UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-K

(Mark One)

 

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2014

 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 333-153829

 

GENSPERA, 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.)
2511 N Loop 1604 W, Suite 204 San Antonio, TX	78258
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number, including area code: 210-479-8112

 

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

 

None

 

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. o Yes   x 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. o Yes   x 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.   x Yes    o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes   o 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.   x

 

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

 

Large accelerated filer   o	Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   o Yes   x 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 registrants’ most recently completed second fiscal quarter was $27,077,108. As of March 13, 2015, there were 33,548,366 shares of the registrant’s common stock outstanding.  

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

GENSPERA, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2014

 

INDEX 

 

				Page
PART I
Item 1.		Business		5
Item 1A.		Risk Factors		15
Item 1B.		Unresolved Staff Comments		25
Item 2.		Properties		25
Item 3.		Legal Proceedings		25
Item 4.		Mine Safety Disclosure		25
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
Item 6.		Selected Financial Data		28
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		34
Item 8.		Financial Statements and Supplementary Data		34
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		34
Item 9A.		Controls and Procedures		34
Item 9B.		Other Information		35
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		36
Item 11.		Executive Compensation		38
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		43
Item 13.		Certain Relationships and Related Transactions, and Director Independence		44
Item 14.		Principal Accounting Fees and Services		46
PART IV
Item 15.		Exhibits, Financial Statement Schedules		47

 

 

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,” “GenSpera” and “Registrant” refer to GenSpera, Inc. Also, any reference to “common shares,” or “common stock,” refers to our $.0001 par value common stock.

 

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 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, or industry results, 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 manage the business despite continuing operating losses and cash outflows;

 

•

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

 

•

our ability to build the management and human resources and infrastructure necessary to support the growth of our business;

 

•

competitive factors and developments beyond our control;

 

•

scientific and medical developments beyond our control;

 

•

government regulation of our business;

 

•

our ability to successfully complete our clinical trials of our proposed drug candidates and gain regulatory approval to market such products;

 

•

our ability to protect and maintain our intellectual property;

 

•

whether any of our current or future patent applications will result in issued patents;

 

•

our ability to obtain and maintain other rights to technology required or desirable for the conduct of our business; and

 

•

whether any potential strategic benefits of licensing transactions, acquisitions, or licensing of new technologies, if any, will be realized; and

 

Other factors discussed in the “Risk Factors’ section, and elsewhere, in this 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 financial performance. 

  

 

ITEM 1.

BUSINESS

 

Overview

 

We are an early-stage, pre-revenue, pharmaceutical company focused on the development of prodrug cancer therapeutics for the treatment of solid tumors including liver, brain, prostate, renal and other cancers. A prodrug is an inactive precursor of a drug that is converted into its active form only at the site of the tumor. Our technology platform combines a powerful, plant-derived cytotoxin with a patented prodrug delivery system that targets the release of the drug within the tumor. We believe our cancer prodrugs have the potential to provide a targeted therapeutic approach to a broad range of solid tumors with fewer side effects than those related to current chemotherapy treatments. Our lead drug candidate, mipsagargin, is currently in multiple Phase II clinical trials.

 

Our major focus for the next twelve to eighteen months is (i) the completion of our Phase II clinical trial of mipsagargin in patients with liver cancer and review of associated data, (ii) the ongoing Phase II clinical trial in patients with glioblastoma, (iii) beginning enrollment in Phase II clinical studies in patients with prostate cancer and renal cell carcinoma (iv) preparation for our next clinical trial in liver cancer, potentially involving a development partner, (v) ongoing business development discussions with potential development partners (vi) prioritization of our next thapsigargin prodrug development candidate and (vii) evaluation of in-license opportunities to enhance our clinical pipeline.

 

In January 2015, we presented results from our Phase II study in liver cancer patients, indicating that 65% of patients treated with mipsagargin had stable disease (no tumor growth) at two months, and 35% of patients received five or more cycles of treatment with an average time on study greater than 7 months. These results support our plans to continue the development of mipsagargin for patients with liver cancer, as well as proceed with our clinical development strategy in other indications. We plan to develop subsequent randomized studies to further develop mipsagargin, preferably with a development partner, with a goal of seeking FDA approval for marketing. Although initial and interim data from our trials appear promising, the outcome of our trials remains uncertain and our current or future trials may ultimately be unsuccessful. 

 

Business Strategy

 

Our ability to execute our product development 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 product development plan, our priority is the continuation and completion of our ongoing and planned Phase II clinical studies in glioblastoma, prostate and renal cancers which are primarily funded by the collaborating institutions. We are actively involved in identifying a potential development and commercialization partner at both multi-national and regional levels to assist with the development of mipsagargin through clinical trials in liver cancer.

 

Our current product development plan of mipsagargin contemplates the following major initiatives:

 

·

Preparation for our next clinical study in patients with liver cancer, preferably with a development partner.

 

·

Evaluate the final data from our Phase II clinical trials in patients with liver cancer.

 

·

In the first quarter of 2014, we entered into a collaborative arrangement and initiated our Phase II clinical trial in patients with glioblastoma (a form of brain cancer). This trial is being conducted at the University of California San Diego Moores Cancer Center, and is expected to enroll up to 34 patients. To date, we have treated twelve patients.

 

·

Initiation of a Phase II clinical study in patients with prostate cancer via a collaborative agreement with a single site in the U.S.

 

·

Initiation of a Phase II clinical study in patients with renal cell carcinoma via a collaborative agreement with a single site in the U.S.

 

Clinical and Pre-Clinical Development Strategy

 

Under the planning and direction of key personnel, we expect to continue to outsource all of our preclinical development (e.g., toxicology), manufacturing, and 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).

 

We intend to conduct several Phase II clinical trials to determine the therapeutic efficacy of mipsagargin in cancer patients. We anticipate that mipsagargin will be therapeutically effective in a wide range of solid tumor types and have chosen to first evaluate the drug in liver cancer, glioblastoma, prostate cancer and renal cell carcinoma. We believe this strategy will validate mipsagargin as a platform technology over multiple indications while at the same time diversifying the risk associated with any individual indication.

 

 

MIPSAGARGIN

CLINICAL DEVELOPMENT PROGRAM

 

Indication		Status
Solid Tumors		Completed Phase Ia/b safety, tolerability and dosing refinement study. Closed to further enrollment.
Hepatocellular Carcinoma (liver cancer)		In 2012, we obtained clearance from the FDA to initiate our Phase II clinical trial entitled, “A Phase II, Multicenter, Single-Arm Study of G-202 as Second-Line Therapy Following Sorafenib for Adult Patients with Progressive Advanced Hepatocellular Carcinoma.” In October of 2014 we closed patient enrollment in the trial. In total, we treated 25 patients. We presented trial data at a poster session at the American Society for Clinical Oncology 2015 Gastrointestinal Cancers Symposium on January 2015 in San Francisco, CA.
Glioblastoma (brain cancer)		During the first quarter of 2014, we entered into a collaborative arrangement and commenced our Phase II clinical trial in patients with glioblastoma, entitled, “An Open-Label, Single-Arm, Phase II Study to Evaluate the Efficacy, Safety and CNS Exposure of G-202 in Patients with Recurrent or Progressive Glioblastoma.” The trial is ongoing with nine patients treated to date. This trial is being conducted at the University of California San Diego Moores Cancer Center.
Prostate Cancer		Anticipate enrolling the first patient in a Phase II trial in the first half of 2015. This trial will be conducted via a collaborative agreement at the University of Texas Health Science Center in Houston.
Renal Cell Carcinoma		Anticipate commencing a Phase II trial in the third quarter of 2015. This trial will be conducted via a collaborative agreement at the University of Texas Health Science Center in Houston.

 

Hepatocellular Carcinoma (Liver Cancer)

 

Primary hepatocellular carcinoma is cancer that forms in the tissues of the liver. Estimates for liver cancer in the U.S. for 2015 are approximately 36,000 new cases and 25,000 deaths. Incidence of hepatocellular carcinoma in the U.S. is rising, principally in relation to the spread of hepatitis C infection. Hepatocellular carcinoma is potentially curable by surgical resection, but surgery is the treatment of choice for only the small fraction of patients with localized disease. Prognosis depends on the degree of local tumor replacement and the extent of liver function impairment. Treatment options for people with liver cancer are surgery (including liver transplant), ablation, embolization, targeted therapy, radiation therapy, and chemotherapy, for which there is only one approved drug (sorafenib), or a combination of these options. There is no standard therapy for patients with advanced metastatic liver cancer after treatment with sorafenib.

 

Glioblastoma multiforme (Brain Cancer)

 

Glioblastoma is the most common and most aggressive malignant primary brain tumor in humans. Estimated for brain and other nervous system tumors in the United States in 2015 are approximately 23,000 new cases and 15,000 deaths. Brain tumors account for 85% to 90% of all primary central nervous system (CNS) tumors.

 

Despite optimal treatment, the median survival for these patients is only 12 - 15 months. Treatment commonly consists of surgery followed by radiation and the drug temozolomide. There are a few drugs that have been approved in patients that have recurrent tumors but none have been shown to promote long-term tumor stabilization or survival.

 

 

Prostate Cancer

 

Prostate cancer forms in tissues of the prostate (a gland in the male reproductive system found below the bladder and in front of the rectum).  Prostate cancer is the second leading cause of cancer death in American men, behind only lung cancer. Estimates for prostate cancer in the U.S. for 2015 are about 221,000 new cases and approximately 28,000 deaths. Depending on the situation, the treatment options for men with prostate cancer may include:  expectant management (watchful waiting) or active surveillance; surgery; radiation therapy; cryosurgery; hormone therapy; chemotherapy; and vaccine treatment.  These treatments are generally used one at a time, although in some cases they may be combined.

 

Renal Cell Carcinoma

 

Renal cell carcinoma is the most common type of kidney cancer accounting for 9 out of 10 of all kidney cancer diagnoses. Renal cell carcinoma is a cancer in which cancer cells are found in the lining of tubules (very small tubes) in the kidney. It occurs most often in men ages 50 to 70. Estimates for kidney cancer in the United States for 2015 are approximately 62,000 new cases and 14,000 deaths These numbers include all types of kidney and renal pelvis cancers. Depending on the situation, the treatment options may include: surgery, ablation and other local therapies, active surveillance, radiation therapy, targeted therapy, immunotherapy (biologic therapy) and chemotherapy.

 

Phase Ib and II Liver Cancer Trial Results

 

In January 2015, we presented results from our Phase II study in liver cancer patients indicating that 65% of patients treated with mipsagargin had stable disease (no tumor growth) at two months, and 35% of patients received five or more cycles of treatment with an average time on study greater than seven months.

 

Notwithstanding that the data from our liver cancer trial appear promising, the outcomes of our other trials are uncertain and our current or future trials may ultimately be unsuccessful.

 

Generic Name Designation

 

In August of 2014, we were notified that the World Health Organization’s or the WHO’s International Nonproprietary Name group or the INN recommended the generic name “mipsagargin” for our lead compound G-202. Mipsagargin was also recommended by the United States Adopted Names Council of the American Medical Association. Our generic name includes a new or novel pre-stem that we believe was proposed based on our compound possessing a unique mechanism of action or structure.

 

Commercialization Strategy

 

We intend to (i) license or sell the underlying technology of our drug compounds to third parties during or after Phase II 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.

 

Clinical Trials

 

Phase I Clinical Development of G-202 – Solid Tumors

 

During 2011 and 2012, we were engaged in conducting our Phase Ia/b clinical trial of G-202. The purpose of the trial was to evaluate safety, understand the pharmacokinetics (the process by which a compound is absorbed, distributed, metabolized, and eliminated by the body) of G-202 in humans, and to determine an appropriate dosing regimen for subsequent clinical studies.

 

In the Phase Ia portion, 28 patients were treated in eight individual cohorts with each subsequent cohort receiving a higher dose of drug until a Maximum Tolerated Dose (MTD) was identified. The Phase Ia portion was conducted in refractory cancer patients (those who have relapsed after former treatments) with any type of solid tumors. This strategy was intended to facilitate enrollment and provide a preliminary indication of safety across a wider variety of patients with different prior treatment regimens. We treated 28 patients in the Phase Ia portion of the trial at doses ranging from 1.2 mg/m2/dose (approximately 2 mg/dose) up to 88 mg/m2/dose (approximately 150 mg/dose). The drug exposure in patients receiving the higher doses of G-202 falls within the range associated with anti-tumor efficacy in animal models. The MTD of G-202 was identified in this dose escalation portion of the Phase I study.

 

 

We further evaluated G-202 in sixteen additional patients in a Phase Ib continuation of the clinical trial. The Phase Ib portion of the trial was designed to further refine a dosing regimen, obtain more safety data and determine a recommended dose for our anticipated Phase II clinical studies. Of these sixteen patients, five were primary liver cancer patients who had tumor progression after previous treatment with sorafenib, which is the only drug approved for this indication. Median progression-free survival in this patient population is typically two months. Two of these liver cancer patients, who were enrolled with metastatic disease, experienced prolonged disease stabilization of 13 and 11 months after initiation of treatment with G-202. Although our Phase I study was not designed to determine the anti-tumor effects of G-202, we view these data as encouraging; however, there can be no assurance that these or any early observations will be reproduced in subsequent studies.

 

Phase II Clinical Development of G-202 – Hepatocellular Carcinoma (Liver Cancer)

 

In 2012, we obtained clearance from the FDA to initiate our Phase II clinical trial entitled, “A Phase II, Multicenter, Single-Arm Study of G-202 as Second-Line Therapy Following Sorafenib for Adult Patients with Progressive Advanced Hepatocellular Carcinoma.” This trial was conducted at multiple sites in the U.S. and measured disease progression in 25 patients with advanced stage liver disease and poor liver reserves who had failed first line treatment with sorafenib. Patients were administered episodic dosing of mipsagargin on the first three days of each treatment cycle.

 

In January 2015, we presented Phase II results that demonstrated that mipsagargin appears to be effective and is well-tolerated by HCC patients. Mipsagargin targets the enzyme prostate-specific membrane antigen (PSMA), which is highly expressed in tumor vasculature and prostate cancer cells. The Phase II study results (n=25) demonstrate that the prodrug effectively stabilizes progression of HCC by reducing blood flow within tumors while not affecting blood flow within normal tissues. Study participants experienced a median time to progression of 4.2 months, nearly twice the time demonstrated in prior studies with placebo or ineffective agents. Thirty-five percent of patients received 5 or more cycles of treatment with an average time on study of 7.1 months. Additionally, mipsagargin demonstrated decreased blood flow in liver tumors as measured by DCE-MRI.

 

With Phase II complete, GenSpera is designing a large, international Phase III study which will further define the anti-tumor potential of mipsagargin in liver cancer patients. Notwithstanding that the data from our studies appear promising, the outcome of our trials is uncertain and our current or future trials may ultimately be unsuccessful.

 

Phase II Clinical Development of G-202 – Glioblastoma (Brain Cancer)

 

In the first quarter of 2014, we entered into a collaborative arrangement and plan to conduct a Phase II clinical trial entitled, “An Open-Label, Single-Arm, Phase II Study to Evaluate the Efficacy, Safety and CNS Exposure of G-202 in Patients with Recurrent or Progressive Glioblastoma.” This trial is being conducted at a single site in the U.S. and is expected to enroll up to 34 patients. To date, we have treated twelve patients.

