources, divert the attention of management or restrict our core business or result in the public disclosure of confidential information.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.

 

Some or all of our patent applications may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and we may not have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on the ground that such other party’s activities do not infringe on our rights contained in these patents.

 

Furthermore, a third party may claim that we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.  

 

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Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies.

 

If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

 

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the capital necessary to continue our operations.

 

Obtaining and maintaining our patent protection depends upon compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

 

We may not be able to adequately protect our intellectual property.

 

We rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others do not develop the same or similar technologies on their own. Additionally, research with regard to our technologies has been performed in countries outside of the United States, and we also anticipate conducting joint ventures, collaborations and future clinical trials outside the US. The laws in some of these countries may not provide protection for our trade secrets and intellectual property. We have taken steps, including entering into confidentiality agreements with our employees, consultants, service providers, and potential strategic partners to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us are our property. However, these agreements may not be honored, including in foreign countries in which we conduct research, and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

  

We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the biotechnology and pharmaceutical industries, we employ and hire individuals and/or entities who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these individuals, entities or that we 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 we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

  

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Risks Relating to Marketing Approval and Government Regulations  

 

Data obtained from clinical trials are susceptible to varying interpretations and may not be sufficient to support approval of our proposed products by the FDA.

 

The design of our potential clinical trials will be based on many assumptions about the expected effect of our product candidates and if those assumptions are incorrect, our potential clinical trials may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed results of early clinical trials. Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that may be obtained from later trials. Moreover, pre-clinical and clinical data are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of the potential drug. Our products may not prove to be safe and effective in clinical trials and may not meet all regulatory requirements needed to receive regulatory approval. While data from our completed trials appear promising, the outcome of the current trials is uncertain and these trials or future trials may ultimately be unsuccessful. Our clinical trials may among other things, not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.

 

Our proposed products may not receive FDA or other regulatory approvals.

 

The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through expensive, lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity and novelty of the proposed product. Our proposed products are subject to extensive regulation and/or acceptance by numerous governmental authorities in the United States, including the FDA, and authorities in other countries. Most of our proposed products will require governmental approval before they can be commercialized. Our failure to receive the regulatory approvals in the United States or foreign countries will materially impact our business.

  

Our proposed products may not have favorable results in clinical trials or receive regulatory approval.

 

Encouraging results from our studies to date should not be relied upon as evidence that our planned pre-clinical and clinical trials will ultimately be successful or our products approved for marketing. Even though the results of our studies to date seem promising, we will be required to demonstrate through further pre-clinical and clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate fails to demonstrate sufficient safety and efficacy in any clinical trial, then we could experience potentially significant delays in, or be required to abandon, development of that product candidate. While initial data from our preliminary studies appear promising, the outcome of any clinical trials is uncertain and such trials or future trials may ultimately be unsuccessful.

 

If users of our proposed products are unable to obtain adequate reimbursement from third-party payors, market acceptance of our proposed products may be limited and we may not achieve revenues or profits.

 

The continuing efforts of governments, insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability as well as the future revenues and profitability of our potential customers, suppliers and collaborative partners in addition to the availability of capital. In other words, our ability to commercialize our proposed products depends in large part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations, products and related treatments are obtained by the health care providers of these products and treatments. At this time, we cannot predict the precise impact that recently adopted or future laws will have on these reimbursement levels.

 

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We may be unable to comply with our reporting and other requirements under federal securities laws.

 

The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the United States Securities and Exchange Commission, or SEC, and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, would be expected to materially increase the Company’s legal and financial compliance costs and make some activities more time-consuming and more burdensome. Presently we qualify as a non-accelerated filer. Accordingly, we are exempt from the requirements of Section 404(b) and our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management’s assessment of the design and the operating effectiveness of such internal controls. In the event that we become an accelerated filer, we will be required to expend substantial capital in connection with compliance.

 

We do not have effective internal controls over our financial reporting.

 

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial and other reports and effectively prevent fraud. If we cannot provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our SEC reports, our operating results and the trading price of our common stock could suffer materially and we may become subject to litigation.

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and will divert time and attention away from revenue generating activities.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team invests significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from developing our business to compliance activities which could have an adverse effect on our business.

 

Risks Relating to our Securities

 

Our common stock price may be particularly volatile because of our stage of development and business.

 

The market prices for the securities of biotechnology and pharmaceutical companies in general, and early-stage drug development companies in particular, such as ours, have been highly volatile and may continue to be highly volatile in the future. The following may have a significant impact on the market price of our common stock:

 

  our ability retain and augment our current management team and workforce, which currently consists of only one employee, our chief executive officer;

 

  the development status of our drug candidates, particularly the results of our clinical trials;

 

  market conditions or trends related to the biotechnology and pharmaceutical industries, or the market in general;

 

  announcements of technological innovations, new commercial products, or other material events by our competitors or us;

 

  disputes or other developments concerning our proprietary rights;

 

  changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial and developmental performance;

 

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  additions or departures of key personnel;

 

  loss of any strategic relationship;

 

  discussions of our business, products, financial performance, prospects, or stock price by the financial and scientific press and online investor communities such as chat rooms;

 

  industry developments, including, without limitation, changes in healthcare policies or practices or third-party reimbursement policies;

 

  public concern as to, and legislative action with respect to, testing or other research areas of biopharmaceutical and pharmaceutical companies, the pricing and availability of prescription drugs, or the safety of drugs;

 

  regulatory developments in the United States or foreign countries; and

 

  economic, political and other external factors.

 

Broad market fluctuations may cause the market price of our common stock to decline substantially. Additionally, fluctuations in the trading price or liquidity of our common stock may materially and adversely affect, among other things, the interest of investors to purchase our common stock on the open market and, generally, our ability to raise capital.

 

Our board of directors has broad discretion to issue additional securities, in the event that we have adequate authorized capital to issue such securities.

 

We are authorized under our certificate of incorporation to issue up to 150,000,000 shares of common stock and 30,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide the board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of May 1, 2020, we have issued and outstanding 150,000,000 shares of common stock and, accordingly, no additional shares of common stock reserved for future grants under our equity compensation plans and for issuances upon the exercise or conversion of currently outstanding shares of preferred stock, options, warrants and other convertible securities will be available until such time as we complete a reverse stock split or authorize additional shares. As of May 1, 2020, we have issued 1,853 shares of Series A 0% Convertible Preferred Stock, of which 133.8125 are outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock, of which 71 are outstanding, 290.43148 shares of Series C 0% Convertible Preferred Stock, that are all outstanding, and 5,000 shares of Series D 0% Convertible Preferred Stock, all of which are outstanding. Accordingly, we are entitled to issue no additional shares of common stock, and 29,994,505 additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders. Any additional preferred shares we may issue could have such rights, preferences, privileges, and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.

 

It is likely that we will issue a large amount of additional securities to raise capital in order to further our business plans. It is also likely that we will issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our various stock plans. Any issuances could be made at a price that reflects a discount to, or a premium from, the then-current market price of our common stock. These issuances would dilute the percentage ownership interest of our current shareholders, which would have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the net tangible book value per share of our common stock.

 

We currently do not have enough authorized shares of common stock for additional issuances. In order to authorize additional shares the Company will be required to authorize additional common shares by obtaining votes from our shareholders sufficient to amend our certificate of incorporation or effect a reverse stock split of our common shares.

 

Future sales of our common stock could cause our stock price to fall.

 

Transactions that result in a large amount of newly issued shares become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of a robust trading market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management’s attention and harm our business.

 

17

 

 

As of May 1, 2020, we had 150,000,000 shares of common stock, 1,853 shares of Series A 0% Convertible Preferred Stock issued and 133.8125 Series A 0% Convertible Preferred Stock outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock issued and 71 Series B 0% Convertible Preferred Stock outstanding, 290.43148 shares of Series C 0% Convertible Preferred Stock issued and outstanding, and 5,000 shares of Series D 0% Convertible Preferred Stock issued and outstanding. We additionally have issued an aggregate of $3,891,048 of senior convertible debentures and convertible notes that are convertible into common stock at any time, of which $2,624,346 is outstanding. Substantially all of the common shares and common shares underlying the Series A 0% Convertible Preferred, Series B 0% Convertible Preferred, Series C 0% Convertible Preferred, and Series D 0% Convertible Preferred are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. As of May 1, 2020, we were obligated to reserve for issuance (i) 13,129 shares of our common stock issuable upon the conversion of 133.8125 shares of Series A 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering; (ii) 14,200,000 shares of our common stock issuable upon the conversion of 71 shares of Series B 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2016 offering; (iii) 1,523,452 shares of our common stock issuable upon the conversion of 290.43148 shares of Series C 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our March 2017 offering, (iv) 40,000 shares of common stock issuable upon the conversion of 5,000 shares of Series D 0% Convertible Preferred Stock, (v) 168,853 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $42.03 per share, including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering, December 2016 offering and March 2017 offering, (vi) 6,598 shares of our common stock issuable upon exercise of outstanding stock options under our equity compensation plans at a weighted average exercise price of $60.99 per share and (vii) 359,555,965 shares of our common stock issuable upon conversion of our outstanding convertible notes/debentures. Subject to applicable vesting requirements and holding periods, upon conversion or exercise of the outstanding convertible notes, warrants and options, the underlying shares may be resold into the public market. Notwithstanding the foregoing, none of the shares of common stock underlying these convertible securities may be converted or exercised given that we have no shares of common stock available under our certificate of incorporation. We cannot predict if future issuances or sales of our common stock, or the availability of our common stock for sale, would harm the market price of our common stock or our ability to raise capital. Notwithstanding the foregoing, we currently do not have adequate authorized shares available for issuance pursuant to our convertible securities as of May 1, 2020.

 

The market for our common stock has been illiquid and our investors may be unable to sell their shares.

 

Our common stock trades with limited volume on the pink sheets of the OTC Markets Group Inc. Accordingly, although a limited public market for our common stock exists, it is still relatively illiquid compared to that of a seasoned issuer. Prior to making an investment in our securities, you should consider the limited market for our common stock. No assurances can be given that the trading volume of our common stock will increase or that a liquid public market for our securities will ever materialize.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the market price of our common stock appreciates.

 

18

 

 

Provisions of Delaware law and executive employment agreements may prevent or delay a change of control, which could depress the trading price of our common stock.

 

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s assets unless:

  

  the Board of Directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

 

  after the transaction in which the stockholder acquired 15% or more of the corporation’s assets, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

  on or after this date, the merger or sale is approved by the Board of Directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

 

A Delaware corporation may opt out of the Delaware anti-takeover laws if its certificate of incorporation or bylaws so provides. We have not opted out of the provisions of the anti-takeover laws. As such, these laws could prohibit or delay mergers or other takeover or change of control transactions and may discourage attempts by other companies to acquire us.

 

In addition, employment agreements with certain executive officers provide for the payment of severance and accelerated vesting of options and restricted stock in the event of termination following a change of control. These provisions could have the effect of discouraging potential takeover attempts even if it would be beneficial to shareholders.

 

Our certificate of incorporation and bylaws contain provisions that could discourage a third-party from acquiring us.

 

Our certificate of incorporation and bylaws, as applicable, among other things (i) provide our board with the ability to alter the bylaws without stockholder approval and (ii) provide that vacancies on our board of directors may be filled by a majority of directors in office. These provisions, while designed to reduce vulnerability to an unsolicited acquisition proposal, and to discourage certain tactics used in proxy fights, may negatively impact a third-party’s decision to acquire us even if it would be beneficial to shareholders.

  

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may not develop and the price of our common stock could decline.

 

We are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading levels could be sustained or not diminish. In addition, in the event any analysts downgrades our securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any, to decline.

 

19

 

 

Our common stock may be considered a “penny stock,” and may be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock may be considered a “penny stock.” The principal result or effect of being designated a penny stock is that securities broker-dealers participating in sales of our common stock may be subject to the penny stock regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

We currently have no available common stock available for new securities issuances, or for the conversion / exercise of outstanding securities, which may restrict us from accessing additional capital through the sale of new securities or the exercise of outstanding convertible securities.

 

Our Certificate of Incorporation authorizes us to issue up to 150,000,000 shares of common stock, all of which are issued and outstanding as of May 1, 2020. Accordingly, we do not have sufficient authorized shares of common stock for additional issuances. Notwithstanding, the Board currently plans to effect, upon the receipt of necessary shareholder approval, either (i) a reverse stock split or (ii) an increase in authorized shares, in order to authorize additional capital for its future stock issuances, warrant exercises, and conversions of outstanding preferred stock and convertible debentures. Our failure to complete a reverse stock split or an amendment to our certificate of incorporation increasing our authorized shares may further subject us to penalties if we are unable to satisfy conversions of our outstanding convertible debentures, or exercises of our outstanding warrants and options, which may harm our financial position and business prospects.

  

If our management team is not effective or if we fail to attract, hire or retain qualified personnel, we may not be able to design, develop or commercialize our products successfully or manage our business.

 

While we have been able to secure a chief executive officer, our anticipated growth and expansion may require the addition of new personnel and the development of additional expertise by existing management. There is intense competition for qualified personnel in such areas. Accordingly, there can be no assurances that we would be able to attract and retain the qualified personnel necessary for the successful development of our business.

  

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our executive offices are located at 31200 Via Colinas, Suite 200, Westlake Village, CA 91362. At present our employee and consultants work virtually from around the country. We currently pay no money for these facilities. We anticipate that in the event we raise capital sufficient to fund our operations, we will establish permanent offices and relocate to another facility. There is no affiliation between us or any of our principals or agents and our landlords or any of their principals or agents.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable 

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common shares are quoted on the pink sheets of the OCT Markets under the symbol NSPX. Although a market for our common stock exists, it is relatively illiquid. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Holders

 

As of May 1, 2020, we had approximately 133 record holders of our common stock.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the operation and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants, applicable law and other factors that our board of directors may deem relevant. If we do not pay dividends, a return on your investment will occur only if the market price of our common stock appreciates.

 

Equity Compensation Plan Information

 

See information contained in Part III, Item 12 of this Annual Report filed on Form 10-K.

 

Equity Compensation Plans Not Approved by Security Holders

 

See information contained in Part III, Item 12 of this this Annual Report filed on Form 10-K.

 

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Recent Sales of Unregistered Securities

 

The following information is given with regard to unregistered securities sold since January 1, 2019.  The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering. All share amounts and prices reflect the 1-for-25 reverse stock split that was effective September 30, 2019.

 

  During January 2019, we issued 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000. The Series D Convertible Preferred Stock is convertible into common stock at a conversion price of $0.125 per share.
     
  Between January 1, 2019 and March 31, 2019, Debenture holders converted an aggregate of $204,220.53 into 2,617,442 shares of common stock at per share conversion prices ranging from $0.0525 to $0.115.
     
  In July 2019, we issued an aggregate of $154,000 in senior convertible debentures (“July 2019 Debentures”) to certain accredited investors in exchange for the extending the maturity dates of all of our existing debentures until September 30, 2019, and waiving certain potential defaults related to registration rights related to shares underlying such debentures. The July 2019 Debentures are non-interest bearing, have a maturity date of July 16, 2020, and are convertible into shared of common stock at any time at a conversion price equal to the lesser of (i) $8.25 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion and (b) the volume weighted average price on a conversion date. The July 2019 Debentures also contained provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions.  The July 2019 Debentures also contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the July 2019 Debentures are no longer outstanding.  The July 2019 Debentures are further redeemable for cash upon twenty (20) trading days’ notice provided that certain conditions are met.  As a result of conversions of outstanding debentures, the maximum conversion price of the July 2019 Debentures has been repriced to $0.01. The maturity date of the July 2019 Debentures has been extended to July 16, 2020.
     
  On October 1 2019, we issued an aggregate of $96,000 in senior convertible debentures (“October 2019 Debentures”) to certain accredited investors in exchange for the extending the maturity dates of all of our existing debentures until March 31, 2019 (subsequently extended to July 16, 2020), and waiving certain potential defaults related to registration rights related to shares underlying such debentures. The October 2019 Debentures are non-interest bearing, have a maturity date of October 1, 2020, and are convertible into shared of common stock at any time at a conversion price equal to the lesser of (i) $8.25 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion and (b) the volume weighted average price on a conversion date. The October 2019 Debentures also contained provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions.  The October 2019 Debentures also contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the October 2019 Debentures are no longer outstanding.  The October 2019 Debentures are further redeemable for cash upon twenty (20) trading days’ notice provided that certain conditions are met. As a result of conversions of outstanding debentures, the maximum conversion price of the October 2019 Debentures has been repriced to $0.01. The maturity date of the October 2019 Debentures has been extended to July 16, 2020.

 

22

 

 

  In November 2019, in exchange for the payment of a payable, we issued an aggregate of approximately $26,000 in senior convertible debentures to an accredited investor.  The terms of these debentures are the same as the October 2019 Debentures, except that they have a maturity date of November 20, 2020. The maturity date of these debentures has been extended to July 16, 2020.
     
  Between October 1, 2019 and December 31, 2019, debenture holders converted an aggregate of $127,193.24 into 12,648,025 shares of common stock at per share conversion prices ranging from $0.0069 to $0.0526.
     
  Between January 1, 2020 and March 31, 2020, debenture holders converted an aggregate of $451,662.03 into 131,351,247 shares of common stock at per share conversion prices ranging from $0.0021 to $0.47.
     
  On March 6, 2020, we issued an aggregate of $250,000 in senior convertible debentures (“March 2020 Debentures”) to certain accredited investors for cash.  The Debentures have a conversion price equal to the lesser of (i) $0.33 (subject to price protection) and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion and (b) the volume weighted average price on the conversion date. The March 2020 Debentures mature on July 16, 2020, and except as specifically described herein, have the same terms as the July 2018 Debentures.
     
  On May 2, 2020, we sold 5,000 shares of Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of $5,000. The Series E Preferred Stock are convertible into shares of Common Stock at a conversion price of $0.01 per share.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, pre-clinical and clinical studies, regulatory reviews, timing, strategies, expectations, anticipated expenses levels, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions. These forward-looking statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and under “Risk Factors” and elsewhere in this annual report. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this annual report.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

  Company Overview - Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.

 

  Critical Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

  Results of Operations - Analysis of our financial results comparing the year ended December 31, 2019 to the year ended December 31, 2018.

 

  Liquidity and Capital Resources - Liquidity discussion of our financial condition and potential sources of liquidity.

   

23

 

 

Company Overview

 

Business

 

We are a clinical-stage, pre-revenue, pharmaceutical company primarily focused on the development of therapeutics for the treatment of diseases. Through our acquisition of Lewis and Clark Pharmaceuticals, Inc., we currently are focusing on a pipeline of small molecule adenosine receptor modulators.

 

The adenosine receptor modulators include A2B antagonists, dual A2A/A2B antagonists, and A2A agonists that have broad development applicability including indications within immuno-oncology and inflammation. Adenosine is implicated in immunosuppression in the tumor microenvironment. Adenosine receptor antagonists may boost the host immune response against the tumor as a single-agent and in combination with other existing immuno-oncology agents leading to enhanced tumor killing and inhibition of metastasis. Adenosine also has anti-inflammatory properties in the acute and chronic setting. Adenosine receptor agonists may promote a decreased inflammatory response and can potentially treat a broad range of inflammatory and autoimmune based diseases and conditions (e.g., rheumatoid arthritis, joint injury, Crohn’s disease, psoriasis) as well as improve wound healing and decrease pain. 

 

During February 2018, due to a lack of capital, we curtailed substantially all our business operations. In the event that we are able to raise sufficient capital, our major focus would be to: (i) further characterization, in conjunction with Ridgeway Therapeutics, of anti-cancer activity of the current pipeline of A2B antagonists and dual A2A/A2B antagonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies, (ii) further characterization of the current pipeline of A2A agonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies; (iii) licensing and/or partnering the A2B antagonists, dual A2A/A2B antagonists, and/or A2A agonists for further development, (iv) through our newly acquired adenosine receptor chemistry technology platform, continue to produce next generation adenosine receptor modulators, (v) pursue licensing and/or partnering of mipsagargin, (vi) conduct a clinical study of mipsagargin in patients with advanced HCC, and (vii) explore collaborations utilizing mipsagargin in new, non-clinical solid tumor models with leading researchers in the oncology field.

 

Our ability to execute our business plan is dependent on the amount and timing of cash, if any, that we are able to raise. During February of 2018, we curtailed our operations due to our lack of cash. During July 2018, we were able to raise approximately $500,000 through the sale of debt securities and we raised $25,000 in December 2018 through the sale of notes. During March 2020, we sold approximately $250,000 of debt securities. We are currently using such funds to maintain our SEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and other outstanding obligations, the payment of which we believe to be vital to our future operations. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and continue, to the best of our ability, our public company reporting requirements.

 

While we believe that the data from our nonclinical studies appear promising, the outcome of our ongoing or future studies may ultimately be unsuccessful.

 

Our ability to execute our business plan is dependent on the amount and timing of cash, if any, that we are able to raise. Should we not raise sufficient funds to execute our business plan, our priority is the continued production of adenosine receptor modulator products for any existing material transfer agreements and continuing business development discussions with potential development partners.

 

Pre-Revenue

 

We are a pre-revenue, early stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.

  

24

 

 

Recent Developments

 

  On March 6, 2020, we completed the private placement of $250,000 of non-interesting bearing senior convertible securities.
     
  On September 30, 2019, we completed a 1-for-25 reverse stock split of our common stock.
     
  On July 26, 2019, we appointed Michael Cain as our interim Chief Executive Officer and as a member of the Board of Directors.

 

Product Development of Adenosine Receptor Modulators

  

Adenosine is an extracellular signaling molecule that regulates multiple aspects of tissue function and specifically plays a role in immunity and inflammation. High levels of adenosine in the tumor microenvironment inhibits immune response mediated through the A2A and A2B receptors. Adenosine also plays a role in non-malignant conditions where it is rapidly increased in response to inflammation, hypoxia, ischemia, or trauma. Adenosine released in this setting has been shown to have a protective effect and limits excessive inflammatory damage to tissues.

 

The adenosine receptor antagonists have broad applicability as a potential immuno-oncology (IO) therapeutic agent in multiple tumor types both as a single agent and in combination with other IO agents, in addition to traditional cytotoxic chemotherapy. We are actively seeking licensing opportunities and/or partners to further development our A2B and dual A2A/A2B receptor antagonists. Our current product development plan for adenosine receptor antagonists contemplates the following major initiatives, subject to the Company receiving sufficient funds:

 

  Continue development of anti-cancer agents with partner company, Ridgeway Therapeutics, Inc.
     
  Further characterization of existing agents toward IND enabling studies and support ongoing licensing/partnership activities.
     
  Conduct IND enabling studies.
     
  Conduct clinical studies with one or more of the adenosine receptor antagonists.
     
  Continue generating additional adenosine receptor antagonists to expand our portfolio.

 

The adenosine receptor agonists have applicability in a broad range of non-oncology conditions including inflammatory and autoimmune diseases and conditions. We are actively seeking licensing opportunities and/or partners to further development our A2A receptor agonists. Our current product development plan for adenosine receptor agonists contemplates the following major initiatives subject to the Company receiving sufficient funds:

 

  License and/or partner to companies with development expertise in the intended indication.
     
  Further characterize existing agents to support licensing/partnership activities.
     
  Continue generating additional adenosine receptor agonists to expand our portfolio.

 

Financial

 

To date, we have devoted substantially all of our efforts and financial resources to the development of our proposed drug candidates. Mipsagargin is the only product candidate for which we have conducted clinical trials, and we have not received FDA approval to market, distribute or sell any products. We have currently curtailed our research on mipsagargin. We are also working on developing IND approved studies for our adenosine receptor technology platform. Since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the private and public sales of our equity securities. We have never been profitable and as of December 31, 2019 we had an accumulated deficit of approximately $61 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our product candidates and advance them through clinical trials.

 

25

 

 

Our cash and restricted cash balances at December 31, 2019 was approximately $23,000 representing 100% of total assets. In March 2020, we completed a private placement of $250,000 of our debt securities. Based on our current expected level of operating expenditures and cash balance as of December 31, 2019, and including the March 2020, private placement, we expect to be able to fund our operations into the third quarter of 2020. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events.

 

We anticipate raising additional cash through the private or public sales of equity or debt securities, collaborative arrangements, licensing agreements or a combination thereof, to continue to fund our operations and the development of our product candidates. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing pre-clinical studies and potential clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source.

 

Going Concern

 

Our auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. During February of 2018, we curtailed our operations due to our lack of cash. Notwithstanding our recent financing in March 2020 whereby we raised $250,000, our current cash level raises substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.  

 

Critical Accounting Policies

 

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates 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 expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions.

 

All of our significant accounting policies are discussed in Note 3, Summary of Critical Accounting Policies and Use of Estimates, to our financial statements, included elsewhere in this annual report. We have identified the following as our critical accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

 

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

 

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ from those estimates.

  

26

 

  

Restricted Cash - Restricted cash consists of funds held in trust for the Company. The use of these funds is restricted to: (i) the payment of professional fees in connection with bringing the Company’s filings current, and (ii) the payment of vendors associated with the issuance and trading of the Company’s securities, such as transfer agent fees and fees payable to the OTCQB and FINRA.

  

Derivative Liability - The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

 

Fair Value of Financial Instruments - Derivative liabilities consist of certain of our preferred stock and warrants with anti-dilution provisions, and are valued using option pricing models which incorporate the Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life.

 

Recent Accounting Pronouncements

 

With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended December 31, 2019 that are of significance or potential significance to the Company.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

 

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this standard did not have any impact on the Company’s consolidated financial statements.

 

27

 

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”). ASU No. 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. A public business entity that is a SEC filer should adopt the amendments of ASU No. 2017-04 for its annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect any impact from the adoption of this standard on its consolidated financial statements. 

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance. 

  

Result of Operations

 

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the years ending December 31, 2019 and 2018. We do not anticipate generating any revenues during 2020. Net loss for 2019 and 2018 were $934,000 and $12,000, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $0.6 million and $0.7 million during 2019 and 2018, respectively.  The decrease in operating expenses is the result of the following factors.

 

    Year Ended     Change in 2019  
    December 31,     Versus 2018  
    2019     2018     $     %  
    (amount in thousands)              
Operating Expenses                        
Research and development   $ 44     $ 208     $ (164 )     (79 )%
General and administrative     565       516       49       9 %
Total operating expense   $ 609     $ 724     $ (115 )     (16 )%

 

Research and Development

 

Research and development expenses totaled $44,000 and $208,000 for the years ended 2019 and 2018, respectively. The decrease of $164,000, or 79%, in 2019 compared to 2018 was primarily due to the curtailment of business operations in February 2018, due to a lack of capital. 

 

Our research and development expenses consist primarily of expenditures related to toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs.

 

General and Administrative

 

General and administrative expenses totaled $0.57 million and $0.52 million during 2019 and 2018, respectively. The increase of approximately $49,000, or 9%, in 2019 compared to 2018 was primarily the result of an increase in professional fees partially offset by a decrease in compensation expense. We had a curtailment of business operations in February 2018, due to a lack of capital.

 

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Other Income (Expense)

 

Other income (expense) totaled approximately $0.3 million of expense and $0.7 million of income for 2019 and 2018, respectively.

 

    Year Ended     Change in 2019  
    December 31,     Versus 2018  
    2019     2018     $     %  
    (amount in thousands)              
Gain (loss) on change in fair value of derivative liability   $ 327     $ 1,052     $ (725 )     (69 )%
Gain on conversion of debt     125       210       (85 )     (40 )%
Interest income (expense), net     (777 )     (550 )     (227 )     (41 )%
Total other income (expense)   $ (325 )   $ 712     $ (1,037 )     (146 )%

 

Loss on change in fair value of derivative liability

 

As a result of a change in the fair value of our derivative liability, we realized gains of $0.3 million and $1.1 million during the years ended December 31, 2019 and 2018, respectively. The change in the fair value of our derivative liability was the result of our convertible debentures and notes issued in September 2017, July 2018, December 2018, July 2019, October 2019 and November 2019, where we issued convertible notes with variable conversion rates. Refer to Note 7 in our Financial Statements for further discussion on our derivative liability.

 

Gain on conversion of debt

 

There was a gain on conversion of debt of approximately $0.1 million during the year ended December 31, 2019, with a gain of approximately $0.2 million during the year ended December 31, 2018. Gain on conversion of debt results from the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt converted.

 

Interest income (expense)

 

We had $0.8 million net interest expense in 2019, compared to $0.6 million of expense in 2018. The increase of $0.2 million was attributable to the financial cost of waivers and extensions issued in connection with our debentures, partially offset by the cost associated with derivative instruments issued with a value in excess of proceeds received. 

 

Liquidity and Capital Resources

 

We have incurred losses since our inception in 2003 as a result of significant expenditures for operations and research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of approximately $61 million as of December 31, 2019 and anticipate that we will continue to incur additional losses for the foreseeable future. Through December 31, 2019, we have funded our operations through the private sale of our equity securities, convertible debt and exercise of options and warrants, resulting in gross proceeds of $37.2 million. Cash and restricted cash at December 31, 2019 was $23,000.

 

Our auditors’ report on our December 31, 2019 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Based on our current level of expected operating expenditures, we expect to be able to fund our operations into the third quarter of 2020. This assumes that we spend minimally on general operations and only continue conducting our ongoing clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or cease operations altogether.  

 

29

 

 

    Year Ended  
    December 31,  
    2019     2018  
    (amounts in thousands)  
Cash and restricted cash at beginning of period   $ 331     $ 10  
Net cash used in operating activities     (313 )     (204 )
Net cash provided by investing activities            
Net cash provided by financing activities     5       525  
Cash and restricted cash at end of period   $ 23     $ 331  

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $0.3 million and $0.2 million during 2019 and 2018, respectively. The decrease of $0.1 million in cash used during 2019 compared to 2018 was primarily attributable to a decrease in accounts payable of approximately $0.1 million.

 

Net Cash Used in Investing Activities

 

Cash provided by investing activities was $0 for each of the years 2019 and 2018.

 

Net Cash Provided by Financing Activities

 

During 2019, we received net proceeds of $5,000 from the sales of our securities and convertible debentures, compared to $0.5 million during 2018 in net proceeds from the sales of our securities in a private placement. We are actively seeking sources of financing to fund our continued operations and research and development programs.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this Item is included in our Financial Statements and Supplementary Data listed in Item 15 of Part IV of this Annual Report.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, which consists only of our Principal Executive Officer and Principal Accounting Officer (who is also our Principal Executive Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019. Based on that evaluation, management concluded that our disclosure controls and procedures as of December 31, 2019 were ineffective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

30

 

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:

 

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

  

Management, which consists only of our Principal Executive Officer and Principal Accounting Officer (who is also our Principal Executive Officer), does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on the Company’s assessment, management has concluded, that due to limited resources and limited number of employees, its internal control over financial reporting was ineffective as of December 31, 2019 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. To mitigate the current limited resources and employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase the number of employees, which would enable us to implement adequate segregation of duties within the internal control framework.   

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2019, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit smaller reporting companies to provide only the management’s report in this annual report.  

 

ITEM 9B. OTHER INFORMATION

 

On May 2, 2020, we sold 5,000 shares of Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of $5,000. Each share of Series E Preferred Stock has stated value of $1.00. The Series E Preferred Stock is convertible, at any time after the Original Issue Date at the option of the Holder into that number of shares of Common Stock (Subject to the limitations set forth in Section 6(d) of the certificate of designation of the Series E Preferred Stock), determined by dividing the stated value by the then in effect conversion price. As of the date of issuance, the conversion price is $0.01 per share.