 

Our Technology

 

Our approach is to identify specific enzymes that are found at high levels in tumors relative to other tissues in the body. Upon identifying these enzymes, we attempt to create a peptide that is recognized predominantly by those enzymes in the tumor and not by enzymes in normal tissues. We then use the peptide as the masking/targeting agent and attach it to our “cytotoxin” to create a prodrug. We believe that this double layer of recognition adds to the tumor-targeting found in our prodrugs.

 

Cytotoxin-Thapsigargin

 

Thapsigargin is a cytotoxin found within the plant Thapsia garganica that grows wild in the Mediterranean region. Thapsigargin is a potent inhibitor of the intracellular sarcoplasmic/endoplasmic reticulum calcium adenosine triphosphastase (SERCA) pump protein, consequently causing calcium levels to rise significantly and trigger apoptosis (cell death). We chemically modify thapsigargin to create the molecule 12ADT that retains all the potent cell-killing attributes of thapsigargin, but contains a new structure that can be coupled to a masking/targeting agent. Our prodrugs are manufactured by attaching a specific peptide to 12ADT.

 

Masking/Targeting Agent

 

We use peptides to mask the cytotoxin and target the tumor (masking/targeting agents). Peptides are short strings of amino-acids, the building blocks of many components found in cells. When attached to 12ADT, they have the potential to make the cytotoxin inactive and once the peptide is removed from 12ADT, the cytotoxin is active again. Our technology attempts to take advantage of the fact that the masking peptides can be removed by chemical reactors in the body called enzymes, and that the recognition of particular peptides by particular enzymes can be very specific. The peptides also make 12ADT soluble in blood. When the masking peptide is removed, 12ADT returns to its natural insoluble state and precipitates directly into nearby tumor cells.

 

 

Our Prodrug Therapies

 

Cancer chemotherapy involves treating patients with cytotoxic drugs (compounds or agents that are toxic to cells). Chemotherapy is often combined with surgery or radiation in the treatment of early-stage disease and it is the preferred, or only, treatment option for many forms of cancer in later stages of the disease. However, major drawbacks of chemotherapy include, but are not limited to:

 

·

Side effects - non-cancer cells in the body are also affected, often leading to serious side effects, which may include the destruction of bone marrow, damage to digestive tract cells, and hair loss.

·

Incomplete tumor kill - many of the leading chemotherapeutic agents act during the process of cell division and may be effective on tumors comprised of rapidly-dividing cells, but are much less effective on tumors that contain slowly dividing cells.

·

Resistance - tumors will often develop resistance to current drugs after repeated exposure, thereby limiting the effectiveness of such therapies over multiple dosing.

 

Prodrug chemotherapy is a relatively new approach to cancer treatment that is being explored as a means of delivering higher concentrations of cytotoxic agents at the tumor location while avoiding or decreasing toxicity in the rest of the body. An inactive form of a cytotoxin is administered to the patient. The prodrug is converted into the active cytotoxin preferentially at the tumor site. We believe that our lead compound, mipsagargin, may overcome a number of drawbacks associated with current cancer drugs, including:

 

·

Reduced side effects - our lead compound, mipsagargin, appears to be well-tolerated in cancer patients with reduced side effects compared to traditional chemotherapeutic agents, particularly exhibiting significantly less or no effect on the patient’s bone marrow.

·

Cell-killing activity - our prodrugs have been shown in animal cancer models to kill slowly-dividing, non-dividing, as well as rapidly-dividing cancer cells.

·

Lack of acquired drug resistance - testing in animal models of cancer indicated no development of resistance to mipsagargin after multiple cycles of treatment.

 

Our Prodrug Development Candidates

 

We currently have identified four prodrug candidates based on our technology, as summarized in the table below. At this time we are focused exclusively on the clinical development of mipsagargin and have deferred further development of the other prodrug candidates.

 

Prodrug Candidate		Activating Enzyme		Target Location of Active Enzyme		Status/Developments
Mipsagargin		Prostate Specific Membrane Antigen (PSMA)		The blood vessels of most solid tumors		Ongoing Phase II clinical trials being conducted in glioblastoma   Anticipated to commence Phase II clinical trial in patients with prostate and renal cancer.   Closed patient enrollment in Phase II clinical trial of patients with liver cancer.   Orphan Drug designation in liver cancer granted.
G-115		Prostate Specific Antigen (PSA)		Prostate cancers		Pilot toxicology completed.   Limited pre-clinical development.
G-114		Prostate Specific Antigen (PSA)		Prostate cancers		Validated efficacy in pre-clinical animal models (Johns Hopkins University).
G-301		Human glandular kallikrein 2 (hK2)		Prostate cancers		Validated efficacy in pre-clinical animal models (Johns Hopkins University).

 

  

Mipsagargin

 

The enzymes that we target with our prodrugs are found in very specific places within the body and within the tumors. Our lead drug candidate, mipsagargin, is activated by the enzyme Prostate Specific Membrane Antigen, or PSMA, which is found in prostate epithelial cells in the normal prostate, in prostate cancer cells, and in vascular endothelial cells (blood vessels) found in almost all solid tumors. Thus, we expect that mipsagargin may be used in the treatment of almost all solid tumors. Importantly, we believe that mipsagargin may work by destroying the tumor vasculature, thus starving the tumor to death.

 

G-115

 

G-115 is activated by the enzyme Prostate Specific Antigen, or PSA, which is secreted by prostate epithelial cells in the normal prostate and by prostate cancer cells. PSA is found in the bloodstream and is a known tumor marker for prostate cancer, but it is inactive in the bloodstream due to potent binding by a protein inhibitor. However, PSA is enzymatically active on the surface of prostate cancer cells as it is being secreted and this activity forms the basis for tumor targeting with G-115.

 

G-301

 

G-301 is activated by the enzyme Human Glandular Kallikrein 2, or hK2, which is secreted by prostate epithelial cells in the normal prostate and by prostate cancer cells. The enzyme hK2 is found in the bloodstream and is known as a tumor marker for prostate cancer but it is inactive in the bloodstream due to potent binding by a protein inhibitor. However, hK2 is enzymatically active on the surface of prostate cancer cells as it is being secreted and this activity forms the basis for tumor targeting with G-301.

 

Both G-115 and G-301 are believed to be useful in the treatment of prostate cancers only and not to be useful for the treatment of other cancers. 

 

Market and Competitive Considerations

 

The table below summarizes estimates for a number of potential U.S. target markets for our proposed drug candidates:

 

		2015 Estimated Number of
Cancer Type		New Cases				Deaths
Prostate			221,000				28,000
Breast			234,000				41,000
Liver & intrahepatic bile duct			36,000				25,000
Brain & other nervous system			23,000				15,000
Source: CA Cancer J. Clin 2015; 65: 5-29

 

Therapeutic Opportunity for Our Drug Candidates

 

We believe that current anti-angiogenesis drugs (drugs that disrupt the blood supply to tumors) validate the clinical approach and market potential of our drug candidate. Angiogenesis is the physiological process involving the growth of new blood vessels from pre-existing vessels and is a normal process in growth and development, as well as in wound healing. Angiogenesis is also a fundamental step in the development of tumors from a clinically insignificant size to a malignant state because no tumor can grow beyond a few millimeters in size without the nutrition and oxygenation that comes from an associated blood supply. Interrupting this process has been targeted as a point of intervention for slowing or reversing tumor growth. An example of an anti-angiogenic approach is the FDA approved drug, Avastin, a monoclonal antibody that inhibits the activity of Vascular Endothelial Growth Factor, which is important for the growth and survival of endothelial cells.

 

Avastin and other anti-angiogenic drugs have only a limited therapeutic effect with increased median patient survival times of only a few months. Our approach is designed to destroy both the existing and newly growing tumor vasculature, rather than just block new blood vessel formation. We anticipate that this approach will lead to a more immediate collapse of the tumor’s nutrient supply and consequently an enhanced rate and degree of tumor destruction.

 

Competition

 

The pharmaceutical and biotechnology industries are very competitive, fast moving and intense, and expected to be increasingly so in the future. Although we are not aware of any competitor who is developing a drug that is designed to destroy both the existing and newly growing tumor vasculature in a manner similar to our drug candidates, there are several marketed drugs and drugs in development that attack tumor-associated blood vessels to some degree. For example, Avastin is a marketed product that acts predominantly as an anti-angiogenic agent. Zybrestat is another drug in development that is described as a vascular-disrupting agent that inhibits blood flow to tumors. Nexavar TM and Sutent TM are two other approved drugs that appear to work in part through anti-angiogenic mechanisms. It is impossible to accurately ascertain how well our drugs will compete against these or other products that may be in the marketplace until we have more complete human patient data for comparison.

 

 

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 all of our patents and patent applications.

 

Our pipeline currently includes four drug product candidates: mipsagargin (solid tumors), G-114 (prostate cancer), G-115 (prostate cancer) and G-301 (prostate cancer). Our patent portfolio is currently composed of: 14 issued U.S. patents; 1 pending U.S. non-provisional patent application; 1 pending U.S. provisional patent application; 2 pending Patent Cooperation Treaty, or PCT, applications; and 2 pending European patent applications (also registered in Hong Kong).

When appropriate, 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.

 

In addition to and separate from patent protection, mipsagargin for the treatment of hepatocellular carcinoma has been granted orphan drug designation under the Orphan Drug Act of 1983, as amended, which was enacted to provide incentives to pharmaceutical companies who create treatments for rare diseases. It does so by granting seven years of exclusivity after approval of a drug in the rare disease, or "orphan" indication. During the seven year period, the FDA may not grant marketing authorization (e.g. to a generic manufacturer) for the same drug for the orphan indication.

 

Manufacturing and Supply

 

We do not plan to develop company-owned or company-operated manufacturing facilities. We 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.

 

Supply of Raw Materials - Thapsibiza SL

 

To our knowledge, there is only one commercial supplier of Thapsia garganica seeds. In April 2007, we obtained the proper permits from the U.S. Department of Agriculture (the USDA) for the importation of Thapsia garganica seeds. In April 2012, we entered into a five year sole source agreement with Thapsibiza, SL. Either party can extend the agreement for an additional five years by providing 30 days written notice prior to the expiration date. Pursuant to the terms of the agreement, Thapsibiza, SL has agreed to exclusively provide us Thapsia garganica seeds while we retain the right to seek additional suppliers. The agreement requires us to purchase minimum quantities of seeds per harvest period.

 

Long-term Supply of Raw Materials

 

We believe that we have sufficient supply of Thapsia garganica seeds in storage to complete our clinical trials as currently planned. However, in order to secure a long-term, stable supply of thapsigargin starting material, we are engaged in two ongoing research projects, including traditional cultivation and metabolic engineering of moss cells.

 

We are funding an ongoing Thapsia garganica cultivation project with Thapsibiza, SL. It is known that thapsigargin is produced in the various parts of the plant and we are evaluating the most cost-effective way to produce thapsigargin, whether it is extracted from seedlings, early roots, stems and/or shoots or from seeds of the mature plant. Reliable germination methods are established and transfer of plantings from greenhouse to fields appears straightforward. At the current time, we believe traditional cultivation, farming and harvesting of Thapsia garganica is the most reliable and straightforward source of thapsigargin starting material.

 

 

We also co-funded a moss project at the University of Copenhagen. A major goal of the project entitled SPOTLight (Sustainable Production of Thapsigargin using Light) is to produce thapsigargin in high yields in genetically modified moss cells thus enabling an inexpensive year-round supply of thapsigargin for drug manufacturing. The SPOTLight project was primarily funded by a DKK 18.3M (approximately $3.5M USD) grant from The Danish Council for Strategic Research and is directed by Dr. Søren Brøgger Christensen, Professor at the University of Copenhagen, member of our Scientific Advisory Board and the scientist responsible for the initial isolation and characterization of thapsigargin. As a result of our co-funding, under the terms of our agreement, we have obtained an exclusive, milestone- and royalty-free, fully paid license to the resulting moss cell lines necessary to generate thapsigargin or its chemical precursors. We recognize that this is an ambitious project and that the goal of having a thapsigargin-producing cell line may not be reached. However, even if the project can only generate cell lines that produce chemical precursors of thapsigargin, this might form the basis of a semi-synthetic route to thapsigargin on a commercially viable scale.

 

Manufacturing Partnership

 

In February 2014, we entered into an agreement with Phyton Biotech GmbH (Phyton) to conduct a feasibility study to evaluate plant cell suspension cultures derived from Thapsia garganica as a potential source of thapsigargin, the key ingredient in the company's investigational agent mipsagargin. In November 2014, we expanded our strategic partnership to have Phyton develop a method for a high producing cell line derived from the Thapsia garganica expressing thapsigargin. It is anticipated that this method development would provide us with a sustainable source of high quality thapsigargin, and assist us in achieving commercial production of our active pharmaceutical ingredient.

 

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.

 

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. 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.

 

Scientific Advisory Board

 

We have access to a number of academic and industry advisors with expertise in clinical and pharmaceutical development. Members of our Scientific Advisory Board, or SAB, meet with our management and key scientific employees on an ad hoc basis to provide advice in their respective areas of expertise and further assist us by periodically reviewing with management our preclinical and clinical activities. The members of our SAB are Søren Brøgger Christensen, PhD, Samuel R. Denmeade, MD, and John T. Isaacs, PhD. Our SAB members possess deep insight into our technologies and our drug candidate’s mechanism of action which is instrumental in advancing our clinical and development programs. In connection with a member’s retention on our SAB, we have entered into confidentiality agreements as well as assignment of invention agreements, subject to the member respective obligations and responsibilities to any institution or institutions at which they are employed.

 

Employees

 

As of December 31, 2014 we employed two full-time individuals who are also our executive officers, all of whom hold advanced degrees. In addition, we contract with approximately 12 to 15 consultants to assist in activities related to our operations and research and development plan.

 

  

Corporate History

 

We were incorporated in the State of Delaware in November 2003 and our principal office is located in San Antonio, Texas. Since our inception, we have invested a substantial portion of our efforts and financial resources in the development of mipsagargin (G-202). G-202 is the only product candidate for which we have conducted clinical trials, and to date we have not marketed, distributed or sold any products. 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 Company’s website at www.genspera.com or on the SEC’s web site, http://www.sec.gov. You may also read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at: 

 

GENSPERA

2511 N Loop 1604 W, Suite 204

San Antonio, TX 78258

Attn: Chief Executive Officer

Tel: 210-479-8112

 

  

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 may not be able to continue as a going concern if we do not obtain additional financing by June 2015.