 

With respect to a vote of stockholders to approve a reverse split of the Common Stock to occur no later than December 31, 2022 only, each share of Series E Preferred Stock held by a holder, as such, is entitled to 100,000 votes. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series E Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series E Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Series E Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Significant Employees

 

The names of our directors and executive officers and their ages, positions, and biographies as of July 26, 2019, are set forth below. Our executive officers are appointed by, and serve at the discretion of the Board. There are no family relationships among any of our directors or executive officers. All directors hold office until the next annual meeting of shareholders or until their respective successors are elected, except in the case of death, resignation, or removal. On February 28, 2017, Russell Richerson, PhD, resigned as chief operating officer. On February 12, 2018, Dr. Shazer resigned as chief medical officer. On February 9, 2018, Drs. Grebow and Buller resigned as members of the Board. On June 30, 2019, John Montgomery resigned as a member of the Board. On June 15, 2019, Christopher Lowe resigned as chief executive officer and as a member of the Board. On July 26, 2019, we appointed Michael Cain as our interim chief executive officer, chief financial officer, president, and as a member of the Board.

 

Name   Position   Age   Position Since
Executive Directors            
Michael Cain*   Chief Executive Officer, Chief Financial Officer, President and Director   36   7/2019
             
Independent Directors            
Scott V. Ogilvie   Director   65   03/2008
Claire Thom, Pharm.D.   Director   64   10/2016

 

* Effective, July 26, 2019, we appointed Michael Cain as interim chief executive officer, chief financial officer, president, and as a member of the Board.

 

Michael Cain¸ serves as our interim Chief Executive Officer, Chief Financial Officer, President, and as a member of the Board of Directors. Mr. Cain has over 15 years of experience in technology and consulting fields. Mr. Cain has served as the President and as a Board member of Level 4 Services, Inc, a private information technology company since 2013. In evaluating Mr. Cain’s specific experience, qualifications, attributes and skills in connection with his appointment to our Board, we took into account his management experience in other organizations and business development background.

 

Scott V. Ogilvie has served as a director on our board since February 2008. Mr. Ogilvie is currently the President of AFIN International, Inc., a private equity/business advisory firm, which he founded in 2006. Prior to December 31, 2009, he was CEO of Gulf Enterprises International, Ltd, a company that brings strategic partners, expertise and investment capital to the Middle East and North Africa. He held this position since August 2006. Mr. Ogilvie previously served as Chief Operating Officer of CIC Group, Inc., an investment manager, a position he held from 2001 to 2007. He began his career as a corporate and securities lawyer with Hill, Farrer & Burrill, and has extensive public and private corporate management and board experience in finance, real estate, and technology companies. Mr. Ogilvie currently serves on the board of directors of Neuralstem, Inc. (NASDAQ: CUR) and Research Solutions, Inc. (OTCQB: RSSS). Mr. Ogilvie also served on the board of directors of Preferred Voice Inc. (OTCQB: PRFV), Innovative Card Technologies, Inc. (OTCBB: INVC) and National Healthcare Exchange, Inc. (OTCBB: NHXS). In evaluating Mr. Ogilvie’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work in both public and private organizations regarding corporate finance, securities and compliance and international business development.  

 

Claire Thom, PharmD has served as a director on our board since October 2016.  Dr. Thom has two decades of experience in the pharmaceutical industry, with responsibilities including drug development, new product planning, and marketing.  Most recently, from July 2013 until June 2016, Dr. Thom was the Senior Vice President Global Therapeutic Head for Oncology at Astellas Pharma (TOKYO: ALPMY).  At Astellas, she developed and supervised the implementation of the company’s oncology strategy. In addition, she was appointed to serve on the Board of Directors for Agensys, a fully-owned subsidiary of Astellas. Prior to her roles at Astellas, Dr. Thom served as Senior Vice President of Portfolio Management, Drug Development Management and Strategic Business Operations at Millennium Pharmaceuticals, the Takeda Oncology Company, (TOKYO: TKPYY) from August 2008 until January 2013. Prior to her assignment at Millennium, she held several positions of increasing responsibility at Takeda to become the company’s Oncology Franchise Leader. Earlier, she worked at G.D. Searle and began her career as a clinical pharmacist. Ms. Thom was awarded a Doctor of Pharmacy and a Bachelor of Pharmacy, both with honors, from the University of Illinois.  In evaluating Dr. Thom’s specific experience, qualifications, attributes and skills in connection with her appointment to our board, we took into account her knowledge of scientific matters affecting our business and her understanding of our industry.

 

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Family Relationships

 

There are no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director or executive officer.

 

Diversity of Board of Directors

 

We do not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate Directors with a variety of complementary skills so that, as a group, the board of directors will possess the appropriate talent, skills, and expertise to oversee our businesses.

 

Code of Ethics

 

We have adopted a “Code of Ethics” that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code is attached to this Annual Report as Exhibit 14.01.

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rule 5605(a)(2). Pursuant to the definition, the Company has determined that Dr. Thom and Mr. Ogilvie qualify as independent. 

 

Committees

 

The board of directors has established three standing committees: (1) an Audit Committee, (2) a Nominating and Corporate Governance Committee, and (3) a Leadership Development and Compensation Committee. Each of the committees operates under a written charter adopted by the board of directors. A copy of each respective committee’s charter can be viewed as Exhibits 99.01, 99.02 and 99.03 to this Annual Report.

 

The table below identifies the Board’s standing committees and committee membership as of May 1, 2020:    

 

Director   Independent   Audit Committee   Nominating
and
Corporate
Governance
Committee
  Leadership
Development
and
Compensation
Committee
Scott Ogilvie   Yes   Chair   Chair  
Claire Thom, PharmD   Yes   Member     Chair

 

Each member of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee is considered independent under the NASDAQ Market Place Rules.   

 

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Audit Committee

 

The main function of our Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Exchange Act, is to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial statements. This committee’s responsibilities include:

 

  Selecting and hiring our independent auditors.

 

  Evaluating the qualifications, independence and performance of our independent auditors.

 

  Approving the audit and non-audit services to be performed by our independent auditors.

 

  Reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies.

 

  Overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters.

 

  Reviewing with management any earnings announcements and other public announcements regarding our results of operations.

 

  Reviewing regulatory filings with management and our auditors.

 

  Preparing any report the SEC requires for inclusion in our annual proxy statement.

 

  The Audit Committee will review and approve all related party transactions.

  

Our Audit Committee is currently comprised of Scott V. Ogilvie and Claire Thom, each of whom is a non-employee member of our board of directors. Our board of directors has determined that each of the directors serving on our Audit Committee is independent within the meaning of the rules of the SEC and rule 5605(a)(2) of the Marketplace Rules of NASDAQ. Additionally, our board has determined that Scott V. Ogilvie is an audit committee financial expert as defined under the rules of the SEC. A copy of the charter is contained in Exhibit 99.01 to this Annual Report

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee’s purpose is to assist our board of directors in identifying individuals qualified to become members of our board of directors consistent with criteria set by our board of directors and to develop our corporate governance principles. This committee’s responsibilities include:   

 

  Evaluating the composition, size, organization and governance of our board of directors and its committees, determining future requirements, and making recommendations regarding future planning, the appointment of directors to our committees and selection of chairs of these committees.

 

  Reviewing and recommending to our board of directors, director independence determinations made with respect to continuing and prospective directors.

 

  Establishing a policy for considering stockholder nominees for election to our board of directors.

 

  Recommending ways to enhance communications and relations with our stockholders.

 

  Evaluating and recommending candidates for election to our board of directors.

 

  Overseeing our board of directors’ performance and self-evaluation process and developing continuing education programs for our directors.

  

  Evaluating and recommending to the board of directors termination of service of individual members of the board of directors as appropriate, in accordance with governance principles, for cause or for other proper reasons.

 

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  Making regular written reports to the board of directors.

 

  Reviewing and reexamining the committee’s charter and making recommendations to the board of directors regarding any proposed changes.

 

  Reviewing annually the committee’s own performance against responsibilities outlined in its charter and as otherwise established by the board of directors.

 

Our Nominating and Corporate Governance Committee is currently comprised of Scott V. Ogilvie, a non-employee member of our board of directors. Our board of directors has determined that Mr. Ogilvie is independent as defined in rule 5605(a)(2) of the Marketplace Rules of NASDAQ. The charter of the Nominating and Corporate Governance Committee is contained in Exhibit 99.03 of this Annual Report

 

Leadership Development and Compensation Committee

 

The purpose of our Leadership Development and Compensation Committee is to oversee our compensation programs. The committee may form and delegate authority to subcommittees or, with respect to compensation for employees and consultants who are not executive officers for purposes of Section 16 of the Exchange Act, to our officers, in either instance as the committee determines appropriate. The committee’s responsibilities include:  

 

  Reviewing and approving our general compensation strategy.

 

  Establishing annual and long-term performance goals for our CEO and other executive officers.

 

  Conducting and reviewing with the board of directors an annual evaluation of the performance of the CEO and other executive officers.

 

  Evaluating the competitiveness of the compensation of the CEO and the other executive officers.

 

  Reviewing and making recommendations to the board of directors regarding the salary, bonuses, equity awards, perquisites and other compensation and benefit plans for the CEO.

 

  Reviewing and approving all salaries, bonuses, equity awards, perquisites and other compensation and benefit plans for our other executive officers.

 

  Reviewing and approving the terms of any offer letters, employment agreements, termination agreements or arrangements, change-in-control agreements, indemnification agreements and other material agreements between the company and our executive officers.

 

  Acting as the administering committee for our stock and bonus plans and for any equity or cash compensation arrangements that we may adopt from time to time.

 

  Providing oversight for our overall compensation plans and benefit programs, monitoring trends in executive and overall compensation and making recommendations to the board of directors with respect to improvements to such plans and programs or the adoption of new plans and programs.

 

  Reviewing and approving compensation programs as well as salaries, fees, bonuses and equity awards for non-employee members of the board of directors.

 

  Reviewing plans for the development, retention and succession of our executive officers.

 

  Reviewing executive education and development programs.

 

  Monitoring total equity usage for compensation and establishing appropriate equity dilution levels.

 

35

 

 

  Reporting regularly to the board of directors on the committee’s activities.

 

  Reviewing and discussing with management the required annual compensation discussion and analysis disclosure, if any, regarding named executive officer compensation and, based on this review and discussions, making a recommendation to include in our annual public filings.

 

  Preparing and approving any required committee report to be included in our annual public filings.

 

  Performing a review, at least annually, of the performance of the committee and its members and reporting to the board of directors on the results of this review.

 

  Investigating any matter brought to its attention, with full access to all our books, records, facilities and employees and obtaining advice, reports or opinions from internal or external counsel and expert advisors in order to help it perform its responsibilities.

 

Our Leadership Development and Compensation Committee is currently comprised of Claire Thom, who is a non-employee member of our board of directors. Dr. Thom is an “outside” director as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a “non-employee” director within the meaning of Rule 16b-3 of the Exchange Act. Our board of directors has determined that Dr. Thom is independent as defined in rule 5605(a)(2) of the Marketplace Rules of NASDAQ. A copy of the charter is contained in Exhibit 99.02 to this Annual Report.

  

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent shareholders also are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely upon a review of the copies of such forms furnished to the Company, and on written representations from the reporting persons, the Company believes that all Section 16(a) filing requirements applicable to the Company’s directors and officers were timely met during 2019.

 

Name of Reporting Person   Type of Report and Number Filed Late  

No. of Transactions 

Reported Late 

 None   None   None

 

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ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table provides disclosure concerning all compensation paid for services to us in all capacities for our fiscal years ended December 31, 2019 and 2018 provided by (i) each person serving as our principal executive officer, or PEO, or acting in a similar capacity during our fiscal year ended December 31, 2019; (ii) our most highly compensated executive officers other than our PEO who were serving as executive officers on December 31, 2019 and whose total compensation exceeded $100,000 (collectively with the PEO referred to as the “named executive officers” in this Executive Compensation section); and (iii) our Principal Financial Officer.

 

Name & Principal Position   Year   Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)
    Total
($)
 
Christopher Lowe,   2019     (1)                                          
Chief Executive Officer and Chief Financial Officer   2018     22,917 (2)                                         22,917  
                                                                     
Michael Cain,   2019     (3)                                          
Chief Executive Officer and Chief Financial Officer   2018                                                

  

(1) No salary was paid or accrued for Mr. Lowe in 2019. Effective July 15, 2019, Mr. Lowe resigned as chief executive officer and as a member of the Board.
   
(2) Of Mr. Lowe’s salary listed, none was actually paid and $22,917 was accrued in 2018 but remains unpaid.
   
(3) Mr. Cain became our chief executive officer and principal accounting officer effective July 26, 2019. Mr. Cain currently has not received any compensation for his services.

 

Outstanding Executive Equity Awards at Fiscal Year-End 2019

 

None.

  

Employment Agreements and Change in Control

 

Michael Cain

 

Michael Cain was appointed chief executive officer and chief financial officer / principal accounting officer of the Company effective July 26, 2020. We currently do not have any employment agreement covering Mr. Cain’s services and he is not currently receiving any compensation as our chief executive officer or chief financial officer. Mr. Cain is not subject to any compensation in the event that he is terminated or resigns for any reason.

 

Christopher Lowe

 

Employment Agreement

 

We employed Christopher Lowe as our Chief Executive Officer and Chief Financial Officer pursuant to a written contract that until such time that either the Company or Mr. Lowe terminates the agreement. Mr. Lowe resigned his employment with the Company effective July 15, 2019. Mr. Lowe received a base salary of $316,250, of which we deducted $41,250 during the first year and pay such amount to a third party as a placement fee for Mr. Lowe’s employment. As a result, Mr. Lowe received a net base salary of $275,000 for his first year of employment.

 

Mr. Lowe’s employment agreement provided for severance in the event Company terminates Mr. Lowe’s employment without Cause or Mr. Lowe resigned with Good Reason, as each term is defined in the employment agreement, provided certain company funding requirements were met. Pursuant to Mr. Lowe’s resignation, no severance was paid pursuant to the terms of his employment agreement.

 

37

 

 

Equity Compensation Plans

 

For information related to our equity compensation plans for which our officers and directors are issued securities from, please see Equity Compensation Plan Information contained in Part III, Item 12 of this Annual Report.

 

Director Compensation

  

Name   Fees
Earned 
or Paid in
Cash
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity Incentive 
Plan Compensation 
($)
    Non-Qualified
Deferred
Compensation Earnings
($)
    All Other
Compensation
($)
    Total
($)
 
Scott Ogilvie     54,000 (1)            —              —             —            —           —       54,000  
                                                         
Claire Thom     49,000 (1)                                   49,000  

 

(4) No director fees were paid in 2019. All fees have been accrued at December 31, 2019.

  

Outside Director Compensation Plan

 

On October 12, 2016, the Company’s board of directors, upon the recommendation of the Leadership Development and Compensation Committee, amended the Company’s non-executive Board compensation policy. The terms of the amended policy are as follows:

 

Inducement/First Year Grant. Upon joining the Board, a director receives an option to purchase 100 shares of the Company’s common stock. The option vests on the first year anniversary of the first day of the month after the director’s service on the Board begins, provided the director has continuously provided services to the Company during that time.

 

Annual Grant. Subject to the shareholder’s rights to elect any individual director, starting on the first year anniversary of service, and each subsequent anniversary thereafter, each eligible director will be granted options to purchase 67 shares of common stock or restricted stock units of equivalent value. The annual grants vest quarterly during the grant year provided the director has continuously provided services to the Company during that time.

 

Committee and Committee Chairperson Grant. Each director will receive options to purchase an additional 7 shares of common stock, or restricted stock units of equivalent value, for each committee on which he or she serves. Chairpersons of each committee will receive options to purchase an additional 7 shares of common stock, or restricted stock units of equivalent value.  The committee grants vest quarterly during the grant year provided the director has continuously provided services to the Company during that time.