 

Our cash and cash equivalents balance at December 31, 2014 was $2.3 million. Based on our current expected level of operating expenditures, we expect to be able to fund our operations for the next six to nine months from that date. Our ability to continue as a going concern is wholly dependent upon obtaining sufficient financing 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, there is no assurance that additional equity or debt financing will be available to us when needed. In the event that we are not able to secure financing, 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, 2014 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 June 2015. 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

 

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

 

From inception through December 31, 2014, we have raised approximately $29.5 million through the sale of our securities and exercise of outstanding warrants. During this same period, we have recorded an accumulated deficit of approximately $39.4 million. Our net losses for the two most recent fiscal years ended December 31, 2014 and 2013 were $7.0 million and $5.3 million, respectively. None of our products in development have received approval from the FDA, or other regulatory authorities; we have no sales and have never generated product revenues nor do we expect to for the foreseeable future. Currently, our only product candidate in clinical development is mipsagargin, which is being tested in multiple Phase II clinical trials. 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. Accordingly, we will need additional capital to fund our continuing operations. Since we do not generate any revenue, the most likely sources of such additional capital includes the sale of our securities, a strategic licensing or collaboration transaction 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 and 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. To date, we have dedicated substantially all of our efforts and financial resources to the development of mipsagargin and depend heavily on its success. 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 mipsagargin and our other product candidates. Although initial data from our clinical trials appear promising, the outcome of the trials is uncertain and these trials or 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 only two full-time employees, a limited operating history, 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 needed personnel in order to implement our business plan, including pre-clinical and clinical testing;

·

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 products 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 earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses 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.

 

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 accurately 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;

·

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 Merck & Co., Inc., Ipsen, 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 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 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 would 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.

 

Our business plan relies 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 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 a major pharmaceutical partner. If we fail to establish or maintain such third-party relationships as anticipated, we could experience delays in the development or commercialization of our proposed products.

 

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

 

We depend upon independent contract research organizations, investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials. 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.

 

Our business is dependent upon securing and importing sufficient quantities of seeds from the plant, Thapsia garganica, which grows in very specific locations outside of the United States.

 

The therapeutic component of our proposed products, including mipsagargin, is referred to as 12ADT. 12ADT is derived from the seeds of a plant referred to as Thapsia garganica, which grows along the coastal regions of the Mediterranean Sea. We currently secure the seeds from Thapsibiza, SL, a third-party supplier. There can be no assurances that Thapsia garganica will continue to grow in sufficient quantities to produce a commercial supply or that the countries from which we can secure Thapsia garganica will continue to allow the collect and/or export of such seeds. The process of importing Thapsia garganica seeds is subject to U.S. import and export laws and controls. Our supply agreement with Thapsibiza, SL (our sole supplier) expires on April 6, 2017 or April 6, 2022 if extended. In the event we are no longer able to obtain these seeds in the future, we may not be able to produce our proposed drug and our business will be adversely affected.

 

We may be required to expend significant capital to locate, secure and finance land for cultivation and harvesting of Thapsia garganica.

 

We believe that we can satisfy our needs for the clinical development of mipsagargin, through completion of Phase III clinical studies and early commercialization, from Thapsia garganica that grows naturally in the wild. In the event mipsagargin is approved for commercial marketing and is widely adopted by the medical community, our current supply of Thapsia garganica may not be sufficient. In order to secure sufficient quantities of Thapsia garganica, we would need to secure adequate acreage of land to cultivate and grow Thapsia garganica. We have not yet fully assessed the amount of land or other costs that would be associated with a full-scale farming operation. There can be no assurances that we will be able to secure sufficient acres of land, or the capital to purchase or lease such land, to grow sufficient quantities of Thapsia garganica to manufacture mipsagargin on a commercial scale. Our inability to secure adequate seeds could adversely impact our business.

 

 

The synthesis of 12ADT must be conducted in special facilities, which limits the locations where it may be manufacture.

 

We are required to manufacture the 12ADT that is to be used in our clinical trials in FDA approved facilities. There are a limited number of manufacturing facilities qualified to handle and manufacture toxic therapeutic agents and compounds. This limits the potential number of manufacturing sites for our therapeutic compounds derived from Thapsia garganica. No assurances can be provided that these facilities will be available for the manufacture of our therapeutic compounds under our time schedules or within the parameters of our manufacturing budget. In the event facilities are not available for the manufacturing of our therapeutic compounds, we may not be able to complete our clinical trials and our business and future prospects would be adversely affected.

 

Our therapeutic compounds may not be able to be manufactured profitably on a large enough scale to support late stage clinical trials or commercialization.

 

To date, our therapeutics 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 late stage clinical trials or commercialization, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

 

Risks Relating to our Intellectual Property

 

We are the subject of litigation related to our intellectual property for which the outcome is uncertain.

 

We instituted a declaratory judgment action in the United States District Court of Maryland on March 12, 2012. We, as the licensee, were seeking a declaratory judgment that the current named inventors on U.S. Patent Nos. 7,468,354 and 7,767,648 are the only inventors of the underlying inventions. On November 1, 2012, the defendant in the case filed a complaint in the State Circuit Court for Baltimore County, Maryland, naming GenSpera as a defendant along with Dr. Samuel Denmeade and Dr. John Isaacs (the named inventors on the ‘354 patent and the ‘648 patent). The complaint alleges certain common-law torts. On September 12, 2014, the Court granted GenSpera’s motion for summary judgment as well as the motion for summary judgment filed by Drs. Denmeade and Isaacs. Judgment in favor of GenSpera, Dr. Isaacs, and Dr. Denmeade was entered concurrently. On October 11, 2014, Mhaka filed notices of appeal with the United States Courts of Appeal for the Fourth Circuit and Federal Circuit. Although summary judgment has already been granted, Mhaka’s appeal makes the ultimate outcome of the above mentioned litigation uncertain. As a result of such uncertainty, we are unable to reasonably estimate the impact of such litigation at this time. See the section of this report entitled “Legal Proceedings”.

 

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 market place 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.

 

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 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 industry, 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 us 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.

 

Risks Relating to Marketing Approval and Government Regulations

 

Thapsia garganica is highly toxic and we may be liable for any contamination or injury we may cause or any environmental and safety law we may violate.

 

The therapeutic component of our proposed products, including our lead product mipsagargin, is highly toxic. As a consequence, we are subject to numerous environmental and safety laws and regulations, including those governing laboratory procedures and the handling of toxic materials. We may be required to incur significant costs to comply with current or future environmental laws and regulations and may be adversely affected by the cost of compliance with these laws and regulations. Although we believe that our safety procedures for using, handling, storing and disposing of hazardous materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, state or federal authorities could curtail our use of these materials and we could be liable for any civil damages that result, the cost of which could be substantial. Further, any failure by us to control the use, disposal, removal or storage, or to adequately restrict the discharge, or assist in the clean-up of toxic substances could subject us to significant liabilities, including joint and several liabilities under certain statutes. Although we feel this risk may be minimized through our use of third parties, it is possible that the employees of such contractors could suffer medical issues related to the handling of these toxic agents and subsequently seek compensation from us via, for example, litigation. Any such liability could exceed our resources and could have a material adverse effect on our business, financial condition and results of operations. No assurances can be given, despite our contractual relationship with the third-party contractor, that we would not be the subject of litigation. Additional federal, state and local laws and regulations affecting us may be adopted in the future. We may incur substantial costs to comply with these laws and regulations and substantial fines or penalties if we violate any of these laws or regulations, which would adversely affect our business.

 

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 clinical trials is based on many assumptions about the expected effect of our product candidate and if those assumptions are incorrect, our 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. Although initial data from our trials appear promising, the outcome of the 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 would likely cause us to cease operations and go out of business.

 

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

 

Positive results from pre-clinical studies and our clinical trials of mipsagargin should not be relied upon as evidence that our clinical trials will ultimately be successful or our product approved for marketing. Even if our proposed product achieves positive results in our ongoing Phase II studies, we will be required to demonstrate through further 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. Although initial data from our trials appear promising, the outcome of the trials is uncertain and these trials or future trials may ultimately be unsuccessful.

 

 

We may be unable to complete our Phase II clinical trials of mipsagargin if we do not have adequate enrollment or capital to finance the studies.

 

We are conducting separate Phase II clinical trials in patients with glioblastoma and prostate cancer and we anticipate commencing a clinical trial in renal cancer. The initiation, continuation and/or completion of these trials are dependent on a number of factors, including adequate capital to fund the clinical trials and patient enrollment at the trial sites. At present, we have limited capital resources and require significant additional capital to complete any ongoing or future clinical trials that we may initiate. Our failure to enroll sufficient patients or to finance our clinical trials could materially harm our business.

 

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 of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Affordability Act of 2010, the comprehensive health care reform legislation passed by Congress in March 2010.

 

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 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:

 

·

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;

·

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.

 

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 December 31, 2014 we have issued and outstanding 33,181,197 shares of common stock and we have 31,998,267 shares of common stock reserved for future grants under our equity compensation plans and for issuances upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of December 31, 2014, we had no shares of preferred stock issued and outstanding. Accordingly, we are entitled to issue up to 84,820,536 additional shares of common stock and 30,000,000 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 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.

 

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.

 

As of December 31, 2014, we had 33,181,197 shares of common stock issued and outstanding. Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. As of December 31, 2014, we had reserved for issuance (i) 270,339 shares of our common stock issuable upon the conversion of outstanding convertible notes; (ii) 19,897,928 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $1.61 per share; and (iii) 8,685,095 shares of our common stock issuable upon exercise of outstanding stock options under our equity compensation plans at a weighted average exercise price of $1.65 per share. Subject to applicable vesting requirements, upon conversion or exercise of the outstanding convertible notes, warrants and options, the underlying shares may be resold into the public market. 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.

 

 

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

 

Our common stock trades with limited volume on the OTCQB tier 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. Any prospective investor in our securities should consider the limited market of our common stock when making an investment decision. 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.

 

Our officers and scientific advisors, by virtue of their ownership of our securities, may be able to control the Company.

 

As of December 31, 2014, our officers and scientific advisors owned approximately 19% of our issued and outstanding common stock. As a consequence of their level of stock ownership, the group retains substantial ability to influence the election or removal of members of our board of directors, and thereby control our management. This group of shareholders has the ability to significantly control the outcome of corporate actions requiring shareholder approval, including amending our certificate of incorporation and bylaws, approving mergers or other changes of corporate control, and approving going private transactions and other extraordinary transactions, any of which may be in opposition to the best interest of the other shareholders and may negatively impact the value of your investment.

 

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 who are not very well known. 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.

 

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.

 

Other Risks

 

We depend on Craig A. Dionne, PhD, our Chief Executive Officer, to manage and drive the execution of our business plans, develop our products and core technologies and pursue collaborative relationships; the loss of Dr. Dionne would materially and adversely affect our business.

 

Although we have entered into an employment agreement with Dr. Dionne, there can be no assurance that he will continue to provide services to us. A voluntary or involuntary termination of employment by Dr. Dionne could have a materially adverse effect on our business.

 

We may be required to make significant payments to members of our management in the event their employment with us is terminated or if we experience a change of control.

 

We are a party to employment agreements with members of management. In the event we terminate the employment of any of these executives, we experience a change in control or, in certain cases, if such executive terminates their employment with us, such executive will be entitled to receive certain severance and related payments. Additionally, in such instance, certain securities held by members of management shall become immediately vested and exercisable. Upon the occurrence of any such event, our obligation to make such payments could significantly impact our working capital and, accordingly, our ability to execute our business plan which could have a materially adverse effect to our business. Also, these provisions may discourage potential takeover attempts that could be beneficial to our stockholders.

 

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.

 

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 2511 N Loop 1604 W, Suite 204, San Antonio, TX 78258. We lease this facility, consisting of approximately 2,376 square feet, for approximately $4,800 per month. Our lease expires on October 14, 2015. 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

 

Except as described below, as of the date of this Report, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

 

On March 12, 2012, GenSpera instituted a declaratory judgment action against Annastasiah Mhaka (“Mhaka”) in the United States District Court for the District of Maryland: GenSpera, Inc. v. Mhaka, Civil Action No. MJG-12-772 (D. Md.). In its complaint, GenSpera, as the exclusive licensee of the inventions described and claimed in the U.S. Patent No. 7,468,354 (“the ‘354 patent”) and U.S. Patent No. 7,767,648 (“the ‘648 patent”), sought a declaratory judgment that Mhaka should not be added to either the ‘354 patent or the ‘648 patent as an inventor. On April 2, 2012, Mhaka filed and served her answer and counterclaim, in which she sought to be added as an inventor to the ‘354 patent and the ‘648 patent pursuant to 35 U.S.C. § 256. On November 1, 2012, Mhaka filed a second complaint in Maryland state court, asserting state tort claims against GenSpera and Drs. Samuel Denmeade and John Isaacs.

 

On May 1, 2013, the District Court granted GenSpera’s motion for summary judgment in the original case. Reserving any ruling on the issue of whether Mhaka’s state law tort claims were preempted by federal patent law, the Court denied defendants’ motion to dismiss Mhaka’s complaint in the second case and directed Mhaka to re-file her claims as counterclaims in the original action. On May 14, 2013, Mhaka filed an amended answer and counterclaims in the consolidated action, re-pleading her tort claims as counterclaims. On June 3, 2013, GenSpera (along with Drs. Denmeade and Isaacs) filed a reply to the counterclaims, denying their allegations and raising a number of affirmative defenses. On January 2, 2014, Drs. Isaacs and Denmeade moved for summary judgment on the grounds that Mhaka’s tort claims were barred by the applicable statute of limitations, and GenSpera joined in the motion. On May 6, 2014, GenSpera moved separately for summary judgment, a motion that Drs. Denmeade and Isaacs joined in part. On September 12, 2014, the District Court granted GenSpera’s motion for summary judgment as well as the motion for summary judgment filed by Drs. Denmeade and Isaacs. Judgment in favor of GenSpera, Dr. Isaacs, and Dr. Denmeade was entered concurrently for purposes of both the original case and the second case.

 

On October 10, 2014, Mhaka filed notices of Appeal with the United States Courts of Appeals for the Fourth Circuit and Federal Circuit. On December 11, 2014, GenSpera (along with Drs. Denmeade and Isaacs) filed a motion to dismiss the appeal before the United States Court of Appeals for the Fourth Circuit on the ground that the Court of Appeals for the Federal Circuit possesses exclusive jurisdiction over any appeal from the District Court. On December 29, 2014, Mhaka filed an opposition to the motion to dismiss and moved the Court of Appeals for the Fourth Circuit to stay appellate proceedings pending resolution of the appeal before the United States Court of Appeal for the Federal Circuit. On January 12, 2015, the Appellees filed an opposition to the motion to stay. On March 17, 2015, the Court of Appeals for the Fourth Circuit dismissed Mhaka’s appeal for lack of jurisdiction.

 

In the appellate proceedings before the United States Court of Appeals for the Federal Circuit, Mhaka originally filed her opening brief on December 26, 2014. Mhaka filed a corrected opening brief on January 20, 2015. On February 12, 2015, the Appellees filed their responsive brief, and on March 16, 2015, Mhaka filed a reply brief. Oral argument on the appeal has yet to be scheduled.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not Applicable

 

  

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 OTCQB under the symbol GNSZ. Although a market for our common stock exists, it is relatively illiquid.   The prices reflect high and low inter-dealer bid prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

 

Quarter Ended		High				Low
2014:
Fourth Quarter		$	0.75			$	0.53
Third Quarter		$	0.91			$	0.66
Second Quarter		$	1.33			$	0.20
First Quarter		$	1.44			$	1.20
2013:
Fourth Quarter		$	1.58			$	1.15
Third Quarter		$	1.80			$	1.53
Second Quarter		$	2.15			$	1.52
First Quarter		$	2.31			$	1.75

 

Holders

 

As of March 10, 2015, we had 198 record holders of our common stock. Notwithstanding, a majority of our common stock is held in street name and we believe the approximate number of beneficial holders is 1,809.