  

Special Committee Grants. From time to time, individual directors may be requested by the Board to provide extraordinary services.  These services may include such items as the negotiation of key contracts, assistance with scientific issues, or such other items as the Board deems necessary and in the best interest of the company and its shareholders.  In such instances, the board shall have the flexibility to issue special committee grants.   The amount of such grants and terms will vary based on the tasks of the special committee.

 

Exercise Price and Term. All options issued pursuant to the non-executive director compensation policy will have an exercise price equal to the fair market value of our common stock at close of market on the grant date and will have a term of five years.   All restricted stock unit and option grants and issuance of shares are subject to satisfaction of all applicable state and federal securities laws. The determination with regard to whether awards will be made in options or restricted stock units will be at the sole discretion of the director.

 

38

 

 

Cash Compensation. Each director will also receive cash compensation equal to: (i) an annual cash retainer of $40,000, and (ii) quarterly payments of $1,000 per committee for non-chairperson committee members. In addition, committee chairpersons receive an additional: (a) $10,000 for chairing the audit committee, (b) $5,000 for chairing the leadership development and compensation committee, and (c) $5,000 for chairing the nomination and corporate governance committee.  

 

Expenses. The Company will reimburse directors for all reasonable travel expenses incurred in connection with their attendance at meetings of the Board, in accordance with the Company’s expense reimbursement policy as is in effect from time to time. Moreover, certain directors will be reimbursed for expenses related to education or the attendance at industry conferences, including travel, lodging and meals, up to a maximum of $10,000 per calendar year.

 

Indemnification. The Company shall indemnify all directors to the fullest extent permitted by law if the director was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other as a result of their service on the Board as provided for in the Company’s bylaws and standard indemnification agreement.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

 

Securities authorized for issuance under equity compensation plans

 

The following table sets forth information as of December 31, 2019 with respect to our compensation plans under which equity securities may be issued.

 

    (a)     (b)     (c)  
    Number of Securities
to be Issued
upon 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 Column (a))
 
Equity compensation plans approved by security holders:                  
2007 Stock Plan, as amended (1)     1,165     $ 337.55       6,608  
Equity compensation plans not approved by security holders:                        
2009 Executive Compensation Plan     1,963       162.40       6,037  
Inducement Stock Option Plan     4,558     $ 28.20       7,442  
2017 Equity Compensation Plan     0     $ 0.00       80,000  
Total     7,686     $ 109.37       100,087  

 

(1) Our 2007 Stock Plan, as amended, provides for the issuance of up to 2,000 common shares during any calendar year. The plan provides for the issuance of up to 8,000 common shares in the aggregate.

  

39

 

 

2007 Equity Compensation Plan

 

Our 2007 Equity Compensation Plan (“2007 Plan”) is administered by our board or any of its committees. The purposes of the 2007 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2007 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2007 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. Our 2007 Plan authorizes the issuance of up to 2,000 shares of common stock for the foregoing awards per fiscal year with an aggregate of 8,000 shares of common stock available for issuance under the 2007 Plan. As of December 31, 2019, we have granted awards under the 2007 Plan equal to approximately 7,228 shares of our common stock, and 5,836 shares have been cancelled or forfeited. Accordingly, there are 6,608 shares of common stock available for future awards under the 2007 Plan. In the event of a change in control, awards under the 2007 Plan will become fully vested unless such awards are assumed or substituted by the successor corporation.

  

2009 Executive Compensation Plan

 

Our 2009 Executive Compensation Plan, as amended (“2009 Plan”) is administered by our Board or any of its committees. The purpose of our 2009 Plan is to advance the interests of the Company and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability. The issuance of awards under our 2009 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2009 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock-based awards. As of December 31, 2019, our 2009 Plan authorizes the issuance of up to 8,000 shares of our common stock for the foregoing awards, and we have granted awards under the plan equal to approximately 6,595 common shares, and 4,632 shares have been cancelled or forfeited. Accordingly, there are 6,037 shares of common stock available for future awards under the 2009 Plan.  

 

Inducement Award Stock Option Plan

 

Our Inducement Award Stock Option Plan (“Inducement Plan”) is administered by our board or our compensation committee. The Plan is intended to be used in connection with the recruiting and inducement of senior management and employees. The issuance of wards under the Inducement Plan is at the discretion of the administrator which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. The Company did not seek approval of the Plan by our stockholders. Pursuant to the Inducement Plan, the Company may grant stock options for up to a total of 12,000 shares of common stock to new employees of the Company. As of December 31, 2019, 8,454 grants have been made pursuant to the Plan, and 3,896 shares have been cancelled or forfeited. Accordingly, there are 7,442 shares of common stock available for future issuance under the Inducement Plan.

   

Inspyr Therapeutics 2017 Equity Compensation Plan

 

Our 2017 Equity Compensation Plan (“2017 Plan”) is administered by our board or any of its committees. The purposes of the 2017 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2017 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2017 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. Our 2017 Plan authorizes the issuance of up to 80,000 shares of common stock for the foregoing awards. As of December 31, 2019, we have granted no awards under the 2017 Plan, and no shares have been cancelled or forfeited. Accordingly, there are 80,000 shares of common stock available for future awards under the 2017 Plan. In the event of a change in control, awards under the 2017 Plan will become fully vested unless such awards are assumed or substituted by the successor corporation.

 

40

 

 

Deferred Compensation Plan

 

In July of 2011, we adopted the Executive Deferred Compensation Plan (the “Deferred Plan”). The Deferred Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Deferred Plan is intended to be an unfunded “top hat” plan which is maintained primarily to provide deferred compensation benefits for a select group of our “management or highly compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to therefore be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. The Deferred Plan is intended to help build a supplemental source of savings and retirement income through pre-tax deferrals of eligible compensation, which may include cash, option and stock bonus awards, discretionary cash, option and stock awards and/or any other payments which may be designated by the Deferred Plan administrator, as eligible, for deferral under the Deferred Plan from time to time. As administered, the Deferred Plan is used to defer compensation of stock awards granted under our other equity compensation plans and does not by its terms approve any grants or awards.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of May 1, 2020, information regarding beneficial ownership of our capital stock by:

 

  each person, or group of affiliated persons, known by us to be the beneficial owner of 5% or more of any class of our voting securities;
     
  each of our current directors and nominees;
     
  each of our current named executive officers; and
     
  all current directors and named executive officers as a group.

 

Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owner’s shares, except where community property laws may apply.  

 

          Common Stock              
Name and Address of Beneficial Owner(1)   Shares     Shares
Underlying
Convertible
Securities (2)
    Total     Percent of
Class (2)
 
Directors and named Executive Officers                        
Michael Cain                       *  
Christopher Lowe                       *  
Scott Ogilvie           164       164       *  
Claire Thom           100       100       *  
All directors and executive officers as a group (4 persons)           264       264       * %
5% Shareholders                                
Sabby Healthcare Master Fund, Ltd. (3)           16,666,550       16,666,550       9.99 %
Sabby Volatility Warrant Master Fund, Ltd. (4)           16,666,550       16,666,550       9.99 %

 

* Less than one percent.

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is 31200 Via Colinas #200, Westlake Village, CA 91362.

 

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There were 150,000,000 shares of common stock issued and outstanding as of May 1, 2020. 

 

41

 

  

(3) 89 Nexus Way, Camana Bay, Grand Cayman Ky1-9007, Cayman Islands. Does not include 180,741,032 shares underlying warrants and debentures convertible into common stock securities subject to exercise conditions based on percentage ownership limitations.

 

(4) 89 Nexus Way, Camana Bay, Grand Cayman Ky1-9007, Cayman Islands. Does not include 131,922,700 shares underlying warrants and debentures convertible into common stock securities subject to exercise conditions based on percentage ownership limitations.

  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Information regarding disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction is incorporated by reference from the section of this annual report entitled “Executive Compensation.”

 

Information regarding disclosure of compensation to a director is incorporated by reference from the section of this annual report entitled “Director Compensation.”

 

Related Party Transactions

 

  We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. The indemnification agreements are substantially similar to those entered into with our executive officers and as a more fully described in the section of this annual report entitled “Employment Agreements and Change in Control.”

   

  On July 3, 2018, we sold an aggregate of $515,000 of non-interest bearing senior convertible debentures to Sabby Volatility Warrant Master Fund and Sabby Healthcare Master Fund, previously greater than 5% beneficial owners of our securities. Pursuant to certain waivers of defaults and extensions, these debentures mature on July 16, 2020.
     
  On March 6, 2020, we sold an aggregate of $250,000 of non-interest bearing senior convertible debentures to Sabby Volatility Warrant Master Fund and Sabby Healthcare Master Fund, previously greater than 5% beneficial owners of our securities. The debentures mature on July 16, 2020.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by our independent auditors for our 2019 and 2018 fiscal years:

 

Type of Fees   2018     2018  
             
Audit Fees   $ 50,000     $ 50,000  
Audit Related Fees           --  
Tax Fees           3,500  
All Other Fees            
Total Fees   $ 50,000     $ 53,500  

 

Pre-Approval of Independent Auditor Services and Fees

 

Our board of directors reviewed and pre-approved all audit and non-audit fees for services provided by independent registered accounting firm and has determined that the provision of such services to us during fiscal 2019 is compatible with and did not impair independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent auditors in accordance with the applicable requirements of the SEC. The firm we engaged during 2019 provided no other services, other than those listed above.

 

42

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

  1. Financial Statements: See “Index to Financial Statements” beginning on Page F-1 of this Form 10-K.

 

  2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

 

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

 

  may apply standards of materiality that differ from those of a reasonable investor;

 

  and were made only as of specified dates contained in the agreements and are subject to later developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

43

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned hereunto duly authorized.

 

  INSPYR THERAPEUTICS, INC.
   
Date: May 14, 2020 /s/ Michael Cain
  Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Michael Cain   Principal Executive Officer, Principal Accounting Officer   May 14, 2020
Michael Cain   (Principal Executive Officer and Principal Accounting Officer)    
         
/s/ Scott Ogilvie   Director   May 14, 2020
Scott Ogilvie        
         
/s/ Claire Thom, PharmD   Director   May 14, 2020
Claire Thom, PharmD        

 

44

 

 

INSPYR THERAPEUTICS, INC. 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Liggett & Webb, P.A., Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Losses F-4
   
Consolidated Statement of Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
    
Notes to Consolidated Financial Statements F-7

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

To the Board of Directors and Shareholders of

Inspyr Therapeutics, Inc.

  

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Inspyr Therapeutics, Inc. (the "Company") as of December 31, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The Company’s Ability to Continue as a Going Concern

 

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 does not generate revenue and has negative cash flows from operations.  This raises substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/Liggett & Webb, P.A.

 

We have served as the Company’s auditor since 2014.

 

New York, NY

May 14, 2020

 

 

F-2

 

 

INSPYR THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

    December 31,  
    2019     2018  
             
ASSETS            
             
Current assets:            
Cash   $ 4     $ 4  
Restricted cash     19       327  
Total current assets     23       331  
Office and lab equipment, net of accumulated depreciation of $7 and $5     -       2  
Intangible assets, net of accumulated amortization of $229 and $179     -       33  
Total assets   $ 23     $ 366  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current liabilities:                
Accounts payable   $ 2,269     $ 2,085  
Accrued expenses     1,866       1,814  
Convertible debentures, net of unamortized discount of $0 and $281     2,826       2,600  
Derivative liability     1,785       2,134  
Total current liabilities     8,746       8,633  
Total liabilities     8,746       8,633  
                 
Commitments and contingencies (Note 8)     -       -  
                 
Stockholders’ deficit:                
Convertible preferred stock, undesignated, par value $.0001 per share; 29,991,846 shares authorized, no shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series A, par value $.0001 per share; 1,854 shares authorized, 134 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series B, par value $.0001 per share; 1,000 shares authorized, 71 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series C, par value $.0001 per share; 300 shares authorized, 290 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series D, par value $.0001 per share; 5,000 shares authorized, 5,000 and no shares issued and outstanding, respectively     -       -  
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 18,648,753 and 3,383,285 shares issued and outstanding, respectively     2       1  
Additional paid-in capital     51,955       51,478  
Accumulated deficit     (60,680 )     (59,746 )
                 
Total stockholders’ deficit     (8,723 )     (8,267 )
                 
Total liabilities and stockholders’ deficit   $ 23     $ 366  

 

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

 

F-3

 

 

INSPYR THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF LOSSES

(in thousands, except share and per share data)

 

    Years Ended December 31,  
    2019     2018  
             
Operating expenses:            
Research and development   $ 44     $ 208  
General and administrative     565       516  
Total operating expenses     609       724  
                 
Loss from operations     (609 )     (724 )
                 
Other income (expense):                
Gain (loss) on change in fair value of derivative liability     327       1,052  
Gain on conversion of debt     125       210  
Interest (expense), net     (777 )     (550 )
                 
Loss before provision for income taxes     (934 )     (12 )
                 
Provision for income taxes     -       -  
                 
Net loss     (934 )     (12 )
Deemed dividend     (54 )     (196 )
                 
Net loss attributable to common shareholders   $ (988 )   $ (208 )
                 
Net loss per common share, basic and diluted   $ (0.14 )   $ (0.22 )
                 
Weighted average shares outstanding, basic and diluted     7,030,340       929,708  

 

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

 

F-4

 

 

INSPYR THERAPEUTICS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(in thousands, except share and per share data)

 

    Convertible Preferred Stock     Common Stock     Additional Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance, December 31, 2017     495     $ -       436,285     $ -     $ 50,886     $ (59,734 )   $ (8,848 )
                                                         
Stock-based compensation     -       -       -       -       90       -       90  
                                                         
Conversion of notes     -       -       2,947,000       1       502       -       503  
                                                         
Net loss     -       -       -       -       -       (12 )     (12 )
                                                         
Balance, December 31, 2018     495       -       3,383,285       1       51,478       (59,746 )     (8,267 )
                                                         
                                                         
Sale of preferred stock     5,000       -       -       -       5       -       5  
                                                         
Conversion of notes     -       -       15,265,468       1       472       -       473  
                                                         
Net loss     -       -       -       -       -       (934 )     (934 )
                                                         
Balance, December 31, 2019     5,495     $ -       18,648,753     $ 2     $ 51,955     $ (60,680 )   $ (8,723 )

 

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

 

F-5

 

 

INSPYR THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    Year Ended December 31,  
    2019     2018  
             
Cash flows from operating activities:            
Net loss   $ (934 )   $ (12 )
Adjustments to reconcile net loss to net cash used in                
operating activities:                
Depreciation and amortization     36       19  
Stock-based compensation     -       90  
(Gain) loss on change in fair value of derivative liability     (327 )     (1,052 )
Gain on conversion of debt     (125 )     (210 )
Amortization of debt discount     281       486  
Amortization of finance cost     494       64  
Decrease in operating assets:                
Prepaid expenses and other assets     -       4  
Increase in operating liabilities:                
Accounts payable and accrued expenses     262       407  
Cash used in operating activities     (313 )     (204 )
                 
Cash flows from investing activities:                
Cash provided by investing activities     -       -  
                 
Cash flows from financing activities:                
Proceeds from convertible notes     -       525  
Proceeds from sale of preferred stock     5       -  
Cash provided by financing activities     5       525  
                 
Net (decrease) increase in cash and restricted cash     (308 )     321  
Cash and restricted cash, beginning of year     331       10  
                 
Cash and restricted cash, end of year   $ 23     $ 331  

 

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

 

F-6

 

 

INSPYR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BACKGROUND

 

Inspyr Therapeutics, Inc. (“we”, “us”, “our company”, “our”, “Inspyr” or the “Company”) was formed under the laws of the State of Delaware in November 2003, and has its principal office in Westlake Village, California. We are a clinical-stage, pre-revenue, pharmaceutical company primarily focused on the development of therapeutics for the treatment of diseases. Through our acquisition of Lewis and Clark Pharmaceuticals, Inc., we currently are focusing on a pipeline of small molecule adenosine receptor modulators.