 

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

 

The following table sets forth information as of December 31, 2014 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)			3,739,221			$	1.69				2,090,779
Equity compensation plans not approved by security holders:
2009 Executive Compensation Plan			4,945,874				1.62				1,054,126
Total			8,685,095			$	1.65				3,144,905

 

(1) Our 2007 Stock Plan, as amended, provides for the issuance of up to 1,500,000 common shares during any calendar year. The plan provides for the issuance of up to 6,000,000 common shares in the aggregate.

 

 

GenSpera 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 1,500,000 shares of common stock for the foregoing awards per fiscal year with an aggregate of 6,000,000 shares of common stock available for issuance under the 2007 Plan. As of December 31, 2014, we have granted awards under the 2007 Plan equal to 4,174,221 shares of our common stock, and 265,000 shares have been cancelled or forfeited. Accordingly, there are 2,090,779 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.

 

GenSpera 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 GenSpera 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, 2014, our 2009 Plan authorizes the issuance of up to 6,000,000 shares of our common stock for the foregoing awards, and we have granted awards under the plan equal to 4,945,874 common shares, and no shares have been cancelled or forfeited. Accordingly, there are 1,054,126 shares of common stock available for future awards under the 2009 Plan.

 

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.

 

Recent Sales of Unregistered Securities

 

The following information is given with regard to unregistered securities sold since January 1, 2014.  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.

 

·

In February 2014, we entered into an agreement for method development by a contract manufacturer and issued an aggregate of 91,334 shares of common stock as compensation.

 

·

In February 2014, we entered into an agreement to grant an aggregate of 47,800 shares of common stock to a consultant, which shares vest at the rate of 7,800 shares upon execution of the agreement and 10,000 shares per month for four months, the term of the agreement. These shares will be granted for business advisory services to be provided to the Company. In addition, the consultant was issued a warrant to purchase 96,000 shares of common stock at a strike price of $3.00 per share, which shares vest at the rate of 16,000 shares upon execution of the agreement and 20,000 shares per month for four months. The warrant issued is substantially similar to the warrants issued in conjunction with our financing completed in March 2013.

 

 

·

In June 2014, we offered and sold 966,250 units, in a private placement to certain accredited investors with whom we had a prior relationship or who were shareholders. Each unit consists of: (i) one (1) share of common stock, and (ii) one-half of one Series D common stock purchase warrant. The price was $0.80 per unit, and resulted in gross proceeds of approximately $0.8 million. The warrants have a term of five years and entitle the holder to purchase our common stock at a price of $1.15 per share. As part of the transaction, the investors agreed to a contractual six month lockup restricting their ability to sell or transfer the securities. Additionally, 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.

 

·

In August 2014, we issued an aggregate of 25,000 units to consultants as payment for $20,000 of business and advisory services. Each unit consists of one share of our common stock, and one-half of one Series D common stock purchase warrant. The units are substantially similar to the units issued in our June 2014 private placement disclosed above.

 

·

In August 2014, we issued a total of 189,364 common shares as partial compensation for investor and media relations services. The services associated with the shares were valued at $168,000 in total. Of the shares issued, 120,000 are subject to monthly vesting over the next 12 months.

 

·

In August 2014, we issued warrants to purchase an aggregate of 139,500 shares of common stock as compensation for business and advisory services. We valued the services at approximately $45,914. The warrants have an exercise price of $1.15 per share, a term of five years and provide for cashless exercise if the shares underlying the warrants are not registered.

 

·

In October 2014, we issued a total of 20,000 common shares as partial compensation for business advisory services. The services associated with the shares were valued at approximately $15,000 in total.

 

·

In December 2014, we issued a total of 424,522 common shares to Phyton Biotech GmbH as partial compensation for services related to the development of a cell line derived from Thapsia garganica. The services were valued at $280,000.

 

·

In March 2015, we entered into an agreement for consulting services and issued an aggregate of 30,000 shares of common stock as compensation.

 

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

 

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 and Use of Estimates - 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, 2014 to the year ended December 31, 2013.

 

·

Liquidity and Capital Resources - Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity.

 

The various sections of this MD&A contain a number of forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the Risk Factors section of this report. Our actual results may differ materially.

 

Company Overview

 

Business

 

We are an early-stage, pre-revenue, pharmaceutical company focused on the development of prodrug cancer therapeutics for the treatment of solid tumors including liver, brain, prostate, renal and other cancers. A prodrug is an inactive precursor of a drug that is converted into its active form only at the site of the tumor. Our technology platform combines a powerful, plant-derived cytotoxin with a patented prodrug delivery system that targets the release of the drug within the tumor. We believe that if successfully developed, our cancer prodrug therapies have the potential to provide a targeted therapeutic approach to a broad range of solid tumors with fewer side effects than those associated with current chemotherapy treatments.

 

Recent Developments

 

·

We announced a strategic partnership with Phyton Biotech for the manufacture of thapsigargin, which is derived from the Thapsia plant and is the key ingredient in the company’s investigational agent mipsagargin. Phyton Biotech will offer its Plant Cell fermentation (PCF®) development expertise to convert the Thapsia plant into a preserved, fermentable cell line with a goal of creating a sustainable source of high quality thapsigargin.

 

·

We have treated twenty-five patients in our Phase II liver cancer trial and enrollment is now closed. We presented results in a poster session at the American Society for Clinical Oncology 2015 Gastrointestinal Cancers Symposium on January 16, 2015 in San Francisco, CA. Study participants experienced a median time to progression of 4.2 months, nearly twice the time demonstrated in prior studies with placebo or ineffective agents. Thirty-five percent of patients received 5 or more cycles of treatment with an average time on study of 7.1 months. Additionally, mipsagargin demonstrated decreased blood flow in liver tumors.

 

·

We have treated twelve patients in our Phase II glioblastoma trial.

 

·

In August 2014, we were notified that the World Health Organization’s or the WTO’s International Nonproprietary Name group or the INN recommended the generic name “mipsagargin” for our lead compound G-202. Mipsagargin was also recommended by the United States Adopted Names Council of the American Medical Association.

 

 

Financial

 

To date, we have devoted a substantial portion 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 marketed, distributed or sold any products. Since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the private sales of our equity securities. We have never been profitable and, as of December 31, 2014, we had an accumulated deficit of approximately $39.4 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.

 

In June 2014, we completed a registered offering of our securities in which we sold 4.2 million units, which resulted in net proceeds of approximately $3.0 million. During June 2014, we also initiated and completed a private placement of our securities to certain of our accredited prior shareholders and investors in which we sold 966,250 units resulting in approximately $0.8 million in net proceeds. Our cash and cash equivalents balance at December 31, 2014 was approximately $2.3 million, representing 88% of total assets. Based on our current expected level of operating expenditures, we expect to be able to fund our operation for the next six to nine months. 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 needed through the private or public sales of equity or debt securities, collaborative arrangements, 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 clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source.

 

Product Development of Mipsagargin

 

Our ability to execute our product development 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 product development plan, our priority is the continuation and completion of our ongoing and planned Phase II clinical studies in glioblastoma, prostate and renal cancers which are primarily funded by the collaborating institutions. If we are able to access sufficient capital, our highest priority will be the design, preparation and execution of a randomized Phase III study in liver cancer.

 

Our current product development plan of mipsagargin contemplates the following major initiatives:

 

·

Identify partnering candidate and initiate partnership for our next clinical study in patients with liver cancer.

 

·

Evaluate our clinical development plan based on the results of our Phase II clinical trials in patients with liver cancer.

 

·

Conduct our Phase II clinical trial in patients with glioblastoma (a form of brain cancer). This trial is being conducted at the University of California San Diego Moores Cancer Center, and is expected to enroll up to 34 patients. To date, we have treated twelve patients.

 

·

Initiation of enrollment in a Phase II clinical study in patients with prostate cancer via a collaborative agreement with a single site in the U.S.

 

·

Initiation of enrollment in a Phase II clinical study in patients with renal cell carcinoma via a collaborative agreement with a single site in the U.S.

 

Critical Accounting Policies and Use of Estimates

 

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 2, Summary of Critical Accounting Policies, 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. Actual results may differ from those estimates.

 

Cash and Equivalents — Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

 

Research and Development Costs — 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.

 

Stock-based Compensation — The Company measures the cost of employee services received in exchange for an equity award based on the grant-date fair value of the award. All grants under our stock-based compensation programs are accounted for at fair value and that cost is recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).

 

Compensation expense for options granted to non-employees is determined in accordance with the standard as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for awards granted to non-employees is re-measured each period. Determining the appropriate fair value of the stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based payment and stock price volatility. The Company uses the Black-Scholes option-pricing option model to value its stock option awards which incorporate the Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life.

 

Fair Value of Financial Instruments — Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

 

Warrant derivative liability consists of certain of our 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

 

In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This Update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. We are currently assessing the impact of the adoption of ASU 2014-15, and we have not yet determined the effect of the standard on our ongoing financial reporting.

 

In June 2014, the FASB issued ASU 2014-10 Development Stage Entities (Topic 915). ASU 2014-10 removes all incremental financial reporting requirements from U.S. GAAP for development stage entities. ASU 2014-10 should be applied retrospectively and is effective for fiscal years beginning after December 15, 2014. Early application is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued or made available for issuance. We have decided to adopt ASU 2014-10 early, accordingly all of the past disclosures and presentations for development stage accounting have been eliminated.

 

  

Result of Operations

 

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

 

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, 2014 and 2013. We do not anticipate generating any revenues during 2015. Net loss for 2014 and 2013 were $7.0 million and $5.3 million, respectively, resulting from the operational activities described below. 

 

Operating Expenses

 

Operating expense totaled $7.0 million and $6.4 million during 2014 and 2013, respectively.  The increase in operating expenses is the result of the following factors.

 

		Year Ended								Change in 2014
		December 31,								Versus 2013
		2014				2013				$				%
Operating Expenses		(amount in thousands)
Research and development		$	3,691			$	3,711			$	(20	)			(1	)%
General and administrative			3,307				2,684				623				23	%
Total operating expense		$	6,998			$	6,395			$	603				9	%

 

General and Administrative

 

General and administrative expenses totaled $3.3 million and $2.6 million during 2014 and 2013, respectively. The increase of $623,000 or 23% for 2014 compared to 2013 was primarily attributable to an increase in stock-based compensation, conference fees, professional fees and consulting expenses, partially offset by a decrease in legal fees. Our general and administrative expenses consist primarily of expenditures related to compensation, legal, accounting and tax and other professional, and general operating.

 

Research and Development  

 

Research and development expenses totaled $3.7 million in each of the years ended 2014 and 2013, respectively. The small decrease of $20,000 or 1% for 2014 compared to 2013 was attributable to decreases in clinical trial expense due to our Phase II clinical trial closing enrollment to new patients during the year, as well as decreases in legal and patent costs. These decreases were partially offset by an increase in manufacturing costs of approximately $900,000, as we further develop our processes to enable us to meet commercial API production.

 

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

 

Other Income (Expense)

 

Other income totaled approximately $4,000 and $1.1 million for 2014 and 2013, respectively.

 

		Year Ended								Change in 2014
		December 31,								Versus 2013
		2014				2013				$				%
		(amount in thousands)
(Loss) gain on change in fair value of warrant derivative liability		$	―			$	1,096			$	(1,096	)			(100	)%
Interest income (expense), net			4				(3	)			7				233	%
Total other income (expense)		$	4			$	1,093			$	(1,089	)			(100	)%

 

 

(Loss) gain on change in fair value of warrant derivative liability

 

There was no gain (loss) on change in fair value of warrant derivative liability during the year ended December 31, 2014 compared to an approximately $1.1 million gain during the year ended December 31, 2013. The change in the fair value of warrant derivative liability from the prior year resulted primarily from the exercise or expiration of the warrant derivative liability classified warrants. Refer to Note 11 in our Financial Statements for further discussion on our warrant liability.

 

Interest income (expense)

 

We had net interest income of approximately $4,000, compared to net interest expense of approximately $3,000 for the year ended December 31, 2014 and 2013, respectively. The increase of $7,000 was attributable to an increase in interest earned on average outstanding cash balances.

 

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 a deficit accumulated of $39.4 million as of December 31, 2014 and anticipate that we will continue to incur additional losses for the foreseeable future. To date, we have funded our operations through the private sale of our equity securities and exercise of options and warrants, resulting in total proceeds of $29.5 million. Cash and cash equivalents at December 31, 2014 were $2.3 million.

 

Based on our current level of expected operating expenditures, we expect to be able to fund our operations for the next six to nine months from our year end. This assumes that we spend minimally on general operations and only continue conducting our ongoing Phase II clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period.

 

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.

 

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell 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 or enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our product candidates, or cease operations altogether.

 

		Year Ended
		Ended December 31,
		2014				2013
		(amounts in thousands)
Cash at beginning of period		$	3,587			$	2,345
Net cash used in operating activities			(5,044	)			(4,707	)
Net cash used in investing activities			(4	)			(8	)
Net cash provided by financing activities			3,777				5,957
Cash at end of period		$	2,316			$	3,587

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $5.0 million and $4.7 million during 2014 and 2013, respectively. The increase of $0.3 million in cash used during 2014 compared to 2013 was primarily attributable to an increase in our net loss of approximately $1.7 million, offset by a decrease of $1.1 million in our derivative liability, partially offset by an increase of $0.9 million in stock-based compensation.

 

Net Cash Used in Investing Activities

 

Cash used in investing activities was $4,000 and $8,000 for 2014 and 2013, respectively. The increase was due to purchases of office equipment in 2014 and 2013.  

 

 

Net Cash Provided by Financing Activities

 

During 2014, we received net proceeds of $3.8 million from the sales of our securities in a registered offering and a private placement compared to $6.0 million during 2013 from a private placement and the exercise of warrants. 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 (a) (1) 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, with the participation of our Chief Executive Officer and Principal Accounting Officer (who is also our Chief 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, 2014. Based on that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures as of December 31, 2014 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.

 

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, including the Company’s Chief Executive Officer and Principal Accounting Officer (who is also our Chief 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. 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, 2014 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 2014, 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

 

None

 

  

PART III

  

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Significant Employees

 

The following sets forth the current members of our board of directors, as well as information with regard to our executive officers, and information concerning their ages and background. All directors hold office until the next annual meeting of stockholders or until their respective successors are elected, except in the case of death, resignation or removal: 

 

Name		Position		Age		Director Since
Executive Officers
Craig A. Dionne, PhD		Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board of Directors		57		11/2003
Russell Richerson, PhD		Chief Operating Officer and Secretary		63		—
Non-employee Directors
Peter E. Grebow, PhD		Director		68		05/2012
Bo Jesper Hansen, MD, PhD		Director		56		08/2010
Scott V. Ogilvie		Director		60		03/2008

 

Craig A. Dionne, PhD serves as our Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board of Directors. Dr. Dionne is one of our founders and has served on our board since November 2003. He has over 26 years of experience in the pharmaceutical industry, including direct experience identifying promising oncology treatments and bringing them through clinical trials. He served for five years as Vice President Discovery Research at Cephalon, Inc. where he was responsible for its oncology and neurobiology drug discovery and development programs. Dr. Dionne has also recently served as Executive Vice President at the Prostate Cancer Research Foundation. In addition to extensive executive experience, Dr. Dionne’s productive scientific career has led to 6 issued patents and co-authorship of many scientific papers. In evaluating Dr. Dionne’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his 26 year career in pharmaceutical drug discovery and development, prior work for our company in addition to being one of our founders, familiarity with our technologies, and academic background. Dr. Dionne earned his BS in biochemistry in 1979 from Louisiana State University, Baton Rouge, Louisiana and his PhD in biochemistry in 1984 from the University of Texas at Austin. Dr. Dionne received post-doctoral training at the Dana-Farber Cancer Institute with a joint appointment at Harvard Medical School.

 

Russell Richerson, PhD serves as our Chief Operations Officer and Secretary. Dr. Richerson has over 26 years of experience in the biotechnology/diagnostics industry, including 11 years at Abbott Laboratories in numerous management roles. Most recently, he has served as Vice President of Diagnostic Research and Development at Prometheus Laboratories (2001 - 2004) and then as Chief Operating Officer of the Molecular Profiling Institute (2005 - 2008). Dr. Richerson also served as Vice President of Operations of International Genomics Consortium (IGC) from 2005 to 2008. Commencing in August of 2011, Dr. Richerson joined the IGC board of directors. Dr. Richerson received his BS in 1974 from Louisiana State University, Baton Rouge, Louisiana and his PhD in 1983 from the University of Texas at Austin.

 

Peter E. Grebow, PhD joined our board in May of 2012. Dr. Grebow is President and founder of P.E. Grebow Consulting, Inc. which he formed in 2011. He also serves as Executive Vice President of Research and Development at Eagle Pharmaceuticals, Inc. since October, 2013. From 1991 to 2011, Dr. Grebow held several key positions with Cephalon, Inc. (now Teva Pharmaceuticals), a biopharmaceutical company, including Executive Vice President, Cephalon Ventures, Executive Vice President, Technical Operations, Senior Vice President, Worldwide Business Development and Senior Vice President, Drug Development. Prior to joining Cephalon, Dr. Grebow served as the Vice President, Drug Development for Rorer Central Research, a division of Rhone-Poulenc Rorer Pharmaceuticals Inc., a pharmaceutical company, from 1986 to 1990. Dr. Grebow served as a director of Optimer Pharmaceuticals from February 2009 until October, 2013. Dr. Grebow has also served as a director of Q Holdings, Inc. since December 2011 and Complexa, Inc. since 2011. Dr. Grebow is a member of the Investment Advisory Board of the Harrington Discovery Institute since April, 2014. Dr. Grebow received his undergraduate degree from Cornell University, an MS in chemistry from Rutgers University and a PhD in physical biochemistry from the University of California, Santa Barbara. Dr. Grebow's demonstrated leadership in his field, his knowledge of scientific matters affecting our business and his understanding of our industry contribute to our conclusion that he should serve as a director.

 

Bo Jesper Hansen, MD, PhD has served as a director on our board since August 2010. Dr. Hansen is currently the Executive Chairman of the Board of Swedish Orphan Biovitrum AB (NASDAQ OMX, STO: SOBI), an international growth company specializing in the development, registration, marketing and distribution of pharmaceutical drugs for rare and life-threatening diseases. Dr. Hansen has held the position since January 2010 as a result of the merger of Swedish Orphan International AB Group and Biovitrum. Prior to the merger, Dr. Hansen served in numerous positions with Swedish Orphan International AB Group, including, from 1998 to 2010, CEO, President and Director of the Board. Dr. Hansen’s responsibilities at the company include establishment, development and expansion of the company’s operations in Europe, Japan, the Americas and Australia. Dr. Hansen holds a Doctor of Medicine degree from the University of Copenhagen with a specialty in urology. Dr. Hansen is Chairman of Karolinska Development AB (NASDAQ OMX, STO: KDEV) and also serves on the boards of CMC AB, Orphazyme ApS, Newron (SIX; NWRN), Hyperion Therapeutics Inc. (NASDAQ: HPTX), and Ablynx NV (ABLX). Dr. Hansen previously served on the boards of Onxeo SA and TopoTarget A/S (EURONEXT, PA: ONXEONASDAQ OMX:TOPO) until August of 2014. In evaluating Dr. Hansen’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work with both public and private organizations, including his experience in building biopharmaceutical organizations, his strong business development background and experience with mergers and acquisitions and his past experience and relationships in the biopharma and biotech fields.  

 

 

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. Additionally, Mr. Ogilvie has served as a partner of Wirthlin Worldwide International, a private strategic advisory and M&A firm, from December 2011 until September 2014. 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. (NYSE MKT: 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.

 

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.

 

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 can be viewed on our website at www.genspera.com.

 

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. All of the committee charters are available on our web site at www.genspera.com. The committee membership and the function of each of the committees are described below.  

 

Director		Audit Committee		Nominating and Corporate Governance Committee		Leadership Development and Compensation Committee
Peter E. Grebow, PhD		Member		Chair		Member
Bo Jesper Hansen, MD, PhD		Member		Member		Chair
Scott V. Ogilvie		Chair		Member		Member

 

Executive compensation is determined by the Leadership Development and Compensation Committee.

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the definition, the Company has determined that Messrs. Ogilvie, Grebow and Hansen qualify as independent.

 

 

Audit Committee Financial Experts

 

Our Audit Committee is currently comprised of Scott V. Ogilvie, Peter Grebow, PhD and Bo Jesper Hansen, MD, PhD, each of whom is a non-employee member of our board of directors. The board of directors has determined that Scott V. Ogilvie and Bo Jesper Hansen, MD, PhD are each an audit committee financial expert as defined under the rules of the SEC.

 

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 2014.

 

 

ITEM 11.

EXECUTIVE COMPENSATION

 

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, 2014 and 2013 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, 2014; (ii) our most highly compensated executive officers other than our PEO who were serving as executive officers on December 31, 2014 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 ($)				Total ($)
Craig Dionne, PhD			2014				381,150				‒	(1)			‒				‒	(1)		‒		‒			44,763			425,913
Chief Executive Officer
And Chief Financial Officer			2013				363,000				181,500	(2)			‒				363,000	(2)		‒		‒			45,848			953,348
Russell Richerson, PhD			2014				324,685				‒	(1)			‒				‒	(1)		‒		‒			17,160			341,845
Chief Operating Officer
			2013				309,230				108,231	(3)			‒				309,230	(3)		‒		‒			17,262			743,953

 

(1) As of March 13, 2015, the executive’s bonus for 2014 has not yet been determined.

 

(2) In January 2014, Dr. Dionne was awarded a 2013 bonus award and long term incentive grant in the amount of $181,500 and $363,000, respectively. As payment of the bonus award and grant, options to purchase 1,136,943 common shares were issued on January 8, 2014. The number of shares to be issued pursuant to the bonus award and long term incentive grant was calculated based on the value determined using the Black Sholes option pricing model using the following assumptions: (i) exercise price of $1.42 per share; (ii) fair value of a share of common stock of $1.29; (iii) volatility of 55%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.483%; and (vi) estimated life of 3.5 years. The options are fully vested and lapse if unexercised on January 8, 2021.

 

(3) In January 2014, Dr. Richerson was awarded a 2013 bonus award and long term incentive grant in the amount of $108,231 and $309,230, respectively. As payment of the bonus award and grant, options to purchase 811,959 shares of common stock were issued on January 7, 2014. The number of shares to be issued pursuant to the bonus award and long term incentive grant was calculated based on the value determined using the Black Sholes option pricing model using the following assumptions: (i) exercise price of $1.29 per share; (ii) fair value of a share of common stock of $1.29; (iii) volatility of 55%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.483%; and (vi) estimated life of 3.5 years. The options are fully vested and lapse if unexercised on January 8, 2021.  

 

 

Outstanding Executive Equity Awards at Fiscal Year-End 2014

 

The following table sets forth information concerning stock options held on December 31, 2014, the last day of our 2014 fiscal year, for each named executive officer. 

 

		Number of Securities Underlying								Option				Option
		Unexercised Options (#)								Exercise				Expiration
Name and Principal Position		Exercisable				Unexercisable				Price ($)				Date
Craig Dionne, PhD			1,000,000				—				1.65			9/2/2016
Chief Executive Officer and			302,580				—				2.01			7/1/2018
Chief Financial Officer			344,813				—				2.21			1/2/2019
			70,342				—				2.21			1/2/2019
			418,951				—				2.18			3/25/2020
			142,443				—				2.18			3/25/2020
			378,981				—				1.42			1/7/2021
			757,962				—				1.42			1/7/2021
Russell Richerson, PhD			775,000				—				1.50			9/2/2016
Chief Operating Officer			256,790				—				1.83			7/1/2018
			292,927				—				2.01			1/2/2019
			46,576				—				2.01			1/2/2019
			343,137				—				1.98			3/25/2020
			173,181				—				1.98			3/25/2020
			210,508				—				1.29			1/7/2021
			601,451				—				1.29			1/7/2021

 

Employment Agreements and Change in Control

 

Craig Dionne

 

In connection with Dr. Dionne’s employment, we have entered into: (i) an employment agreement; (ii) a severance agreement; (iii) a proprietary information, inventions and competition agreement; and (iv) an indemnification agreement.

 

Employment Agreement

 

We employ Craig Dionne as our Chief Executive Officer pursuant to a 5 year written contract which commenced on September 2, 2009. Pursuant to the terms of the agreement, Dr. Dionne’s employment contract automatically extended for an additional one year term on September 2, 2014. As compensation for his services during 2014 and 2013, Dr. Dionne received a annual base salary of $381,150 and $363,000, respectively. Such base salary is reviewed yearly with regard to possible increase. In June of 2014, as a result of such review, our board of directors and Leadership Development and Compensation Committee adjusted Dr. Dionne’s annual base salary to $381,150, effective as of January 1, 2014. In addition, Dr. Dionne is eligible to receive annual discretionary and long term incentive bonuses as determined by the board. For 2012, 2013, and 2014, Dr. Dionne’s target bonus levels for annual discretionary bonus and long term incentive bonuses are: (i) 50%, and (ii) 100%, of base salary, respectively. Notwithstanding, the Board has broad discretion to make awards in excess of executive’s established targets. Commencing in 2014, the annual discretionary bonus is payable in cash and the long term incentive bonus is payable in common stock purchase options. Dr. Dionne is also entitled to receive certain payments and acceleration of outstanding equity awards in the event his employment is terminated. In the event that Dr. Dionne is terminated (not in connection with a change of control) without cause or if he resigns for good reason, he will be entitled to thirty-six (36) months of salary continuation (payable in monthly installments), thirty-six (36) months of continued medical insurance coverage for Dr. Dionne and his family at a cost no less favorable than the premium co-pay charged to active employees, the acceleration of outstanding equity awards and any accrued obligations. In the event that Dr. Dionne is terminated as a result of his disability, he will be entitled to twelve (12) months of salary continuation plus any accrued obligations. Any termination payments that may become due to Dr. Dionne are contingent upon his execution of a timely separation agreement in a form acceptable to us, which shall include a release of claims against us and his resignation from the board.

 

Severance Agreement

 

We have entered into a severance agreement with Dr. Dionne. The severance agreement provides for certain payments, as described below, in the event Dr. Dionne’s employment is terminated in connection with a change in control. In the event that Dr. Dionne is terminated without cause or resigns for good reason within a period of two (2) months before or two (2) years following the consummation of a change of control, the Company would be required to pay him (i) 100% of his then annual target bonus, pro-rated by the number of calendar days in which he was employed during that particular year, and (ii) a lump sum payment in an amount equal to three (3) times his then annual salary. These payments are subject to Dr. Dionne’s execution of a release of claims against us and shall be made on the tenth business day following the effective date of the release. If any payment under the severance agreement, when combined with any other payment, would constitute a “parachute payment” within the meaning of Code Section 280G then such payment shall be either the full amount or such lesser amount that would not result in an excise tax under Code Section 280G, based upon which interpretation yields the greater after-tax amount for Dr. Dionne.

 

 

Proprietary Information, Inventions and Competition Agreement

 

The proprietary information, inventions and competition agreement requires Dr. Dionne to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Dr. Dionne during his employment. The agreement also limits Dr. Dionne’s ability to compete within certain fields of interest, as defined in the agreement, for a period of 18 months following the end of his employment. 

 

Indemnification Agreement

 

The indemnification agreement provides for the indemnification and defense of Dr. Dionne, in the event of litigation, to the fullest extent permitted by law. The Company has also adopted the form of indemnification agreement for use with its other executive officers, employees and directors.

 

The foregoing summaries of Dr. Dionne’s: (i) employment agreement; (ii) severance agreement; (iii) proprietary information, inventions and competition agreement; and (iv) indemnification agreement are qualified in their entirety by reference to the full text of the agreements which have been filed with the SEC as exhibits to our public filings.

 

Russell Richerson

 

In connection with Dr. Richerson’s employment, we have entered into: (i) an employment agreement; (ii) a proprietary information, inventions and competition agreement; and (iii) an indemnification agreement.

 

Employment Agreement

 

We employ Russell Richerson as our Chief Operating Officer pursuant to a 3 year written contract, which commenced on September 2, 2009 and expired on September 2, 2012. On September 2, 2012, 2013 and 2014, the agreement was automatically extended for an additional year pursuant to its terms. As compensation for his services during 2014 and 2013, Dr. Richerson received an annual base salary of $324,685 and $309,000 per year, respectively. Such base salary is reviewed yearly with regard to possible increase. In June of 2014, as a result of such review, our board of directors and Leadership Development and Compensation Committee adjusted Dr. Richerson’s annual base salary to $324,685, effective as of January 1, 2014. In addition, Dr. Richerson is eligible to receive annual discretionary and long term incentive bonuses as determined by the board. For 2012 and 2013, Dr. Richerson’s target bonus levels for annual discretionary bonus and long term incentive bonuses are: (i) 35%, and (ii) 100%, of base salary, respectively. In connection with our board of directors and Leadership Development and Compensation Committee’s review of Dr. Richerson’s compensation in June of 2014, his target bonus levels for annual discretionary bonus and long term incentive bonuses were adjusted to: (i) 40% and (ii) 100%, of base salary, for 2014. Commencing in 2014, the annual discretionary bonus is payable in cash and the long term incentive bonus is payable in common stock purchase options. Dr. Richerson is also entitled to receive certain payments and acceleration of outstanding equity awards in the event his employment is terminated. In the event that Dr. Richerson is terminated without cause or if he resigns for good reason, he will be entitled to eighteen (18) months of salary continuation (payable in monthly installments), eighteen (18) months of continued medical insurance coverage for Dr. Richerson and his family at a cost no less favorable than the premium co-pay charged to active employees, the acceleration of outstanding equity awards and any accrued obligations. In the event that Dr. Richerson is terminated as a result of his disability, he will be entitled to twelve (12) months of salary continuation plus any accrued obligations. Any termination payments that may become due to Dr. Richerson are contingent upon his execution of a timely separation agreement in a form acceptable to us, which shall include a release of claims against us and his resignation from the board, if applicable.

 

Proprietary Information, Inventions and Competition Agreement

 

The proprietary information, inventions and competition agreement requires Dr. Richerson to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Dr. Richerson during his employment. The agreement also limits Dr. Richerson’s ability to compete within certain fields of interest, as defined in the agreement, for a period of 18 months following end of his employment.