 

The adenosine receptor modulators include A 2B antagonists, dual A 2A /A 2B antagonists, and A 2A agonists that have broad development applicability including indications within immuno-oncology and inflammation. Adenosine is implicated in immunosuppression in the tumor microenvironment. Adenosine receptor antagonists may boost the host immune response against the tumor as a single-agent and in combination with other existing immuno-oncology agents leading to enhanced tumor killing and inhibition of metastasis. Adenosine also has anti-inflammatory properties in the acute and chronic setting. Adenosine receptor agonists may promote a decreased inflammatory response and can potentially treat a broad range of inflammatory and autoimmune based diseases and conditions (e.g., rheumatoid arthritis, joint injury, Crohn’s disease, psoriasis) as well as improve wound healing and decrease pain.

 

During February 2018, due to a lack of capital, we curtailed substantially all our business operations. In the event that we are able to raise sufficient capital, our major focus would be to: (i) further characterization, in conjunction with Ridgeway Therapeutics, of anti-cancer activity of the current pipeline of A2B antagonists and dual A2A/A2B antagonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies, (ii) further characterization of the current pipeline of A2A agonists leading to selection of a clinical candidate for an Investigative New Drug or IND enabling studies; (iii) licensing and/or partnering the A2B antagonists, dual A2A/A2B antagonists, and/or A2A agonists for further development, (iv) through our newly acquired adenosine receptor chemistry technology platform, continue to produce next generation adenosine receptor modulators, (v) pursue licensing and/or partnering of mipsagargin, (vi) conduct a clinical study of mipsagargin in patients with advanced HCC, and (vii) explore collaborations utilizing mipsagargin in new, non-clinical solid tumor models with leading researchers in the oncology field.

 

Our ability to execute our business plan is dependent on the amount and timing of cash, if any, that we are able to raise. During February of 2018, we curtailed our operations due to our lack of cash. We are currently using funds raised to maintain our SEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, and other outstanding obligations, the payment of which we believe to be vital to our future operations. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and continue, to the best of our ability, our public company reporting requirements.

  

NOTE 2 – MANAGEMENT’S PLANS TO CONTINUE AS A GOING CONCERN 

 

Basis of Presentation

 

The opinion of our independent registered accounting firm on our financial statements contains explanatory going concern language. We have prepared our consolidated financial statements on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred losses since inception and have an accumulated deficit of $61 million as of December 31, 2019. We anticipate incurring additional losses for the foreseeable future until such time, if ever, that we can generate significant sales from our therapeutic product candidates which are currently in development or we enter into cash flow positive business development transactions.

 

F-7

 

 

To date, we have generated no sales or revenues, have incurred significant losses and expect to incur significant additional losses as we advance mipsagargin through clinical studies. Consequently, our operations are subject to all the risks inherent in the establishment of a pre-revenue business enterprise as well as those risks associated with a company engaged in the research and development of pharmaceutical compounds.

 

Our cash and cash equivalents and restricted cash balances at December 31, 2019 were approximately $23,000, representing 100% of our total assets. We curtailed substantially all operations in February 2018. Based on our current expected level of operating expenditures, and including approximately $250,000, we raised in March 2020, pursuant to the sale of our senior convertible debentures, we expect to be able to fund our operations into the third quarter of 2020. We will require additional cash to fund and continue our operations beyond that point. This period could be shortened if there are any unanticipated increases in planned spending on development programs or other unforeseen events. We anticipate raising additional funds through collaborative arrangements, licensing agreements, public or private sales of debt or equity securities, or some combination thereof. There is no assurance that any such arrangement will be entered into or that financing will be available when needed in order to allow us to continue our operations, or if available, on terms favorable or acceptable to us. 

 

In the event additional financing is not obtained, we may pursue cost cutting measures as well as explore the sale of selected assets to generate additional funds. If we are required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate any of our development programs or clinical trials, these events could have a material adverse effect on: our business, results of operations, and financial condition. These factors raise significant doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Our auditors’ report issued in connection with our December 31, 2019 consolidated financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Accordingly, our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2020. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

NOTE 3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

 

Reverse Stock Split

 

On September 17, 2019, the Company’s Board of Directors approved a one-for-twenty five (1-for-25) reverse stock split of the Company’s common stock (“Reverse Stock Split”). In furtherance of the Reverse Stock Split, the Company has filed an amended and restated certificate of incorporation with the Secretary of State of Delaware to effect the Reverse Stock Split effective as of 5:00 p.m. Eastern Time on September 30, 2019 (“Effective Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders received one new share of common stock for every twenty-five shares such shareholder held immediately prior to the Effective Time. The Reverse Stock Split will also affect the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and will result in the shares underlying such instruments being reduced and the exercise/conversion price being increased proportionately to the Reverse Stock Split ratio. All share and per share data has been retroactively restated in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the September 30, 2019 amendment.

  

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ from those estimates.

 

F-8

 

 

Research and Development

 

Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs.  

 

We incurred research and development expenses of $0.04 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.  

 

Cash Equivalents

 

For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate insurance limits. We have not experienced any losses in our accounts. We did not have any cash equivalents at December 31, 2019 or 2018.

 

Restricted Cash

 

Restricted cash consists of funds held in trust for the Company. The use of these funds is restricted to: (i) the payment of professional fees in connection with bringing the Company’s filings current, and (ii) the payment of vendors associated with the issuance and trading of the Company’s securities, such as transfer agent fees and fees payable to the OTCQB and FINRA.

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may exceed applicable government mandated insurance limits. Cash and restricted cash was $0.02 million and $0.3 million at December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, there was no cash over the federally insured limit.

 

Intangible Assets

 

Intangible assets consist of licensed technology, patents, and patent applications (see Note 5). The assets associated with licensed technology are recorded at cost and are being amortized on the straight line basis over their estimated useful lives of twelve to seventeen years.

 

Office and Lab Equipment

 

Equipment is stated at cost less accumulated depreciation. Depreciation is calculated on the straight line basis over the estimated useful lives of the assets of three to seven years. Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to expense. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its equipment for impairment.

 

 

Depreciation expense was approximately $2,000 and $2,000 for the years ended December 31, 2019 and 2018, respectively.

  

Loss per Share

 

Basic loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

 

F-9

 

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of December 31, 2019 and 2018, as they would be anti-dilutive:

 

 

    Year Ended December 31,
    2019   2018
Shares underlying options outstanding     7,686       12,941  
Shares underlying warrants outstanding     96,330       100,517  
Shares underlying convertible notes outstanding     641,119,669       33,133,513  
Shares underlying convertible preferred stock outstanding     7,911,825       1,055,825  
      649,135,510       34,302,796  

 

Derivative Liability

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

 

 

Fair Value of Financial Instruments

 

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities of three months or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

 

The derivative liability consists of our convertible notes with a variable conversion feature. The Company uses the Black-Scholes option-pricing model to value its derivative liability which incorporate the Company’s stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life.

 

Fair Value Measurements

 

The U.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The Company has recorded a derivative liability for its convertible notes with a variable conversion feature as of December 31, 2019. The tables below summarize the fair values of our financial liabilities as of December 31, 2019 (in thousands):

 

    Fair Value at
December 31,
  Fair Value Measurement Using
    2019   Level 1   Level 2   Level 3
                                 
Derivative liability   $ 1,785     $ —       $ —       $ 1,785  

 

F-10

 

 

The reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):

 

    Year ended December 31,
    2019   2018
         
Balance at beginning of year   $ 2,134     $ 2,934  
Additions to derivative instruments     243       604  
Reclassification on conversion     (265 )     (352 )
Loss (gain) on change in fair value of derivative liability     (327 )     (1,052 )
Balance at end of year   $ 1,785     $ 2,134  

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible.

 

Stock-Based Compensation

 

We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

 

Through December 31, 2018 we used the fair value method for equity instruments granted to non-employees and used the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

On January 1, 2019, the Company adopted ASU 2018-07, which substantially aligns stock-based compensation for employees and non-employees and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718. The Company used the modified prospective method of adoption. There was no cumulative effect of the adoption of ASC 718. 

 

Recent Accounting Pronouncements

 

With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended December 31, 2019 that are of significance or potential significance to the Company.

 

F-11

 

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

 

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this standard did not have any impact on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”). ASU No. 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. A public business entity that is a SEC filer should adopt the amendments of ASU No. 2017-04 for its annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect any impact from the adoption of this standard on its consolidated financial statements. 

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance.

 

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

The following table contains additional information for the periods reported (in thousands).

 

    Year Ended December 31,
    2019   2018
Non-cash financial activities:        
Common stock issued on conversion of notes payable and derivative liability   $ 473     $ 503  
Debentures converted to common stock     331       361  
Derivative liability extinguished upon conversion of notes payable     265       352  
Derivative liability issued     243       604  
Accounts payable paid through issuance of debentures           15  

 

There was no cash paid for interest and income taxes for the years ended December 31, 2019 and 2018.

 

NOTE 5 – INTELLECTUAL PROPERTY

 

We solely own or have exclusive licenses to all of our patents and patent applications. Between 2008 and 2011, we entered into license and assignment agreements with Johns Hopkins University (JHU), the University of Copenhagen (UC) and certain co-inventors (Assignee Co-Founders), in which we paid $212,000 in cash and common stock. As a result of these payments and pursuant to the agreements, we acquired worldwide, exclusive, fully paid up rights in know-how, pre-clinical data, development data and certain patent portfolios that relate to, and form the basis of, our technology. Under these agreements, we are not required to make any other future payments, including fees or other reimbursements, milestones, or royalties, to JHU, UC, or the Assignee Co-Founders.

 

Amortization expense recorded during the years ended December 31, 2019 and 2018 was approximately $33,000 and $17,000 for the years ended December 31, 2019 and 2018, respectively. Intangibles have been fully amortized at December 31, 2019. 

 

NOTE 6 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

    December 31,
    2019   2018
         
Accrued compensation and benefits   $ 1,326     $ 1,326  
Accrued research and development     233       188  
Accrued other     307       300  
Total accrued expenses   $ 1,866     $ 1,814  

 

F-12

 

 

NOTE 7 – DERIVATIVE LIABILITY

 

We account for equity-linked financial instruments, such as our convertible preferred stock, convertible debentures and our common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the respective agreement. Equity-linked financial instruments are accounted for as derivative liabilities, in accordance with ASC Topic 815 – Derivatives and Hedging, if the instrument allows for cash settlement or issuance of a variable number of shares. We classify derivative liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant.

 

We have issued convertible debentures which contain a variable conversion feature, anti-dilution protection and other conversion price adjustment provisions. As a result, the Company assessed its outstanding equity-linked financial instruments and concluded that the convertible notes are subject to derivative accounting. The fair value of the conversion feature is classified as a liability in the financial statements, with the change in fair value during the periods presented recorded in the statement of operations.

 

 

During the years ended December 31, 2019 and 2018, we recorded gains of approximately $0.3 million and $1.1 million, respectively, related to the change in fair value of the derivative liabilities during the periods. For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuations of the derivatives at December 31, 2019 are as follows:

 

 

    2019  
Volatility     238% - 264 %
Expected term (years)     3 - 11 months  
Risk-free interest rate     1.55% – 1.6 %
Dividend yield     None  

 

As of December 31, 2019 and 2018, the derivative liability recognized in the financial statements was approximately $1.8 million and $2.1 million, respectively.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

Inspyr currently does not have any ongoing leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.

 

There was no rent expense for the years ended December 31, 2019 and 2018, respectively.

 

Legal Matters

 

The Company is subject at times to legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

 

F-13

 

 

 

NOTE 9 – CAPITAL STOCK AND STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

As of December 31, 2019, there were outstanding 133.8 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, 290.4 shares of Series C Preferred Stock and 5,000 shares of Series D Preferred Stock.

  

During December 2018, we designated 5,000 shares of preferred stock as Series D 0% Convertible Preferred Stock (the “Series D Preferred Stock”). Each share of Preferred Stock has a par value of $0.0001 per share and a stated value equal to $1.00 (the “Stated Value”).

 

With respect to a vote of stockholders to approve a reverse split of the Common Stock to occur no later than December 31, 2019, only, each share of Series D Preferred Stock held by a Holder, as such, was entitled to 30,001 votes. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series D Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series D Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Series D Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

Each share of Series D Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Series D Preferred Stock by the Conversion Price. As of December 31, 2019, the Conversion Price is $0.125 per share of Series D Preferred Stock.

 

In December 2015, we issued 1,853 shares of our Series A 0% Convertible Preferred Stock (the “Series A Preferred Stock”), with a stated value of $1,000 per share and the common shares are issuable pursuant to conversion of the Series A Preferred Stock at a conversion price of $112.50 per share as of December 31, 2019, subject to a 9.99% beneficial ownership limitation and subject to adjustment pursuant to stock splits and dividends. The Series A Preferred Stock was subject to adjustment pursuant to anti-dilution protection for subsequent equity sales for a period of 18 months from the effective date of the registration statement registering the shares underlying the Series A Preferred Stock, or until July 29, 2017.

 

In December 2016, we issued 1,000 shares of our Series B 0% Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 per share and the common shares are issuable pursuant to conversion of the Series B Preferred Stock at a conversion price of $18.75 per share as of December 31, 2019, subject to beneficial ownership limitations and subject to adjustment pursuant to stock splits and dividends, and subject to adjustment pursuant to anti-dilution protection for subsequent equity sales and other conversion price adjustments.

  

In March and April 2017, issued 290.43148 shares of Series C 0% Convertible Preferred Stock (the “Series C Preferred Stock”). The Series C Preferred Stock has a stated value of $1,000 and the common shares issuable pursuant to conversion of the Series C Preferred Stock at a conversion price of $18.75 per share as of December 31, 2019, subject to certain beneficial ownership limitations and subject to adjustment pursuant to stock splits and dividends, and pursuant to anti-dilution protection for subsequent equity sales for a period of twelve (12) months from the issuance of the Series C Preferred Stock. 

 

 

During January 2019, we issued the 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000.

 

As a result past equity financings and conversions of debentures, the conversion prices of (i) our Series A Preferred Stock has been reduced to $13.25 per share at December 31, 2019, (ii) our Series B Preferred Stock has been reduced to $0.01 per share at December 31, 2019, (iii) 200 shares of our Series C preferred stock has been reduced to $0.50 per share at December 31, 2019, (iv) 90.43418 shares of our Series C Preferred Stock has been reduced to $0.25 per share at December 31, 2019, and (v) our Series D Preferred stock has been reduced to $0.125 per share at December 31, 2019.

 

F-14

 

 

Equity Financings

 

March 2017 Offering

 

In March, 2017, we sold $200,000 of the Company’s securities consisting of 200 shares of Series C Preferred Stock and an aggregate of 32,001 common stock purchase warrants as described below. The Series C Preferred Stock has a stated value of $1,000 and as of December 31, 2019, is convertible into 400,000 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at a conversion price equal to $0.50 per share for 200 shares of Series C Preferred stock and $0.25 per share for 90.43418 shares of Series C Preferred stock, subject to adjustment. The Conversion Price is subject to adjustment pursuant to stock splits and dividends. The Series C Preferred Stock has anti-dilution protection until the twelve (12) month anniversary of the issuance of the Series C Preferred Stock.

 

The Investors also received an aggregate of approximately: (i) 10,667 Series M common stock purchase warrants (“Series M Warrants”), (ii) 10,667 Series N common stock purchase warrants (“Series N Warrants”) and (iii) 10,667 Series O common stock purchase warrants (“Series O Warrants”) (collectively, the “Warrants”). The Series M Warrants have an exercise price of $0.50 per share (as of December 31, 2019), subject to adjustment, and a term of five (5) years from the date of issuance, the Series N Warrants had an exercise price of $18.75 per share upon issuance, subject to adjustment, and a term of six (6) months from the date of issuance and the Series O warrants had an exercise price of $18.75 upon issuance, subject to adjustment, and a term of twelve (12) months from the date of issuance. The Series N and Series O Warrants have both expired. The Warrants are immediately exercisable and separately transferable from the Series C Preferred Stock. In the event that the shares underlying the Warrants are not subject to a registration statement at the time of exercise, the Warrants may be exercised on a cashless basis after 6 months from the issuance date. The Warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions. Additionally, the Warrants contain anti-dilution protection until the twelve (12) month anniversary of the issuance date.

 

April 2017 Offering

 

In April 2017, we sold $90,431 of the Company’s securities consisting of 90.43148 shares of Series Preferred Stock and an aggregate of 14,469 common stock purchase warrants as described below. The Series C Preferred Stock has a stated value of $1,000 and as of December 31, 2019, is convertible into approximately 361,737 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at a conversion price equal to $0.25, subject to adjustment. The Conversion Price is subject to adjustment pursuant to stock splits and dividends. The Series C Preferred Stock has anti-dilution protection until the twelve (12) month anniversary of the issuance of the Series C Preferred Stock.

 

The Investors also received an aggregate of approximately: (i) 4,823 Series M Warrants, (ii) 4,823 Series N Warrants and (iii) 4,823 Series O Warrants. The Series M Warrants have an exercise price of $0.25 per share (as of December 31, 2019), subject to adjustment, and a term of five (5) years from the date of issuance, the Series N Warrants had an exercise price of $18.75 per share upon issuance, subject to adjustment, and a term of six (6) months from the date of issuance and the Series O warrants had an exercise price of $18.75, upon issuance subject to adjustment, and a term of twelve (12) months from the date of issuance. The Series N and Series O Warrants have both expired. The Warrants are immediately exercisable and separately transferable from the Series C Preferred Stock. In the event that the shares underlying the Warrants are not subject to a registration statement at the time of exercise, the Warrants may be exercised on a cashless basis after 6 months from the issuance date. The Warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions. Additionally, the Warrants contain anti-dilution protection until the twelve (12) month anniversary of the issuance date.

 

Conversion and exercise price resets

 

As a result past equity financings and conversions of debentures, the conversion prices of (i) our Series A Preferred Stock has been reduced to $13.25 per share at December 31, 2019, (ii) 200 shares of our Series C preferred stock has been reduced to $0.50 per share at December 31, 2019, (iii) 90.43418 shares of our Series C Preferred Stock has been reduced to $0.25 per share at December 31, 2019, (iv) our Series D Preferred stock has been reduced to $0.125 per share at December 31, 2019, and (v) our Series B Preferred Stock has been reduced to $0.01 per share at December 31, 2019. The exercise prices of the outstanding warrants issued in conjunction with (i) the Series B Preferred Stock have been reduced to $0.01 per share, (ii) 200 shares of Series C Preferred Stock have been reduced to $0.50 per share, and (iii) 91.43418 shares of Series C preferred Stock have been reduced to $0.25 per share, respectively, as of December 31, 2019.

 

As a result of the reductions of the conversion prices of our preferred stock and warrants, we have recorded deemed dividends of approximately $54,000 and $196,000 during the years ended December 31, 2019 and 2018, respectively.

 

Common Stock

 

On September 17, 2019, the Company’s Board of Directors approved a one-for-twenty five (1-for-25) reverse stock split of the Company’s common stock (“Reverse Stock Split”). In furtherance of the Reverse Stock Split, the Company has filed an amended and restated certificate of incorporation with the Secretary of State of Delaware to effect the Reverse Stock Split effective as of 5:00 p.m. Eastern Time on September 30, 2019 (“Effective Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders will receive one new share of common stock for every twenty five shares such shareholder held immediately prior to the Effective Time. The Reverse Stock Split will also affect the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and will result in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio. All share and per share data has been retroactively restated in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the September 30, 2019 amendment.

 

F-15

 

 

During the year ended December 31, 2019, we issued a total of 15,265,468 shares of common stock, valued at $471,583, upon the conversion of $331,415 principal amount of our convertible debentures

 

During the year ended December 31, 2018, we issued a total of 2,947,000 shares of common stock, valued at $503,308, upon the conversion of $361,255 principal amount of our convertible debentures.

 

NOTE 10 – STOCK OPTIONS

 

Deferred Compensation Plan

 

In July of 2011, we adopted Executive Deferred Compensation Plan (the Deferred Plan). The Deferred Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the Code). The Deferred Plan is intended to be an unfunded “top hat” plan which is maintained primarily to provide deferred compensation benefits for a select group of our “management or highly compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and to therefore be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. The Deferred Plan is intended to help build a supplemental source of savings and retirement income through pre-tax deferrals of eligible compensation, which may include cash, option and stock bonus awards, discretionary cash, option and stock awards and/or any other payments which may be designated by the Deferred Plan administrator, as eligible, for deferral under the Deferred Plan from time to time. As administered, the Deferred Plan is used to defer compensation of stock awards granted under our other equity compensation plans and does not by its terms approve any grants or awards.

 

Inspyr’s Compensation Plans

 

The Company’s 2007 Equity Compensation Plan (2007 Plan), 2009 Executive Compensation Plan (2009 Plan), 2017 Equity Compensation Plan (2017 Plan), and the Inducement Award Stock Option Plan (Inducement Plan) (together, the Plans) provide for the awarding of stock grants, nonqualified and incentive stock options, restricted stock units, performance units or other stock-based awards to officers, directors, employees and consultants of the Company. The purpose of the Plans is to advance the interests of Inspyr and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability. Our Plans are administered by a committee of non-employee directors (the Committee). The Committee determines: who shall be granted awards; the vesting periods; the exercise price; and any other terms deemed appropriate for any award.

 

Our 2007 Plan is administered by our board or any of its committees. The purposes of the 2007 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2007 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2007 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. Our 2007 Plan authorizes the issuance of up to 2,000 shares of common stock for the foregoing awards per fiscal year with an aggregate of 8,000 shares of common stock available for issuance under the 2007 Plan. As of December 31, 2019, we have granted awards under the 2007 Plan equal to approximately 7,228 shares of our common stock, and 5,595 shares have been cancelled or forfeited. Accordingly, there are 6,367 shares of common stock available for future awards under the 2007 Plan. In the event of a change in control, awards under the 2007 Plan will become fully vested unless such awards are assumed or substituted by the successor corporation.

 

Our 2009 Plan, as amended is administered by our Board or any of its committees. The purpose of our 2009 Plan is to advance the interests of the Company and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability. The issuance of awards under our 2009 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2009 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock-based awards. As of December 31, 2019, our 2009 Plan authorizes the issuance of up to 8,000 shares of our common stock for the foregoing awards, and we have granted awards under the plan equal to approximately 6,595 common shares, and 4,631 shares have been cancelled or forfeited. Accordingly, there are 6,036 shares of common stock available for future awards under the 2009 Plan.

 

Our Inducement Plan is administered by our board or our compensation committee. The Plan is intended to be used in connection with the recruiting and inducement of senior management and employees. The issuance of wards under the Inducement Plan is at the discretion of the administrator which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. The Company did not seek approval of the Plan by our stockholders. Pursuant to the Inducement Plan, the Company may grant stock options for up to a total of 12,000 shares of common stock to new employees of the Company. As of December 31, 2019, 8,454 grants have been made pursuant to the Plan.

 

Our 2017 Plan is administered by our Board or any of its committees. The purpose of our 2017 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company’s business. The issuance of awards under our 2017 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2017 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock-based awards. As of December 31, 2019, our 2017 Plan authorizes the issuance of up to 80,000 shares of our common stock for the foregoing awards, and we have not granted any awards under the plan. Accordingly, there are 80,000 shares of common stock available for future awards under the 2017 Plan.

 

F-16

 

 

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the following line items in the accompanying consolidated statement of losses (in thousands):

 

    Years Ended December 31,  
    2019     2018  
Research and development   $     $ 62  
General and administrative           28  
Total stock-based compensation expense   $     $ 90  

 

During the year ended December 31, 2018, we accelerated the vesting of all unvested employee options. As of December 31, 2019, there was no unrecognized compensation cost related to non-vested stock options. 

 

The following table summarizes stock option activity for the years ended December 31, 2019 and 2018:

 

    Number of
shares
    Weighted-
average
exercise
price
    Weighted-
average
remaining
contractual term
(in years)
   

Aggregate
intrinsic
value

(in thousands)

 
                         
Outstanding at December 31, 2017     14,252     $ 186.25              
Granted         $                  
Forfeited     (1,311 )   $ 474.75                  
Outstanding at December 31, 2018     12,941     $ 157.00       3.8     $  
Granted         $                  
Forfeited     (5,255 )   $ 226.90                  
Outstanding at December 31, 2019     7,686     $ 109.37       2.9     $  
                                 
Exercisable at December 31, 2019     7,686     $ 109.37       2.9     $  

 

No options were issued or exercised during the years ended December 31, 2019 and 2018.

 

NOTE 11 – WARRANTS

 

Transactions involving our warrants are summarized as follows:

 

    Number of
shares
    Weighted-
average
exercise
price
    Weighted-
average
remaining
contractual term
(in years)
   

Aggregate
intrinsic
value

(in thousands)

 
                         
Outstanding at December 31, 2017     121,829     $ 134.75                        
Granted         $                  
Forfeited     (21,312 )   $ 396.75                  
Outstanding at December 31, 2018     100,517     $ 79.00       2.7     $ -  
Granted         $                  
Forfeited     (4,187 )   $ 904.91                  
Outstanding at December 31, 2019     96,330     $ 42.95       1.8     $ -  
                                 
Exercisable at December 31, 2019     96,330     $ 42.95       1.8     $ -  

 

No warrants were issued or exercised during the years ended December 31, 2019 and 2018.

 

As a result of recent equity financings and conversions of debentures, the exercise prices of the warrants issued in conjunction with our Series B preferred stock have been reduced to $0.01 and the warrants issued in conjunction with our Series C preferred stock have also been reduced to $0.25 - $0.50 at December 31, 2019.

 

F-17

 

 

The following table summarizes outstanding common stock purchase warrants as of December 31, 2019: 

 

    Number of
shares
    Weighted-
average
exercise
price
    Expiration
Issued to consultants     3,758     $ 69.57     January 2020 through August 2023
Issued pursuant to 2015 financings     18,415     $ 210.00     July 2020 through December 2020
Issued pursuant to 2016 financings     58,667     $ 0.01     December 2021
Issued pursuant to 2017 financings     15,490     $ 0.42     March 2022 through April 2022
      96,330              

 

NOTE 12 – CONVERTIBLE DEBENTURES AND NOTES

 

Effective September 30 2019, Sabby Healthcare Master Fund, Ltd and Sabby Volatility Warrant Master Fund, Ltd. waived certain events of default under debentures and notes issued in our December 2018 note offering, July 2018 debenture offering and September 2017 debenture offering (collectively, the “Debenture Offerings”) and extended the maturity date of such debentures until March 31, 2020 in exchange for the issuance of $96,000 in new debentures with substantially the same terms as those issued in our Debenture Offerings. The debentures were issued in October 2019. The debentures mature on October 1, 2020. These maturity dates of these instruments were extended until July 16, 2020 (see Note 14 – Subsequent Events).

 

Sabby Volatility Warrant Master Fund, Ltd. has paid certain of our accounts payable in the amount of $26,235. We issued $26,235 in new debentures with substantially the same terms as those issued in our Debenture Offerings. The debentures were issued in November 2019. The debentures mature November 20, 2020.

 

On July 16, 2019, we entered into securities purchase agreements (“Securities Purchase Agreement”) with certain institutional investors (the “Investors”). Pursuant to the Securities Purchase Agreement, we issued an aggregate of $154,000 of senior convertible debentures (“Debentures”) in exchange for the extension of the maturity date of our December 2018 convertible notes and certain of our July 2018 and September 2017 convertible debentures, and the waiver of certain default provisions of our July 2018 and September 2017 convertible debentures. We have charged $154,000 to finance cost at the date of issuance.

 

The Debentures (i) are non-interest bearing, (ii) have a maturity date one (1) year from the date of issuance and (iii) are convertible into shares of our common stock at the election of the Investor at any time, subject to a beneficial ownership limitation of 4.99% which may be increased to 9.99% by the Investor upon 61 days’ notice. The Debentures will have a conversion price equal to the lesser of (i) $8.25 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date and (b) the volume weighted average price on a conversion date. The Debentures also contain provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Investors will also have the right to participate in subsequent rights offerings and pro rata distributions. Additionally, the Debentures contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of the Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as more fully described in the Debentures.

 

Furthermore, without the approval of the Investors holding at least 67% of the then outstanding principal amount of the Debentures, the Company may not (i) amend its charter documents in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares of its Common Stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any equity securities of the Company. The Company is also required under the Securities Purchase Agreement to hold a shareholder meeting by January 3, 2019 in order to increase the number of authorized shares of Common Stock of the Company such that there are sufficient shares of Common Stock available for issuance underlying the Debentures upon their conversion in full. The Company is also obligated under the Securities Purchase Agreement to pay Investors, as partial liquidated damages, a fee of 2.0% of each Investor’s initial principal amount of such Investor’s Debenture in cash upon our failure to have current public information available beginning six (6) months after the issuance date of the Debentures.

 

The Investors were additionally given a right of participation in future offerings for a period of up to eighteen (18) months from the date on which the shares underlying the Debentures are registered. The Securities Purchase Agreement also prohibits us from issuing any common stock, subject to certain exemptions, for a period of 60 days following the closing of the Offering, without the written approval of the Investors owning at least 50.1% of the securities issued in the Offering. Additionally, until the twelve month anniversary of the registration of the shares underlying the Debentures, we are prohibited from entering into any agreement to effect any issuance of common stock in a variable rate transaction.

 

On December 13, 2018 we issued an aggregate of $25,000 in convertible promissory notes (“Notes”) for cash proceeds of $25,000. The Notes will mature on the earlier of (i) June 30, 2019 or (ii) such time as we raise capital in exchange for the sale of securities (“Maturity Date”) and bear interest at 10% per year, payable on the Maturity Date. Pursuant to the terms of the Notes, the Notes may be converted into shares of common stock upon an Event of Default (as such term is defined in the Notes) or upon the Maturity Date at the election of the holder at a price per share equal to 75% of the lowest trade price of our common stock on the trading day immediately prior to the date such exchange is exercised by the holder. The maturity date of the debentures has been extended to July 16, 2020 (see Note 14).

 

F-18

 

 

On July 3, 2018, we entered into securities purchase agreements (“Securities Purchase Agreement”) with certain institutional investors (the “Investors”). Pursuant to the Securities Purchase Agreement, we sold an aggregate of $515,000 of senior convertible debentures (“Debentures”) consisting of $500,000 in cash and the cancellation of $15,000 of obligations of the Company (the “Offering”). Pursuant to the terms of the Securities Purchase Agreement, we will issue $515,000 in principal amount of Debentures.

 

The Debentures (i) are non-interest bearing, (ii) have a maturity date one (1) year from the date of issuance and (iii) are convertible into shares of our common stock at the election of the Investor at any time, subject to a beneficial ownership limitation of 4.99% which may be increased to 9.99% by the Investor upon 61 days’ notice. The Debentures will have a conversion price equal to the lesser of (i) $8.25 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date and (b) the volume weighted average price on a conversion date. The Debentures also contain provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Investors will also have the right to participate in subsequent rights offerings and pro rata distributions. Additionally, the Debentures contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of the Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as more fully described in the Debentures. The maturity date of the debentures has been extended to July 16, 2020 (see Note 14).

 

Furthermore, without the approval of the Investors holding at least 67% of the then outstanding principal amount of the Debentures, the Company may not (i) amend its charter documents in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares of its Common Stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any equity securities of the Company. The Company is also required under the Securities Purchase Agreement to hold a shareholder meeting by January 3, 2019 in order to increase the number of authorized shares of Common Stock of the Company such that there are sufficient shares of Common Stock available for issuance underlying the Debentures upon their conversion in full. The Company is also obligated under the Securities Purchase Agreement to pay Investors, as partial liquidated damages, a fee of 2.0% of each Investor’s initial principal amount of such Investor’s Debenture in cash upon our failure to have current public information available beginning six (6) months after the issuance date of the Debentures.