 

 

 Indemnification Agreement

 

The indemnification agreement provides for the indemnification and defense of Dr. Richerson, in the event of litigation, to the fullest extent permitted by law.

 

The foregoing summaries of Mr. Richerson’s: (i) employment agreement; (ii) proprietary information, inventions and competition agreement; and (iv) indemnification agreement are qualified in their entirety by reference to the full text of the agreements which have been filed with the SEC as exhibits to our public filings.

 

Potential Payments Upon Termination or Change- in-Control

 

The following table sets forth the payments that would be made to our named executive officers if his employment in accordance with his employment agreement had been terminated by us without cause, termination as a result of disability on December 31, 2014 or in the event a change in control of our Company occurred on December 31, 2014, as applicable.

 

Name		Terminated without cause				Terminated, change of control				Termination as a result of Disability
Craig Dionne, PhD
Salary		$	1,143,450			$	1,143,450			$	381,150
Bonus (1)			571,725				571,725				—
Health			73,500				73,500				—
Total:		$	1,788,675			$	1,788,675			$	381,150
Russell Richerson, PhD
Salary			489,027			$	—			$	324,685
Bonus (1)			454,559				—				—
Health			27,900				—				—
Total:		$	971,486			$	—			$	324,685

 

(1)

Assumes all annual bonus milestones have been attained prior to termination.

 

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 ($)
Peter E. Grebow, PhD			40,002				—				20,261	(1)			—				—				—				60,263
Bo Jesper Hansen			40,002				—				12,925	(2)			—				—				—				52,927
Scott Ogilvie			40,002				—				22,398	(3)			—				—				—				62,400

 

(1)

Represents an option to purchase 38,000 common shares with a fair market value on May 23, 2014, the grant date, of $0.41 per share.  The option vests quarterly over a one-year period. Represents an additional option to purchase 15,000 common shares with a fair market value on June 27, 2014, the grant date, of $0.32 per share.  The option also vests quarterly over a one-year period.

 

(2)

Represents an option to purchase 53,000 common shares with a fair market value on August 13, 2014, the grant date, of $0.24 per share.  The option vests quarterly over a one-year period.

 

(3)

Represents an option to purchase 38,000 common shares with a fair market value on March 3, 2014, the grant date, of $0.46 per share.  The option vests quarterly over a one-year period. Represents an additional option to purchase 15,000 common shares with a fair market value on June 27, 2014, the grant date, of $0.32 per share.  One-fourth of the shares vest immediately, with the remaining shares vesting quarterly over a one-year period.

 

 

Director Compensation Plan

 

Legacy Plan

 

Pursuant to the terms of our legacy non-executive director compensation policy, prior to January 1, 2014, non-employee directors were entitled to the following compensation for service on our Board:

 

Inducement/First Year Grant. Upon joining the Board, the board member receives options to purchase 50,000 shares of our common stock.  The options vest as follows:  (i) 25,000 immediately upon appointment to the Board; and (ii) 25,000 quarterly over the following 12 months.

 

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 25,000 shares of common stock.  The annual grants vest quarterly during the grant year.

 

Committee and Committee Chairperson Grant. Each director will receive options to purchase an additional 4,000 shares of common stock for each committee on which he or she serves. Chairpersons of each committee will receive options to purchase an additional 1,000 share of common stock.  The committee grants vest quarterly during the grant year.

 

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 our shareholders.  In such instances, the Board shall have the flexibility to issue special committee grants.   The amount of such grants and terms will vary commensurate with the function and tasks of the special committee.

 

Exercise Price and Term. All options issued pursuant to the non-executive board compensation policy will have an exercise price equal to the fair market value of the Company’s common stock at close of market on the grant date.  The term of the options shall be for a period of 5 years from the grant date.

 

Cash Compensation. Our eligible directors also receive cash compensation equal to: (i) an annual cash retainer of $25,000, and (ii) a per committee cash award of $3,334.  

 

Amended Plan

 

In June of 2014, our Leadership Development and Compensation Committee recommended, and our board of directors approved, an amendment to non-executive director compensation policy. Effective January 1, 2014, non-employee directors are entitled to the following compensation for service on our Board:

 

Inducement/First Year Grant. Upon joining the board, board members receives options to purchase 50,000 shares of our common stock.  The options vest as follows:  (i) 25,000 immediately upon appointment to the board; and (ii) 25,000 quarterly over the following 12 months.

 

 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 40,000 shares of common stock or restricted stock units of equivalent value. The annual grants vest quarterly during the grant year.

 

Committee and Committee Chairperson Grant. Each director will receive options to purchase an additional 4,000 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 1,000 share of common stock, or restricted stock units of equivalent value.  The committee grants vest quarterly during the grant year.

 

Special Committee Grants. From time to time, individual directors may be requested by the board of directors 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 our company and our shareholders.  In such instances, the board shall have the flexibility to issue special committee grants.   The amount of such grants and terms will vary commensurate with the function and tasks of the special committee.

 

Exercise Price and Term. All options issued pursuant to the amended non-executive board 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.  The term of the options shall be for a period of 5 years from the grant date.

 

 

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.

 

Cash Compensation. Directors will also receive cash compensation equal to: (i) an annual cash retainer of $30,000, and (ii) a per committee cash award of $3,334.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Securities authorized for issuance under equity compensation plans

 

Information regarding shares authorized for issuance under equity compensation plans approved and not approved by stockholders required by this Item are incorporated by reference from Item 5 of this Annual Report from the section entitled “Equity Compensation Plan Information.”

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of March 15, 2015, 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
Craig Dionne, PhD			2,464,749	(5)			3,688,200				6,152,949				16.5	%
Russell B. Richerson, PhD			942,392				2,699,570				3,641,962				10.1	%
Bo Jesper Hansen, MD, PhD			—				216,750				216,750				*
Scott Ogilvie			—				284,000				284,000				*
Peter E. Grebow, PhD			—				140,750				140,750				*
All directors and executive officers as a group (5 persons)			3,407,141				7,029,270				10,436,411				25.7	%
Beneficial Owners of 5% or more
Kihong Kwon, MD(3)			2,456,567				—				2,456,567				7.3	%
Alpha Capital Anstalt(4)			2,361,213				—				2,361,213				7.0	%

 

*

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 GenSpera, Inc., 2511 N Loop 1604 W, Suite 204, San Antonio, TX 78258.

 

(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 33,518,366 shares of common stock issued and outstanding as of March 13, 2015.

 

(3)

1015 E. Chapman, Suite 201, Fullerton, CA 92831. Does not include 1,211,617 warrants or convertible securities subject to exercise conditions based on percentage ownership.

 

(4)

The source of the information regarding reporting person’s holdings and address was the Form 13g filed by reporting person on December 19, 2014.

 

(5)

Includes 433,740 shares owned by Craig A. Dionne & Bonnie Camille Dionne TTEES The Dionne Annuity Trust of 2011 and 566,260 shares owned by Craig A Dionne & Bonnie Camille Dionne JTWROS.

 

 

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 “Independent Directors.”

 

Related Party Transactions

 

·

During our December 2012 through March 2013 offering, Kihong Kwon, MD (including related and/or affiliated entities), purchased 70,914 units on the same terms and conditions as the other investors in the offering. The price per unit was $2.20. On March 22, 2013, we issued Dr. Kwon (or his related and affiliated entities) 17,076 additional units in connection with the adjustment to the per unit price. Each unit consists of: (i) one (1) share of the common stock, par value $0.0001, and (ii) one common stock purchase warrant. The warrants have a term of five years and entitle the holders to purchase common stock at a price per share of $3.00. In the event the shares underlying the warrants are not subject to a registration statement, the warrants may be exercised on a cashless basis after 12 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. The warrants do not contain any price protection provisions. Additionally, the warrants contain limitations on the holder’s ability to exercise the warrants in the event such exercise causes the holder to beneficially own in excess of 4.99% of the Company’s issued and outstanding common stock, subject to a discretionary increase in such limitation by the holder to 9.99% upon 61 days’ notice.

 

In connection with the offering, we entered into a registration rights agreement with Kihong Kwon, MD (including related and/or affiliated entities) on the same terms as that of the other investors in the offering. Pursuant to the registration rights agreements, we agreed to file a “resale” registration statement with the SEC covering all shares of the common stock and the shares underlying the warrants within 45 days of the final closing date of the sale of units and to maintain the effectiveness of the registration statement until all securities have been sold or are otherwise able to be sold pursuant to Rule 144. We have agreed to use our best efforts to have the registration statement declared effective within 90 days of the final closing. We are also obligated to pay to investors, as partial liquidated damages, a fee of 0.50% per month in cash up to a maximum of 6%, upon the occurrence of certain events, including but not limited to failure to file and/or have the registration statement declared effective within the time provided. Subsequent to the offering, we received a waiver and amendment to the registration rights agreement by holders of a majority of the registrable securities. The effect of the waiver and amendment is to waive all penalties under the registration rights agreement with regard to filing deadlines and effectiveness requirements.

 

·

On February 12, 2013, we granted each of Drs. Isaacs and Denmeade, in their respective capacities as our Scientific Advisors, common stock purchase options to purchase 20,000 shares, as compensation for serving on the Company’s scientific advisory board. The options have an exercise price of $1.95 per share. The options vest quarterly beginning on March 31, 2013 and lapse if unexercised on February 12, 2018.

 

·

On March 1, 2013 we granted Scott V. Ogilvie, one of our outside directors, options to purchase 38,000 shares of common stock. The options were granted pursuant to our director compensation plan as compensation for Mr. Ogilvie’s service on our board and related committees. The options have an exercise price of $1.90 per share. The options vest quarterly and have a term of five years.

 

 

·

On March 25, 2013, we issued Dr. Dionne, or CEO, options to purchase an aggregate of 561,394 in connection with his 2012 long term and annual bonus. The options have a term of seven years, an exercise price of $2.18 and are fully vested on the grant date.

 

·

On March 25, 2013, we issued Dr. Richerson, or COO, options to purchase an aggregate of 516,318 in connection with his 2012 long term and annual bonus. The options have a term of seven years, an exercise price of $1.98 and are fully vested on the grant date.

 

·

On May 24, 2013, we granted Peter E. Grebow, PhD, one of our outside directors, options to purchase 38,000 shares of common stock. The options were granted pursuant to our director compensation plan as compensation for Dr. Grebow’s service on our board and related committees. The options have an exercise price of $1.95 per share. The options vest quarterly and have a term of five years.

 

·

During June of 2013, in connection with Ms. Barnabei’s resignation as Vice President and Treasurer, we entered into a Release Agreement with Ms. Barnabei which provides for an extended amount of time to exercise any stock options vested as of June 30, 2013 from three months from the date of her final day of employment to the expiration date of each respective award, in exchange for Ms. Barnabei’s general release of claims against the Company, if any.

 

·

On January 7, 2014, we granted each of Drs. Isaacs and Denmeade, in their respective capacities as our Scientific Advisors, common stock purchase options to purchase 20,000 shares, as compensation for serving on the Company’s scientific advisory board. The options have an exercise price of $1.29 per share. The options vest quarterly beginning on March 31, 2014 and lapse if unexercised on January 7, 2019.

 

·

On January 8, 2014, we issued Dr. Dionne, or CEO, options to purchase an aggregate of 1,136,943 in connection with his 2013 long term and annual bonus. The options have a term of seven years, an exercise price of $1.42 and are fully vested on the grant date.

 

·

On January 8, 2014, we issued Dr. Richerson, or COO, options to purchase an aggregate of 811,959 in connection with his 2013 long term and annual bonus. The options have a term of seven years, an exercise price of $1.29 and are fully vested on the grant date.

 

·

On March 1, 2014, we granted Scott V. Ogilvie, one of our outside directors, options to purchase 38,000 shares of common stock. The options were granted pursuant to our legacy director compensation plan as compensation for Mr. Ogilvie’s service on our board and related committees. The options have an exercise price of $1.36 per share. The options vest quarterly over the year and have a term of five years.

 

·

On May 24, 2014, we granted Peter E. Grebow, PhD, one of our outside directors, options to purchase 38,000 shares of common stock. The options were granted pursuant to our legacy director compensation plan as compensation for Dr. Grebow’s service on our board and related committees. The options have an exercise price of $1.20 per share. The options vest quarterly over the year and have a term of five years.

 

·

In June of 2014, our Leadership Development and Compensation Committee recommended, and our board of directors approved, an amendment to non-executive director compensation policy. The amendment was made effective January 1, 2014. For a further discussion of the amended plan, see the section of this report entitled “Director Compensation.”

 

·

On June 27, 2014, we granted Scott V. Ogilvie, one of our outside directors, options to purchase 15,000 shares of common stock. The options were granted pursuant to our amended director compensation plan as compensation for Mr. Ogilvie’s service on our board and related committees. The options have an exercise price of $0.94 per share. The options have a term of five years, and 3,750 shares are fully vested on the grant date, with the balance vesting quarterly over the year.

 

·

On June 27, 2014, we granted Peter E. Grebow, PhD, one of our outside directors, options to purchase 15,000 shares of common stock. The options were granted pursuant to our amended director compensation plan as compensation for Dr. Grebow’s service on our board and related committees. The options have an exercise price of $0.94 per share. The options vest quarterly over the year and have a term of five years.

 

 

·

On August 13, 2014, we granted Bo Jesper Hansen, M.D., one of our outside directors, options to purchase 53,000 shares of common stock. The options were granted pursuant to our amended director compensation plan as compensation for Dr. Hansen’s service on our board and related committees. The options have an exercise price of $0.70 per share. The options vest quarterly over the year and have a term of five years.

 

·

On March 2, 2015 we granted Scott V. Ogilvie, one of our outside directors, options to purchase 53,000 shares of common stock. The options were granted pursuant to our legacy director compensation plan as compensation for Mr. Ogilvie’s service on our board and related committees. The options have an exercise price of $0.95 per share. The options vest quarterly over the year and have a term of five years.

 

·

As of March 15, 2015, we have 3 promissory notes payable to Dr. Dionne. Each note accrues interest at 4.2% per annum. The loans were originally made in order to provide us with working capital. The aggregate balance of the notes is $105,000 in principal and approximately $31,000 in accrued interest. The notes and accrued interest are convertible into 272,128 shares of common stock at a price of $0.50 per share.

 

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 2014 and 2013 fiscal years:

 

Type of Fees		2014				2013
Audit Fees
Liggett, Vogt & Webb, P.A.		$	50,000			$	50,500
RBSM, LLP			‒				‒
Audit Related Fees
Liggett, Vogt & Webb, P.A.			7,000				2,000
RBSM, LLP			20,000				22,000
Tax Fees			4,500				4,500
All Other Fees			‒				‒
Total Fees		$	81,500			$	79,000

 

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 2014 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. Neither of the firms which we engaged during 2014 provided any services, other than those listed above.

 

 

PART IV

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

1.

Financial Statements: See “Index to Financial Statements” in Part II, Item 8 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.

 

 

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.

 

	GENSPERA, INC.
Date: March 23, 2015		/s/ Craig Dionne
		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/ Craig Dionne			Chief Executive Officer, Chief Financial Officer and		March 23, 2015
	Craig Dionne		Director (Principal Executive Officer and Principal financial and accounting officer)
/s/ Peter E. Grebow, PhD			Director		March 23, 2015
	Peter E. Grebow, PhD
/s/ Bo Jesper Hansen MD PhD			Director		March 23, 2015
	Bo Jesper Hansen MD PhD
/s/ Scott Ogilvie			Director		March 23, 2015
	Scott Ogilvie

 

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants which have Not Registered Securities Pursuant to Section 12 of the Act.

 

 

GENSPERA, INC.

 

INDEX TO FINANCIAL STATEMENTS

 

		Page
Report of Liggett, Vogt & Webb, P.A., Independent Registered Public Accounting Firm		F‒1
Balance Sheets		F‒2
Statements of Losses		F‒3
Statements of Stockholders’ Equity		F‒4
Statements of Cash Flows		F‒5
Notes to Financial Statements		F‒6

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

GenSpera, Inc.

San Antonio, TX

 

We have audited the accompanying balance sheets of GenSpera, Inc. as of December 31, 2014 and 2013, and the related statements of losses, statement of stockholders' equity, and cash flows for each of the years ended December 31, 2014 and 2013. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on the financial statements based upon our audits

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GenSpera, Inc. at December 31, 2014 and 2013 and the results of its operations and its cash flows for each of the years ended December 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had an accumulated deficit of $39.4 million as of December 31, 2014, and will require additional cash to fund and continue operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

	/s/ Liggett, Vogt & Webb, P.A.
	Liggett, Vogt & Webb, P.A.
March 20, 2015
New York, New York

 

  

GENSPERA, INC.

BALANCE SHEETS

(in thousands, except share and per share data)

 

		December 31,
		2014				2013
ASSETS
Current assets:
Cash and cash equivalents		$	2,316			$	3,587
Prepaid expenses			197				163
Total current assets			2,513				3,750
Office equipment, net of accumulated depreciation of $23 and $16			12				14
Intangible assets, net of accumulated amortization of $111 and $94			101				118
Other assets			3				3
Total assets		$	2,629			$	3,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	989			$	1,270
Accrued expenses			1,438				1,250
Convertible notes – stockholder			105				105
Total current liabilities			2,532				2,625
Total liabilities			2,532				2,625
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.0001 per share; 30,000,000 shares authorized, none issued and outstanding			‒				‒
Common stock, par value $.0001 per share; 150,000,000 shares authorized, 33,181,197 and 27,252,966 shares issued and outstanding, respectively			3				3
Additional paid-in capital			39,473				33,642
Accumulated deficit			(39,379	)			(32,385	)
Total stockholders' equity			97				1,260
Total liabilities and stockholders' equity		$	2,629			$	3,885

 

See accompanying notes to audited financial statements.

 

 

GENSPERA, INC.

STATEMENTS OF LOSSES

(in thousands, except share and per share data)

 

		Years Ended December 31,
		2014				2013
Operating expenses:
Research and development		$	3,691			$	3,711
General and administrative			3,307				2,684
Total operating expenses			6,998				6,395
Loss from operations			(6,998	)			(6,395	)
Other income (expense):
Gain on change in fair value of warrant derivative liability			‒				1,096
Interest income (expense), net			4				(3	)
Loss before provision for income taxes			(6,994	)			(5,302	)
Provision for income taxes			‒				‒
Net loss		$	(6,994	)		$	(5,302	)
Net loss per common share, basic and diluted		$	(0.23	)		$	(0.21	)
Weighted average shares outstanding			30,413,042				24,816,481

 

See accompanying notes to audited financial statements.

 

 

GENSPERA, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

 

										Additional								Stockholders'
		Common Stock								Paid-in				Accumulated				Equity
		Shares				Amount				Capital				Deficit				(Deficit)
Balance, December 31, 2012			22,298,424			$	2			$	26,353			$	(27,083	)		$	(728	)
Stock-based compensation			‒				‒				1,254				‒				1,254
Exercise of warrants			863,392				‒				404				‒				404
Reclassification of derivative liability upon exercise of warrants			‒				‒				80				‒				80
Sale of common stock and warrants at $1.773 per share			757,794				‒				1,217				‒				1,217
Sale of common stock and warrants at $1.50 per share			3,333,356				1				4,999				‒				5,000
Issuance cost of sales of common stock and warrants			‒				‒				(665	)			‒				(665	)
Net loss			‒				‒				‒				(5,302	)			(5,302	)
Balance, December 31, 2013			27,252,966			$	3			$	33,642			$	(32,385	)		$	1,260
Stock-based compensation			‒				‒				1,319				‒				1,319
Common stock and warrants issued as payment of services and consulting fees			798,020				‒				735				‒				735
Sale of common stock and warrants at $0.80 per share (Registered Offering)			4,163,961				‒				3,331				‒				3,331
Sale of common stock and warrants at $0.80 per share (Private Placement)			966,250				‒				773				‒				773
Issuance cost of sales of common stock and warrants			‒				‒				(327	)			‒				(327	)
Net loss			‒				‒				‒				(6,994	)			(6,994	)
Balance, December 31, 2014			33,181,197			$	3			$	39,473			$	(39,379	)		$	97

 

See accompanying notes to audited financial statements.

 

 

GENSPERA, INC.

STATEMENTS OF CASH FLOWS

(in thousands, except share and per share data)

 

		December 31,
		2014				2013
Cash flows from operating activities:
Net loss		$	(6,994	)		$	(5,302	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			23				23
Stock-based compensation			2,054				1,254
Change in fair value of derivative liability			‒				(1,096	)
Increase in operating assets:
Prepaid expenses			(34	)			(86	)
Increase in operating liabilities:
Accounts payable and accrued expenses			(93	)			500
Cash used in operating activities			(5,044	)			(4,707	)
Cash flows from investing activities:
Acquisition of office equipment			(4	)			(8	)
Cash used in investing activities			(4	)			(8	)
Cash flows from financing activities:
Proceeds from sale of common stock and warrants			4,104				6,217
Proceeds from exercise of warrants			‒				405
Cost of common stock and warrants sold			(327	)			(665	)
Cash provided by financing activities			3,777				5,957
Net (decrease) increase  in cash			(1,271	)			1,242
Cash, beginning of period			3,587				2,345
Cash, end of period		$	2,316			$	3,587

 

See accompanying notes to audited financial statements.

 

 

GENSPERA, INC.

NOTES TO FINANCIAL STATEMENTS

 

NOTE 1 ‒ BACKGROUND

 

GenSpera, Inc. (“we”, “us”, “our company”, “our”, “GenSpera” or the “Company”) was formed under the laws of the State of Delaware in November 2003, and has its principal office in San Antonio, Texas. We are an early-stage, pre-revenue, pharmaceutical company focused on the discovery and development of prodrug cancer therapeutics for the treatment of solid tumors, including liver, brain, prostate and other cancers. We plan to develop a series of therapies based on our target-activated prodrug technology platform.

 

Our primary focus at the present time is the clinical development of our lead compound, mipsagargin (formerly referred to as G-202), a novel therapeutic agent with a unique mechanism of action. We have completed a Phase Ia/Ib dose escalation, safety, tolerability and dose refinement study of mipsagargin, in which we treated a total of 44 patients (includes Phase Ia and Ib), including two patients with hepatocellular carcinoma (HCC), or liver cancer, who experienced prolonged stabilization of disease up to eleven months after initiation of treatment. We are conducting a Phase II clinical trial of mipsagargin in patients with liver cancer, in which twenty-five patients have been treated, and is closed to new patient enrollment. In January 2015, we announced results from our Phase II study in liver cancer patients which indicated that study participants experienced a median time to progression of 4.2 months, nearly twice the time demonstrated in prior studies with placebo or ineffective agents. Thirty-five percent of patients received five or more cycles of treatment with an average time on study of 7.1 months. These results support our plans to continue the development of mipsagargin for patients with liver cancer, as well as proceed with our clinical development strategy in other indications including glioblastoma, prostate cancer and renal cell carcinoma trials. Notwithstanding that the initial and interim data from our trials appear promising, the outcome of our trials is uncertain and our current or future trials may ultimately be unsuccessful.

 

We are currently conducting a Phase II clinical trial in glioblastoma (a type of brain cancer), in which twelve patients have been treated as of March 3, 2015. We also anticipate commencing the enrollment of patients in Phase II clinical trials in patients with prostate and renal cancers during the second quarter of 2015.

 

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 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. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. We have incurred losses since inception and have a deficit accumulated of $39.4 million as of December 31, 2014. We anticipate incurring additional losses for the foreseeable future until such time, if ever, that we can generate significant sales from our product candidates currently in development or we enter into cash flow positive business development transactions.

 

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 balance at December 31, 2014 was $2.3 million, representing 88% of our total assets. Based upon our current expected level of operating expenditures, we expect to be able to fund our operations for the next six to nine months. 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, public or private sales of debt or equity securities, or some combination thereof. There is no assurance that any such collaborative 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 acceptable to us.

 

In the event 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.

  

 

NOTE 3 ‒ Summary of Critical Accounting Policies and Use of Estimates

 

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.

 

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 $3.7 million in each of the years ended December 31, 2014 and 2013, 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.

 

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 cash equivalents were $2.3 million and $3.6 million at December 31, 2014 and 2013, respectively. As of December 31, 2014 and 2013, there was $1.9 million and $3.1 million in cash over the federally insured limit of $250,000.

 

We currently outsource all manufacturing of our clinical supplies to single source manufactures. We also have a single source supplier for the active ingredient in our prodrug compounds, including mipsagargin. A change in these suppliers could cause a delay in manufacturing and/or clinical trials, which would adversely affect our Company.

 

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 Equipment

 

Office 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 five 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 office equipment for impairment.   

 

Depreciation expense was approximately $7,000 and $6,000 for the years ended December 31, 2014 and 2013, 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.

 

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of December 31, 2014 and 2013, as they would be anti-dilutive:

 

		Year Ended December 31,
		2014				2013
Shares underlying options outstanding			8,685,095				6,050,623
Shares underlying warrants outstanding			19,897,928				10,216,597
Shares underlying convertible notes outstanding			270,339				261,519
			28,853,362				16,528,739

 

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.

 

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 previously had recorded a warrant derivative liability for warrants with anti-dilution provisions, which all the respective warrants were either exercised or expired as of December 31, 2014 and 2013.

 

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 measure the cost of employee services received in exchange for equity awards based on the grant-date fair value of the awards. All awards under our stock-based compensation programs are accounted for at fair value and that cost is recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).

 

Compensation expense for options granted to non-employees is determined in accordance with the fair value of the consideration received or the fair value of the equity instruments issued, whichever is a more reliable measurement. Compensation expense for awards granted to non-employees is re-measured on each accounting period.

 

Determining the appropriate fair value of stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based compensation and the volatility of our stock price. We use the Black-Scholes option-pricing model to value our stock option awards which incorporates our stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life.

 

Reclassifications

 

Certain prior year balances have been reclassified to conform to current year presentation.

 

Recent Accounting Pronouncements

 

In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This Update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. We are currently assessing the impact of the adoption of ASU 2014-15, and we have not yet determined the effect of the standard on our ongoing financial reporting.

 

 

In June 2014, the FASB issued ASU 2014-10 Development Stage Entities (Topic 915). ASU 2014-10 removes all incremental financial reporting requirements from U.S. GAAP for development stage entities. ASU 2014-10 should be applied retrospectively and is effective for fiscal years beginning after December 15, 2014. Early application is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued or made available for issuance. We have decided to adopt ASU 2014-10 early, accordingly all of the past disclosures and presentations for development stage accounting have been eliminated.

 

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

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

 

		Year Ended December 31,
		2014				2013
Non-cash financial activities:
Common stock options issued as payment of accrued compensation		$	962			$	999
Common stock and warrants issued for consulting fees			735				‒
Derivative liability reclassified to equity upon exercise of warrants			‒				80

 

There was no cash paid for interest and income taxes for the years ended December 31, 2014 and 2013.

 

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, 2014 and 2013 was approximately $17,000 for both years. Amortization expense is estimated to be approximately $17,000 for each one of the next five fiscal years.

  

NOTE 6 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

		December 31,
		2014				2013
Accrued compensation and benefits		$	1,108			$	1,040
Accrued research and development			163				82
Accrued other			167				128
Total accrued expenses		$	1,438			$	1,250

  

NOTE 7 ‒ CONVERTIBLE NOTES PAYABLE

 

We have issued convertible notes to our chief executive officer pursuant to which we borrowed an aggregate of $0.2 million, with $0.1 million principal balance outstanding at December 31, 2014. The notes bear an interest rate of 4.2% and matured at various dates through December 6, 2011. Accrued interest at December 31, 2014 and December 31, 2013 was approximately $30,000 and $26,000, respectively. As of December 31, 2014, our chief executive officer has not demanded the payment of the outstanding principal and accrued interest. Accordingly, we consider these amounts due on demand. The notes and accrued interest are convertible, at the option of the holder, into shares of our common stock at a conversion price of $0.50 per share.

 

 

NOTE 8 ‒ COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company leases its corporate offices under an operating lease that expires on October 14, 2015.  Rent expense for office space amounted to approximately $56,000 and $55,000 for the years ended December 31, 2014 and 2013, respectively. The following table summarizes future minimum lease payments as of December 31, 2013 (in thousands):

 

2015		$	45
Thereafter			‒
Total minimum lease payments		$	45

 

Employment Agreements

 

We employ our Chief Executive Officer and Chief Operating Officer pursuant to written employment agreements. The employment agreements contain severance provisions and indemnification clauses. The indemnification agreement provides for the indemnification and defense of the executive officers, in the event of litigation, to the fullest extent permitted by law. As part of the agreements, the executives potentially shall be entitled to the following (in thousands):

 

		Chief Executive Officer				Chief Operating Officer
Terminated without cause		$	1,789			$	969
Terminated, change of control  without good reason			1,789				—
Terminated for cause, death, disability and by executive without good reason			381				325

 

Legal Matters

 

On March 12, 2012, GenSpera instituted a declaratory judgment action against Annastasiah Mhaka (“Mhaka”) in the United States District Court for the District of Maryland: GenSpera, Inc. v. Mhaka, Civil Action No. MJG-12-772 (D. Md.). In its complaint, GenSpera, as the exclusive licensee of the inventions described and claimed in the U.S. Patent No. 7,468,354 (“the ‘354 patent”) and U.S. Patent No. 7,767,648 (“the ‘648 patent”), sought a declaratory judgment that Mhaka should not be added to either the ‘354 patent or the ‘648 patent as an inventor. On April 2, 2012, Mhaka filed and served her answer and counterclaim, in which she sought to be added as an inventor to the ‘354 patent and the ‘648 patent pursuant to 35 U.S.C. § 256. On November 1, 2012, Mhaka filed a second complaint in Maryland state court, asserting state tort claims against GenSpera and Drs. Samuel Denmeade and John Isaacs.