 

The Investors were additionally given a right of participation in future offerings for a period of up to eighteen (18) months from the date on which the shares underlying the Debentures are registered. The Securities Purchase Agreement also prohibits us from issuing any common stock, subject to certain exemptions, for a period of 60 days following the closing of the Offering, without the written approval of the Investors owning at least 50.1% of the securities issued in the Offering. Additionally, until the twelve month anniversary of the registration of the shares underlying the Debentures, we are prohibited from entering into any agreement to effect any issuance of common stock in a variable rate transaction.

 

On September 12, 2017 we entered into an exchange agreement (“Exchange Agreement”) with certain holders (the “Investors”) of our Series A 0% Convertible Preferred Stock (“Series A Shares”) and Series B 0% Convertible Preferred Stock (“Series B Shares”). Pursuant to the terms of the Exchange Agreement, we issued to the investors approximately $2.5 million in principal amount of senior convertible debentures (“Debentures”) in exchange for 1,614.8125 Series A Shares with a stated value of approximately $1.6 million and 890 Series B Shares with a stated value of approximately $0.9 million.

 

On September 12, 2017, we sold an aggregate of $320,000 of our Debentures. The sale consisted of $250,000 in cash and the cancellation of $70,000 of obligations of the Company.

 

The Debentures to be issued to the Investors (i) are non-interest bearing, (ii) have a maturity date of September 12, 2018 and (iii) are convertible into shares of common stock (“Common Stock”) of the Company at the election of the Investor at any time, subject to a beneficial ownership limitation of 4.99% which may be increased to 9.99% by the Investor upon 61 days’ notice. The Debentures will have a conversion price equal to the lesser of (i) $8.25 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date and (b) the volume weighted average price on a conversion date. The maturity date of the debentures has been extended to July 16, 2020 (see Note 14).

 

The Debentures also contain provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Investors will also have the right to participate in subsequent rights offerings and pro rata distributions. Additionally, the Debentures contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of the Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as more fully described in the Debentures.

 

Furthermore, without the approval of the Investors holding at least 67% of the then outstanding principal amount of the Debentures, the Company may not (i) amend its charter documents in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares of its Common Stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any equity securities of the Company.

 

The Company is also obligated pay Investors, as partial liquidated damages, a fee of 2.0% of each Investor’s initial principal amount of such Investor’s Debenture in cash upon our failure to have current public information available. This requirement has been waived by the Investors through July 16, 2020 (see Note 14).

 

F-19

 

 

In connection with the Offering, the Investors also entered in a registration rights agreement (“Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement with the Securities and Exchange Commission (“the Commission”) within 45 days from the date of the Registration Rights Agreement to register the resale of 100% of the shares of Common Stock underlying the Debentures and to maintain the effectiveness thereunder. The Company also agreed to have the registration statement declared effective within 75 days from the date of the Registration Rights Agreement and keep the registration statement continuously effective until the earlier of (i) the date after which all of the securities to be registered thereunder have been sold, or (ii) the date on which all the securities to be registered thereunder may be sold without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 under the Securities Act of 1933, as amended. We are also obligated to pay the Investors, as partial liquidated damages, a fee of 1.5% of each Investor’s subscription amount per month in cash upon the occurrence of certain events, including our failure to file and / or have the registration statement declared effective within the time periods provided. This requirement has been waived by the Investors through July 16, 2020 (see Note 14).

 

The Investors were additionally given a right of participation in future offerings for a period of up to eighteen months from the date in which the shares underlying the Debentures are registered as contemplated in the Registration Rights Agreement. The Securities Purchase Agreement also prohibits the Company from issuing any Common Stock, subject to certain exemptions, for a period of 60 days following the closing of the Offering, without the written approval of the Investors owning at least 50.1% of the securities issued in the Offering. Additionally, until the twelve (12) month anniversary of such effectiveness of the registration statement as contemplated in the Registration Rights Agreement, the Company is prohibited from entering into any agreement to effect any issuance of Common Stock in a variable rate transaction.

 

NOTE 13 — INCOME TAXES

 

The Company had, subject to limitation, $41.2 million of net operating loss carryforwards at December 31, 2019, of which $39.9 million will expire at various dates through 2037. In addition, the Company has research and development tax credits of approximately $458,000 at December 31, 2019 available to offset future taxable income, which will expire from 2028 through 2037. We have provided a 100% valuation allowance for the deferred tax benefits resulting from the net operating loss carryover and our tax credits due to our lack of earnings history. In addressing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The valuation allowance increased by approximately $241,000 and $178,000 for the years ended December 31, 2019 and 2018, respectively. Significant components of deferred tax assets and liabilities are as follows (in thousands):

 

    2019     2018  
Deferred tax assets:            
Net operating loss carryover   $ 8,838     $ 8,597  
Stock-based compensation     1,920       1,920  
Accrued compensation     334       334  
Other     30       30  
Tax credits     458       458  
Total deferred tax assets     11,580       11,339  
Less: valuation allowance     (11,580 )     (11,339 )
Net deferred tax assets   $     $  

 

The actual tax benefit differs from the expected tax benefit for the years ended December 31, 2019 and 2018 (computed by applying the U.S. Federal Corporate tax rate of 21% to income before taxes) are as follows:

 

    2019     2018  
Statutory federal income tax rate     (21.0 )%     (21.0 )%
State income taxes, net of federal benefits     (7.0 )%     (7.0 )%
Non-deductible items     2.2 %     (1,418.0 )%
Valuation allowance     25.8 %     1,446.0 %
Effective income tax rate     %     %

 

The Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.

 

F-20

 

 

NOTE 14 – SUBSEQUENT EVENTS

 

On March 11, 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (COVID-19) outbreak, which has led to a global health emergency. The extent of the public-health impact of the outbreak is currently unknown and rapidly evolving, and the related health crisis could adversely affect the global economy, resulting in an economic downturn. Any disruption of the Company’s facilities or those of our suppliers could likely adversely impact the Company’s operations. At this time, there is significant uncertainty relating to the potential effect of the novel coronavirus on our business.

 

Between January 1, 2020 and March 31, 2020, the Company issued an aggregate of 131,351,247 shares of common stock upon the conversion of $451,662 principal amount of debentures.

 

On March 6, 2020, the Company sold an aggregate of $250,000 of senior convertible debentures (“Debentures”) for cash to existing accredited institutional investors of the Company (the “Offering”). The Debentures issued (i) are non-interest bearing, (ii) have a maturity date of July 16, 2020 and (iii) are convertible into shares of common stock (“Common Stock”) of the Company at the election of the Investor at any time, subject to a beneficial ownership limitation of 4.99% which may be increased to 9.99% by the holder upon 61 days’ notice. The Debentures will have a conversion price equal to the lesser of (i) $0.33 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date and (b) the volume weighted average price on a conversion date.

 

The Debentures also contain provisions providing for an adjustment in the event of stock splits or dividends, and fundamental transactions. The Investors will also have the right to participate in subsequent rights offerings and pro rata distributions. Additionally, the Debentures contain anti-dilution protection in the event of subsequent equity sales at a price that is lower than the then applicable conversion price until such time that the Debentures are no longer outstanding. Additionally, the Company has the option to redeem some or all of the Debentures for cash upon notice of twenty (20) trading days provided certain conditions are met by the Company as more fully described in the Debentures.

 

Furthermore, without the approval of the Debenture holders holding at least 67% of the then outstanding principal amount of the Debentures, the Company may not (i) amend its charter documents in any manner that adversely affects the rights of any Investor, (ii) repay or repurchase or acquire shares of its Common Stock, (iii) repay, repurchase, or acquire certain indebtedness, or (iv) pay cash dividends or distributions on any equity securities of the Company.

 

Effective March 6, 2020, Sabby Healthcare Master Fund, Ltd and Sabby Volatility Warrant Master Fund, Ltd. waived certain events of default under debentures and notes issued in our December 2018 note offering, July 2018 debenture offering and September 2017 debenture offering (collectively, the “Debenture Offerings”) and extended the maturity date of such debentures until July 16, 2020.

 

On May 2, 2020, we sold 5,000 shares of Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of $5,000. Each share of Series E Preferred Stock has stated value of $1.00. The Series E Preferred Stock is convertible, at any time after the Original Issue Date at the option of the Holder into that number of shares of Common Stock (Subject to the limitations set forth in Section 6(d) of the certificate of designation of the Series E Preferred Stock), determined by dividing the stated value by the then in effect conversion price. As of the date of issuance, the conversion price is $0.01 per share.

 

With respect to a vote of stockholders to approve a reverse split of the Common Stock to occur no later than December 31, 2022 only, each share of Series E Preferred Stock held by a holder, as such, is entitled to 100,000 votes. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series E Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series E Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Series E Preferred Stock shall vote together with the holders of Common Stock as a single class. 

 

F-21

 

 

INDEX TO EXHIBITS

 

            Incorporated by Reference
Exhibit No.   Description   Filed
Herewith
  Form   Exhibit No.   File No.   Filing Date
                         
3.01(i)   Amended and Restated Certificate of Incorporation dated September 4, 2013       8-K   3.01   333-153829   9/6/13
                         
3.02(i)   Amendment to the Amended and Restated Certificate of Incorporation, effective August 1, 2016       8-K   3.01   333-153829   8/2/16
                         
3.03(i)   Amended and Restated Certificate of Incorporation dated October 21, 2016       8-K   3.01(i)   000-55331   11/10/16
                         
3.04(i)   Amended and Restated Certificate of Incorporation, effective September 30, 2019       8-K   3.01(i)   000-55331   9/30/19
                         
3.05(ii)   Amended and Restated Bylaws       8-K   3.02   333-153829   1/11/10
                         
3.06(i)   Certificate of Designation of Preferences, Rights and Limitations of Series A 0% Convertible Preferred Stock       8-K   3.01   000-55331   12/23/15
                         
3.07(i)   Certificate of Designation of Preferences, Rights and Limitations of Series B 0% Convertible Preferred Stock       8-K   3.01   000-55331   12/12/16
                         
3.08(i)   Certificate of Designation of Preferences, Rights and Limitations of Series C 0% Convertible Preferred Stock       8-K   3.01   000-55331   3/20/17
                         
3.09(i)   Certificate of Designation of Preferences, Rights and Limitations of Series D 0% Convertible Preferred Stock       10-K   3.08(i)   000-55331   4/26/19
                         
3.10(i)   Certificate of Designation of Preferences, Rights and Limitations of Series E 0% Convertible Preferred Stock   *                
                         
  4.01     Specimen of Common Stock Certificate       S-1   4.01   333-153829   10/03/08
                         
4.02    Form of Series A Preferred Stock Certificate       8-K    4.01   000-55331   12/23/15
                         
4.03   Form of Series B Preferred Stock Certificate       8-K   4.01   000-55331   12/12/16
                         
4.04   Form of Series C Preferred Stock Certificate       8-K   4.01   000-55331   3/20/17
                         
  4.05**   Amended and Restated GenSpera 2007 Equity Compensation Plan amended January 2010       8-K   4.01   333-153829   1/11/10
                         
  4.06**   GenSpera / Inspyr Therapeutics Form of 2007 Equity Compensation Plan Option Grant, 2009 Executive Compensation Plan Option Grant and 2017 Equity Compensation Plan Option Grant       8-K   4.02   333-153829   9/09/09
                         
4.07**   Amended and Restated 2009 Executive Compensation Plan amended on March 25, 2013       10-K   4.11   333-153829   3/29/13

 

45

 

  

   4.08**   Form of 2007 Equity Compensation Plan Restricted Stock Grant, 2009 Executive Compensation Plan Restricted Stock Grant and 2017 Equity Compensation Plan Restricted Stock Grant       S-8   4.03   333-171783   1/20/11
                         
4.09**   Form of 2007 Equity Compensation Plan Restricted Stock Unit Agreement, 2009 Executive Compensation Plan Restricted Stock Unit Agreement and 2017 Equity Compensation Plan Restricted Stock Unit Agreement       10-K   4.22   333-153829   3/30/11
                         
  4.10**   Form of Executive Deferred Compensation Plan       8-K   99.01   333-153829   7/08/11
                         
4.11   Form of Securities Purchase Agreement for August 2013 Offering       8-K   10.02   333-153829   8/20/13
                         
4.12   Form of Warrant from August 2013 Offering       8-K   10.04   333-153829   8/20/13
                         
4.13   Form of Series A, B and C Common Stock Purchase Warrant for May 2014 Registered Offering       S-1/A   4.34   333-194687   5/22/14
                         
4.14   Form of Securities Purchase Agreement for May 2014 Registered Offering       S-1/A   10.12   333-194687   5/22/14
                         
4.15   Form of Series D Common Stock Purchase Warrant for June 2014 Private Placement       10-Q   4.36   333-153829   8/8/14
                         
4.16   Form of Securities Purchase Agreement for June 2014 Private Placement       10-Q   4.37   333-153829   8/8/14
                         
4.17   Form of Consultant Common Stock Purchase Warrant issued February, August 2014, January 2015 and May 2015       10-Q   4.38   333-153829   8/8/14
                         
4.18   Form of Securities Purchase Agreement for July 2015 Private Placement       8-K   10.01   000-55331   7/6/15
                         
4.19   Form of Registration Rights Agreement for July 2015 Private Placement       8-K   10.02   000-55331   7/6/15
                         
4.20   Form of Series D and E Common Stock Purchase Warrants for July 2015 Private Placement       8-K   10.03   000-55331   7/6/15

 

46

 

 

4.21   Form of Securities Purchase Agreement for December 2015 Private Placement       8-K   10.01   000-55331   12/23/15
                         
4.22   Form of Registration Rights Agreement for December 2015 Private Placement       8-K   10.02   000-55331   12/23/15
                         
4.23   Form of Series F and Series G Common Stock Purchase Warrants for December 2015 Private Placement       8-K   10.03   000-55331   12/23/15
                         
4.24   Form of Series H and I Common Stock Purchase Warrants for December 2015 Private Placement       8-K   10.05   000-55331   12/23/15
                         
4.25   Form of Amendment Agreement from December 2015 Private Placement       8-K   10.04   000-55331   12/23/15
                         
4.26**   Inducement Stock Option Plan adopted 7/15/2016       8-K   4.01   000-55331   7/20/16
                         
4.27**   Form of Inducement Award non-Qualified Stock Option Grant       8-K   4.01   000-55331   7/20/16
                         
4.28   Form of Securities Purchase Agreement for December 2016 Private Placement       8-K   10.01   000-55331   12/12/16
                         
4.29   Form of Registration Rights Agreement for December 2016 Private Placement       8-K   10.02   000-55331   12/12/16
                         
4.30   Form of Series J, K and L Warrants for December 2016 Private Placement       8-K   10.03   000-55331   12/12/16
                         
4.31   Form of Common Stock Purchase Warrant issued to 3rd party pursuant to Mr. Lowe’s Employment Agreement       S-1   4.41   333-215561   1/13/17
                         
4.32   Form of Securities Purchase Agreement for March 2017 – April 2017 Private Placement       8-K   10.01   000-55331   3/20/16
                         
4.33   Form of Series M, N and O warrants for March 2017 – April 2017 Private Placement       8-K   10.02   000-55331   3/20/16
                         
4.34**   2017 Equity Compensation Plan adopted 11/1/17       8-K   4.01   000-55331   11/3/17
                         
4.35   Form of Series D Preferred Stock Certificate       10-K   4.45   000-55331   4/26/19
                         
4.36   Form of Series E Preferred Stock Certificate   *                
                         
 10.01     Exclusive Supply Agreement between GenSpera and Thapsibiza dated April 2012 that expires April 6, 2022       10-K    10.01     333-153829   3/29/13 
                         
10.02**   Form of Indemnification Agreement with Directors and Officers       8-K   10.01   000-55331   9/12/16
                         
10.03**   Russell Richerson Employment Agreement       8-K   10.08   333-153829   9/09/09
                         
 10.04**   Amendment dated May 14, 2010 to the Employment Agreement of Russell Richerson       10-Q   10.08   333-153829   8/13/10

 

47

 

 

 10.05**   Independent Director Agreement       8-K   10.01   333-153892   06/1/12
                         
10.06   Engagement Letter with H.C. Wainwright for May 2014 Registered Offering       S-1/A   10.11   333-194687   5/22/14
                         
 10.07**   Christopher Lowe employment Agreement       8-K   10.01   000-55331   8/05/16
                         
10.08**   Form of Proprietary Information, Inventions and Competition Agreement       8-K   10.01   000-55331   8/10/16
                         
10.09**   Ronald Shazer Employment Agreement       8-K   10.01   000-55331   8/10/16
                         
10.10**   Form of Separation Agreement with Russell Richerson dated February 28, 2017       8-K   10.01   000-55331   3/03/17
                         
10.11   Form of Share Exchange Agreement between Inspyr Therapeutics and Lewis & Clark Pharmaceuticals       8-K   10.01   000-55331   8/03/17
                         
10.12   Form of Share Escrow Agreement pursuant to Lewis & Clark Share Exchange Transaction       8-K   10.02   000-55331   8/03/17
                         
10.13   Form of Exchange Agreement for September 2017 Private Placement       8-K   10.01   000-55331   9/12/17
                         
10.14   Form of Senior Convertible Debenture due 9/12/18 issued pursuant to Exchange Agreement       8-K   10.02   000-55331   9/12/17
                         
10.15   Form of Securities Purchase Agreement for September 2017 Private Placement       8-K   10.01   000-55331   9/12/17
                         
10.16   Form of Senior Convertible Debenture due 9/12/17 issued pursuant to Securities Purchase Agreement       8-K   10.02   000-55331   9/12/17
                         
10.17   Form of Registration Rights Agreement entered into 9/12/17       8-K   10.03   000-55331   9/12/17
                         
10.18   Form of Securities Purchase Agreement for July 2018 Private Placement       8-K   10.01   000-55331   7/3/18
                         
10.19   Form of Debenture for July 2018 Private Placement       8-K   10.02   000-55331   7/3/18
                         
10.20   Form of Securities Purchase Agreement for January 2019 Preferred Stock Offering       10-K   10.23   000-55331   4/26/19
                         
10.24   Form of Debenture for March 2020 Private Placement       8-K   10.01   000-55331   3/6/20
                         
10.25   Form of Securities Purchase Agreement for May 2020 Preferred Stock Offering   *                
                         
14.01   Code of Ethics       10-K   14.01   000-55331   4/26/19
                         
21.01   List of Subsidiaries of Registrant       10-K   21.01   000-55331   4/26/19
                         
23.01   Consent of Liggett & Webb, P.A.    *                

  

48

 

 

31.1   Certification of the Principal Executive Officer Pursuant to Section 3.02 of the Sarbanes-Oxley Act of 2002.   *                
                         
31.2   Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   *                
                         
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C § 1350.   *                
                         
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C § 1350.   *                
                         
99.01   Audit Committee Charter       10-K   99.01   000-55331   4/26/19
                         
99.02   Leadership Development and Compensation Committee Charter       10-K   99.02   000-55331   4/26/19
                         
99.03   Nominating and Governance Committee Charter       10-K   99.03   000-55331   4/26/19
                         
101.INS     XBRL Instance Document                  
                         
101.SCH    XBRL Taxonomy Extension Schema                  
                         
101.CAL    XBRL Taxonomy Extension Calculation Linkbase                  
                         
101.DEF    XBRL Taxonomy Extension Definition Linkbase                  
                         
101.LAB    XBRL Taxonomy Extension Label Linkbase                  
                         
101.PRE    XBRL Taxonomy Extension Presentation Linkbase                   

 

* Filed Herein
** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

 

 

49

 

 

 

Exhibit 3.10(i)

 

INSPYR THERAPEUTICS, inc.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES E 0% CONVERTIBLE PREFERRED STOCK

 

PURSUANT TO SECTION 151(g) OF THE

Delaware GENERAL CORPORATION LAW

 

The undersigned, Michael Cain does hereby certify that:

 

1. He is the President of Inspyr Therapeutics, Inc., a Delaware corporation (the “Corporation”).

 

2. The Corporation is authorized to issue 30,000,000 shares of preferred stock, of which 10,495.24398 shares are issued and outstanding.

 

3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):

 

WHEREAS, the Corporation’s certificate of incorporation provides for a class of authorized stock known as preferred stock, consisting of 30,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series at the discretion of the Board of Directors;

 

WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them;

 

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of up to 5,000 shares of the preferred stock which the Corporation has the authority to issue, as follows; and

 

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, obligations, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

 

1

 

 

TERMS OF PREFERRED STOCK

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

 

Alternate Consideration” shall have the meaning set forth in Section 7(b).

 

Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).

 

Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Commission” means the United States Securities and Exchange Commission.

 

Common Stock” means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

 

Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Conversion Date” shall have the meaning set forth in Section 6(a).

 

Conversion Price” shall have the meaning set forth in Section 6(b).

 

Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Fundamental Transaction” shall have the meaning set forth in Section 7(b).

 

Holder” shall have the meaning given such term in Section 2.

 

New York Courts” shall have the meaning set forth in Section 8(c).

 

Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

 

Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Preferred Stock” shall have the meaning set forth in Section 2.

 

2

 

 

Securities” means the Preferred Stock and the Underlying Shares.

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Share Delivery Date” shall have the meaning set forth in Section 6(c).

 

Stated Value” shall have the meaning set forth in Section 2.

 

Subscription Agreement” means the Subscription Agreement, dated as of the Original Issue Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

Subscription Amount” shall mean, as to the Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to the Subscription Agreement, but not including the amount paid for the Common Stock, as specified below Holder’s name on the signature page of the Subscription Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Subscription Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Subscription Agreement.

 

Successor Entity” shall have the meaning set forth in Section 7(b).

 

Trading Day” means a day on which the principal Trading Market is open for business.

 

Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Markets or any inter-dealer quotation system (or any successors to any of the foregoing).

 

Transaction Documents” means this Certificate of Designation, the Subscription Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Subscription Agreement.

 

Transfer Agent” means American Stock Transfer & Trust Company, the current transfer agent of the Corporation with a mailing address of 59 Maiden Lane, New York, NY 10038 and a phone number of (718) 921-8201, and any successor transfer agent of the Corporation.

 

Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock.

 

Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series E 0% Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be 5,000 (which shall be subject to increase without the consent of all of the holders of the Preferred Stock (each a “Holder” and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $1.00 (the “Stated Value”).

 

Section 3. Dividends. Except for stock dividends or distributions for which adjustments are to be made pursuant to Section 7, Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, without regard to any conversion limitations herein) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid on shares of Preferred Stock.

 

3

 

 

Section 4. Voting Rights.

 

a) With respect to a vote of stockholders to approve a reverse split of the Common Stock to occur no later than December 31, 2022, only, each share of Series E Preferred Stock held by a Holder, as such, shall be entitled to the whole number of votes equal to 100,000 shares of Common Stock.

 

b) On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

Section 5. Reserved.

 

Section 6. Conversion.

 

a) Conversions at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.

 

b) Conversion Price. The conversion price for the Preferred Stock shall equal $0.01 subject to adjustment herein (the “Conversion Price”).

 

c) Mechanics of Conversion.

 

i. Delivery of Conversion Shares Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock, and (B) a bank check in the amount of accrued and unpaid dividends, if any.

 

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ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

iii. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Subscription Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

iv. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

v. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d) Beneficial Ownership Limitation. The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.

 

Section 7. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

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b) Fundamental Transaction. If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 65% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents (as defined in the Subscription Agreement) in accordance with the provisions of this Section 7(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.

 

c) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

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d) Notice to the Holders Regarding Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

Section 8. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above Attention: Corporate Secretary facsimile number (805) 553-9783 email address rsilvestre@silvestrelaw.com, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 8. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Subscription Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

 

c) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, stockholder, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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d) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.

 

e) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

f) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

g) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

 

h) Status of Converted or Redeemed Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Subscription Agreement. If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series E 0% Convertible Preferred Stock.

 

*********************

 

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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF, the undersigned have executed this Certificate this 30th day of April, 2020.

 

   

Name: Michael Cain

Title: President

     

 

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ANNEX A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert Shares of Preferred Stock)

 

The undersigned hereby elects to convert the number of shares of Series E 0% Convertible Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common Stock”), of Inspyr Therapeutics Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Subscription Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion: _____________________________________________

 

Number of shares of Preferred Stock owned prior to Conversion: _________________

 

Number of shares of Preferred Stock to be Converted: _________________________

 

Stated Value of shares of Preferred Stock to be Converted: _____________________

 

Number of shares of Common Stock to be Issued: ___________________________

 

Applicable Conversion Price:___________________________________________

 

Number of shares of Preferred Stock subsequent to Conversion: ________________

 

Address for Delivery: ______________________

   

  [HOLDER].
     
  By:  
    Name:
    Title:

 

 

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Exhibit 4.36

 

SE-001 Series E 0% Convertible Preferred [*] Shares

 

 

Inspyr Therapeutics, Inc.

A Delaware Corporation

 

 

THIS CERTIFIES THAT [*] is the record holder of _________ ([*]) shares of the Series E 0% Convertible Preferred Stock of Inspyr Therapeutics, Inc. transferable only on the register of said company, in person or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned.

 

This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Bylaws and the Amended and Restated Certificate of Incorporation with regard to the Series E Convertible Preferred Stock, filed on April [*] 2020, with the Delaware Secretary of State, of said corporation and any amendments thereto, to all of which the holders of this certificate, by acceptance hereof, assents. The shares represented by this certificate are subject to the legend(s) affixed to the back of this certificate.

 

A statement of all the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes and/or series of shares of stock of the corporation and upon the holders thereof may be obtained by any shareholder upon request and without charge, at the principal office of the corporation, and the corporation will furnish any shareholder, upon request and without charge, a copy of such statement.

 

WITNESS THE SEAL of the company and the signatures of its duly authorized officers this [*] day of [*], 2020.

 

 

   
Michael Cain, Chief Executive Officer  

 

 

 

 

FOR VALUE RECEIVED _____________________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO ________________ SHARES REPRESENTED BY THE WRITTEN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ____________________, ATTORNEY TO TRANSFER SAID SHARES ON THE REGISTER OF WITHIN NAMED COPRPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.

 

DATE:   .    

 

IN PRESENCE OF      
  (Witness)   (Shareholder)
 
     
      (Shareholder)

 

NOTICE: THE SIGNATURES ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

 

 

 

Exhibit 10.25

 

May 2, 2020

 

Inspyr Therapeutics, Inc.

31200 Via Colinas #200

Westlake Village, CA 91362

 

Re: Inspyr Therapeutics, Inc. - Subscription for Shares of Series E Preferred Stock

 

Ladies and Gentlemen:

 

The undersigned hereby acknowledges and agrees to the following:

 

1. The undersigned hereby subscribes for shares totaling an aggregate consideration of $5,000 of Series E Convertible Preferred Stock, par value $0.0001 per share (“Preferred Stock”), of Inspyr Therapeutics, Inc., a Delaware corporation (the “Corporation”), at a price per share equal to $1.00. The Preferred Stock shall have (i) a stated value of $1.00 per share, (ii) be convertible into common stock, par value $0.0001 of the Corporation at an initial conversion price per share of $0.01, and (iii) such rights and preferences as contained in the Certificate of Designation of Series E Convertible Preferred Stock (“COD”), filed with the Delaware Secretary of State on May 1, 2020 and as attached hereto as Exhibit A.

 

2. The undersigned (a) has a preexisting personal or business relationship with the Corporation or one or more of its officers or directors, or (b) by reason of the undersigned’s business or financial experience, or by reason of the business or financial experience of the undersigned’s financial advisor who is not affiliated with, and who is not compensated directly or indirectly by, the Corporation or any affiliate or selling agent of the Corporation, the undersigned is capable of evaluating the risks and merits of an investment in the Preferred Stock and or protecting the undersigned’s own interests in connection with the Preferred Stock;

 

3. All of the Preferred Stock so received will be taken by the undersigned for its own account as an investment and not with a view to the distribution thereof;

 

4. It is understood that the Corporation will issue the Preferred Stock without their registration under the Securities Act of 1933, as amended (the “Act”); therefore, the Preferred Stock may not be resold or transferred unless they are registered under the Act or unless an exemption from registration is available. The undersigned acknowledges that there are substantial restrictions on the transferability of the shares of Preferred Stock and accordingly, it may not be possible for the undersigned to liquidate an investment in the Corporation;

 

5. The undersigned hereby covenants and agrees that the undersigned will, from time to time if requested by the Corporation or its successors or assigns, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, to the Corporation or its successors or assigns, such and all further acts, transfers, assignments, deeds, powers and assurances of title, and additional papers and instruments, and cause to be done all acts or things as often as may be proper or necessary for better conveying, transferring and assigning of all of the property hereby conveyed, transferred or assigned, and effectively to carry out the intent hereof, and to vest in the entire right, title and interest of the undersigned in and to all of the said property, and the undersigned will warrant and defend the same to the Corporation or its successors or assigns, forever against all claims or demands whatsoever.

 

 

 

 

IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed and delivered as of the date first above written.

 

Very truly yours,

 

By:    
  James Dabbs  

 

Acknowledged and Approved by

 

INSPYR THERAPEUTICS, INC.  
   
By: Michael Cain  
Its: Chief Executive Officer  

 

 

 

 

EXHIBIT A

 

CERTIFICATE OF DESIGNATION OF SERIES E CONVERTIBLE PREFERRED STOCK

 

 

 

 

 

 

Exhibit 23.01

 

CONSENT OF INDEPENDENT REGISTERED CERTIFICATED PUBLIC ACCOUNTANTS

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (SEC File No. 333-192553) of Inspyr Therapeutics, Inc. of our report which includes an explanatory paragraph expressing substantial doubt regarding the Company’s ability to continue as a going concern dated May 14, 2020, relating to our audit of the financial statements which appear in this Annual Report on Form 10-K of Inspyr Therapeutics, Inc. for the year ended December 31, 2019 and 2018.

 

/s/ Liggett & Webb, P.A.

 

May 14, 2020

New York, New York

EXHIBIT 31.1

 

SECTION 302

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

 

I, Michael Cain, certify that:

 

(1)       I have reviewed this Annual Report on Form 10-K of Inspyr Therapeutics, Inc.;

 

(2)      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)     The registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its unconsolidated investments, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

(5)      The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

 

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 14, 2020 By: /s/  Michael Cain
    Michael Cain, Chief Executive Officer

 

EXHIBIT 31.2

 

SECTION 302

CERTIFICATION OF THE PRINCIPAL ACCOUNTING OFFICER

 

I, Michael Cain, certify that:

 

(1)      I have reviewed this Annual Report on Form 10-K of Inspyr Therapeutics Inc.;

 

(2)     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)     The registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its unconsolidated investments, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

(5)    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

 

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 14, 2020 By: /s/  Michael Cain
    Michael Cain, Principal Accounting Officer

 

EXHIBIT 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 

18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b)

(Section 906 of the Sarbanes-Oxley Act of 2002) 

 

In connection with the Annual Report of Inspyr Therapeutics, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Cain, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.

 

Date:  May 14, 2020  
   
/s/  Michael Cain  

Chief Executive Officer

Inspyr Therapeutics, Inc.

 

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

 

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 

18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b)

(Section 906 of the Sarbanes-Oxley Act of 2002)  

 

In connection with the Annual Report of Inspyr Therapeutics, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Cain, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.

 

 Date:  May 14, 2020  
   
/s/  Michael Cain  
Chief Executive Officer  
(Principal Financial and Principal Accounting Officer)  
Inspyr Therapeutics, Inc.  

  

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.