 

On May 1, 2013, the District Court granted GenSpera’s motion for summary judgment in the original case. Reserving any ruling on the issue of whether Mhaka’s state law tort claims were preempted by federal patent law, the Court denied defendants’ motion to dismiss Mhaka’s complaint in the second case and directed Mhaka to re-file her claims as counterclaims in the original action. On May 14, 2013, Mhaka filed an amended answer and counterclaims in the consolidated action, re-pleading her tort claims as counterclaims. On June 3, 2013, GenSpera (along with Drs. Denmeade and Isaacs) filed a reply to the counterclaims, denying their allegations and raising a number of affirmative defenses. On January 2, 2014, Drs. Isaacs and Denmeade moved for summary judgment on the grounds that Mhaka’s tort claims were barred by the applicable statute of limitations, and GenSpera joined in the motion. On May 6, 2014, GenSpera moved separately for summary judgment, a motion that Drs. Denmeade and Isaacs joined in part. On September 12, 2014, the District Court granted GenSpera’s motion for summary judgment as well as the motion for summary judgment filed by Drs. Denmeade and Isaacs. Judgment in favor of GenSpera, Dr. Isaacs, and Dr. Denmeade was entered concurrently for purposes of both the original case and the second case.

 

On October 10, 2014, Mhaka filed notices of Appeal with the United States Courts of Appeals for the Fourth Circuit and Federal Circuit. On December 11, 2014, GenSpera (along with Drs. Denmeade and Isaacs) filed a motion to dismiss the appeal before the United States Court of Appeals for the Fourth Circuit on the ground that the Court of Appeals for the Federal Circuit possesses exclusive jurisdiction over any appeal from the District Court. On December 29, 2014, Mhaka filed an opposition to the motion to dismiss and moved the Court of Appeals for the Fourth Circuit to stay appellate proceedings pending resolution of the appeal before the United States Court of Appeal for the Federal Circuit. On January 12, 2015, the Appellees filed an opposition to the motion to stay. On March 17, 2015, the Court of Appeals for the Fourth Circuit dismissed Mhaka’s appeal for lack of jurisdiction.

 

  

In the appellate proceedings before the United States Court of Appeals for the Federal Circuit, Mhaka originally filed her opening brief on December 26, 2014. Mhaka filed a corrected opening brief on January 20, 2015. On February 12, 2015, the Appellees filed their responsive brief, and on March 16, 2015, Mhaka filed a reply brief. Oral argument on the appeal has yet to be scheduled.

 

NOTE 9 ‒ CAPITAL STOCK AND STOCKHOLDER’S EQUITY

 

Common Stock

 

In December 2014, we issued a total of 424,522 common shares to Phyton Biotech GmbH as partial compensation for services related to the development of a cell line derived from Thapsia garganica. The services were valued at $280,000 in total.

 

In October 2014, we issued a total of 20,000 common shares as partial compensation for business advisory services. The services associated with the shares were valued at approximately $15,000 in total.

 

In August 2014, we issued an aggregate of 25,000 units to consultants as payment for business and advisory services valued at approximately $20,000 in total. Each unit consists of one share of our common stock, and one-half of one Series D common stock purchase warrant. The units are substantially similar to the units issued in our June 2014 private placement. Each warrant has an exercise price of $1.15 per share, is immediately exercisable and separately transferable from the common shares and expires on the five year anniversary of the date of issuance. In August 2014, we also issued a total of 189,364 common shares, valued at approximately $169,000, as partial payment for investor and media relations services.

 

In February 2014, we entered into an agreement with H.C. Wainwright to serve as our exclusive advisor for a proposed offering of our securities. Pursuant to the placement agent agreement, we agreed to a cash placement fee equal to 8% of the aggregate gross proceeds to us from the sale of our securities and to issue the placement agent warrants to purchase shares of common stock equal to 8% of the common stock sold in such offering (excluding shares of common stock issuable upon the exercise of any warrants issued in the offering), provided that, with respect to sales to certain prior investors, we agreed to pay a cash placement agent fee of 4% of the aggregate gross proceeds from such prior investors and issue the placement agent warrants to purchase shares of common stock equal to 4% of the common stock sold to such investors. In June 2014, we completed a registered offering of our securities, see Equity Financing section below for further information regarding this transaction.

 

In February 2014, we entered into an agreement for method development by a contract manufacturer and issued an aggregate of 91,334 shares of common stock, valued at approximately $127,000, as compensation. In February 2014, we also entered into an agreement to grant an aggregate of 47,800 shares of common stock, valued at approximately $67,000, to a consultant for business advisory services to be provided to the Company.

 

During the year ended December 31, 2014, no warrants were exercised into common shares. During the year ended December 31, 2013, 325,670 warrants were exercised into an equivalent number of common shares for which we received proceeds of approximately $404,000, and one million warrants were exercised on a cashless basis into 537,722 common shares.

 

Equity Financing

 

June 2014 Registered Offering

 

On May 23, 2014, our registration statement on Form S-1 (File No. 333-194687) was declared effective by the United States Securities and Exchange Commission. Pursuant to the registration statement, we offered and sold 4,163,961 units, each consisting of: (i) one share of our common stock, (ii) one-half of one Series A common stock purchase warrant, (iii) one Series B common stock purchase warrant and (iv) one Series C common stock purchase warrant. The units were sold at a public offering price of $0.80 per unit. The offering commenced on May 28, 2014 and did not terminate before all of the securities registered in the registration statement were sold. On June 3, 2014, we closed the sale of such securities, resulting in net proceeds to us of approximately $3.0 million after deducting placement agent fees and expenses of $278,000 and other offering expenses of approximately $64,000, including the reimbursement of placement agent’s counsel of $50,000. The placement agent also received common stock purchase warrants to purchase 326,817 shares on substantially the same terms as the Series A warrants.

 

Each Series A warrant has an exercise price of $1.15 per share, is immediately exercisable and separately transferable from the common shares and expires on the five year anniversary of the date of issuance. Each Series B warrant has an exercise price of $0.85 per share, is immediately exercisable and separately transferable from the common shares and expires on the nine month anniversary of the date of issuance. Each Series C warrant has an exercise price of $0.85 per share, is immediately exercisable and separately transferable from the common shares and will expire on the twelve month anniversary of the date of issuance. The units are not certificated. In December 2014, the expiration date of the Series B and C Warrants was extended until December 31, 2015.

 

June 2014 Private Placement

 

In June 2014, we are also offered and sold 966,250 units in a private placement to certain accredited investors with whom we had a prior relationship or who were shareholders. Each unit was priced at $0.80 and consisted of one share of our common stock, and one-half of one Series D common stock purchase warrant. Each Series D warrant has an exercise price of $1.15 per share, is immediately exercisable and separately transferable from the shares and will expire on the five year anniversary of the date of issuance.

 

 

August 2013 Offering

 

In August of 2013, we sold an aggregate of $5,000,032, or 3,333,356 units, to accredited and institutional investors. The price per unit was $1.50, with each unit consisting of (i) one share of the Company’s common stock and (ii) one common stock purchase warrant. The warrants have a term of five years and entitle the holder to purchase the Company’s common stock at a price per share of $1.75. 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 limitations on the holder’s ability to exercise the warrants in the event such exercise causes the holder to beneficially own in excess of 4.99% of the Company’s issued and outstanding common stock, subject to a discretionary increase in such limitation by the holder to 9.99% upon 61 days’ prior notice to the Company.

 

In connection with the offering, we also paid commissions equal to 8% of gross proceeds, for an aggregate commission of $400,003, and a non-accountable expense allowance equal to 2% of the gross proceeds, or $100,001 to the placement agent. The placement agent also received common stock purchase warrants to purchase such number of shares equal to 8% of the shares sold in the offering to investors, or 266,668 placement agent warrants with substantially the same terms as the warrants. Additionally, the placement agent was also reimbursed for its legal and due diligence costs in an amount not greater than $35,000. The placement agent will also receive (i) a cash fee of 4% of gross proceeds received from the exercise of the warrants, and (ii) additional transaction fees equal to 8% of gross proceeds and 8% warrant coverage for any future investment by one of the investors in the Company for a period of 12 months following the closing of the offering.

 

In connection with the offering, investors received certain registration rights. Pursuant to the registration rights, the Company agreed to file a registration statement with the SEC within 45 days from the closing to register the resale of the common shares and common shares underlying the warrants. The Company also agreed to have the registration statement declared effective within 120 days from the filing date. The Company agreed to keep the registration statement continuously effective until the earlier to occur 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 or shares of the Company’s common stock, at the discretion of the Company, upon the occurrence of certain events, including our failure to file and / or failure to have the registration statement declared effective within the time provided. The Company has satisfied the filing deadline and effectiveness condition.

 

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.

 

GenSpera’s Compensation Plans

 

The Company’s 2007 Equity Compensation Plan (2007 Plan) and 2009 Executive Compensation Plan (2009 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 GenSpera 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.

 

As of December 31, 2014, our 2009 Plan authorized up to 6,000,000 shares of common stock to be reserved for issuance upon exercise of stock options or other stock-based awards, and the Company has awarded 4,945,874 stock options, and 1,054,126 shares of common stock were available for future grants under the 2009 Plan. All option awards granted under the 2009 Plan are fully vested.

 

 

Our 2007 Plan authorizes up to 6,000,000 shares of common stock to be reserved for the issuance upon exercise of stock options or other stock-based awards, subject to an annual award limitation of 1,500,000 shares. Under the 2007 Plan, vesting schedules for stock options vary, but generally vest for a period of not more than five years and at a rate of not less than 20% per year. The maximum term of an option granted under the 2007 Plan is ten years. As of December 31, 2014, the Company has awarded 4,174,221 stock options, and 2,090,779 shares of common stock were available for future grants under the 2007 Plan.

 

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):

 

		2014				2013
Research and development		$	891			$	483
General and administrative			1,164				771
Total stock-based compensation expense		$	2,055			$	1,254

 

The following table summarizes stock option activity under the Plans:

 

		Number of shares				Weighted- average exercise price				Weighted- average remaining contractual term (in years)				Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2012			4,674,628			$	1.79
Granted			1,515,995			$	2.02
Exercised			‒				‒
Forfeited			(140,000	)		$	2.80
Outstanding at December 31, 2013			6,050,623			$	1.82				4.0			$	272
Granted			2,759,472			$	1.26
Exercised			‒				‒
Forfeited			(125,000	)		$	1.50
Outstanding at December 31, 2014			8,685,095			$	1.65				4.0			$	46
Exercisable at December 31, 2014			8,559,895			$	1.66				4.0			$	46

 

As of December 31, 2014, there was $43,000 of total unrecognized compensation cost related to non-vested stock options which vest over time, and is expected to be recognized over a weighted-average period of 1.2 years. As of December 31, 2013, there was $0.1 million of total unrecognized compensation cost related to non-vested stock options which vest over time, and is expected to be recognized over a weighted-average period of 0.5 years.

 

During 2014 and 2013, the Company issued options to purchase 2,107,902 and 1,335,972 shares of common stock, respectively, to employees, and non-employee directors under the Plans. The weighted-average fair value of the options granted to employees and non-employee directors during 2014 and 2013 was estimated at $0.48 and $0.84 per share, respectively, on the date of grant.

 

During 2014 and 2013, the Company issued options to purchase 651,570 and 180,023 shares of common stock, respectively, to consultants under the Plan. The per-share weighted-average fair value of the options granted to consultants during 2014 and 2013 was estimated at $0.38 and $0.75, respectively, on the date of grant.

 

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued for the years ended December 31, 2014 and 2013:

 

		Year Ended December 31,
		2014				2013
Volatility			55.8	%			58.8	%
Expected term (years)			3.5				3.7
Risk-free interest rate			0.7	%			0.6	%
Dividend yield			None				None

 

No options were exercised during the years ended December 31, 2014 and 2013.

 

 

NOTE 11 ‒ WARRANTS AND DERIVATIVE WARRANT LIABILITY

 

We account for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement.  Common stock warrants are accounted for as derivative liabilities if the stock warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of common stock are at a lower price per share than the then-current warrant exercise price.  We classify derivative warrant 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. Transactions involving our equity-classified and liability-classified stock 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, 2012			8,513,984			$	2.47
Granted			4,376,228			$	1.97
Exercised			(1,325,670	)		$	1.06
Forfeited			(1,347,945				1.52
Outstanding at December 31, 2013			10,216,597			$	2.56				2.9			$	48.0
Granted			11,467,847			$	0.95
Forfeited			(1,786,516	)		$	2.85
Outstanding at December 31, 2014			19,897,928			$	1.61				1.8			$	8.4
Exercisable at December 31, 2014			19,897,928			$	1.61				1.8			$	8.4

 

During the year ended December 31, 2014, no warrants were exercised into common shares. During the year ended December 31, 2013, 325,670 warrants were exercised into an equivalent number of common shares for which we received approximately $404,000 in proceeds, and 1,000,000 warrants were exercised on a cashless basis into 537,722 common shares.

 

The following table summarizes outstanding warrants to purchase common stock as of December 31, 2014:

 

		Number of shares				Weighted Average Exercise price				Expiration
Equity–classified warrants
Issued to consultants			1,045,759			$	2.22			May 2015 through August 2019
Issued pursuant to 2010 financings			1,022,943			$	3.38			January 2015 through May 2015
Issued pursuant to 2011 financings			1,936,785			$	3.24			January 2016 through April 2016
Issued pursuant to 2012 financings			296,366			$	3.00			December 2017
Issued pursuant to 2013 financings			4,376,228			$	1.97			December 2017 through August 2023
Issued pursuant to 2014 financings			11,219,847			$	0.93			December 2015 through June 2019
			19,897,928

 

Equity-classified Warrants

 

During 2014, the Company issued warrants to consultants to purchase 248,000 at a weighted-average fair value of $0.36 per share on the date of grant. During 2014, total stock-based compensation expense of approximately $89,000 was recognized using the straight-line method in the statement of losses for warrants issued to consultants. During 2013, the Company did not issue any warrants to consultants to purchase shares of common stock. The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the equity-classified warrants issued for services for the year ended December 31, 2014:

 

Volatility			51.1	%
Expected term (years)			2.0
Risk-free interest rate			0.5	%
Dividend yield			None

 

 

In June 2014, in connection with our registered offering, we issued an aggregate of 10,736,722 common stock purchase warrants, including 10,409,905 issued to investors and 326,817 issued to the placement agents. The warrants were issued with exercise prices between $0.85 and $1.15 per share. Additionally, we also issued 483,125 common stock purchase warrants to investors in our June 2014 private placement. The warrants have an exercise price of $1.15 per share.

 

In 2014, we also issued warrants to consultants to purchase 248,000 shares of common stock as compensation for business and advisory services. The common stock purchase warrants have exercise prices of between $1.15 and $3.00 per share, are immediately exercisable and expire on the five year anniversary of the date of issuance. The per share weighted-average fair value of the warrants granted to consultants during 2014 was estimated at $0.36 per share on the date of grant.

 

In August 2013, in connection with an offering of our securities, we issued an aggregate of 776,204 common stock purchase warrants, including: 686,420 pursuant to closings in January 2013 and March 2013; 18,410 to the placement agent; and 71,374 additional warrants issued to investors that participated in the December 2012 closing. All warrants were issued with an exercise price of $3.00 per share. In connection with our August 2013 Offering, the Company issued an aggregate of 3,600,024 common stock purchase warrants, including: 3,333,356 issued to investors, and 266,668 to the placement agents. All warrants were issued with an exercise price of $ 1.75 per share.

 

In 2013, in connection with multiple closings of the December 2012 offering, the Company issued an aggregate of 776,204 common stock purchase warrants, including: 686,420 pursuant to closings in January 2013 and March 2013; 18,410 to the placement agent; and 71,374 additional warrants issued to investors that participated in the December 2012 closing. All warrants were issued with an exercise price of $ 3.00 per share. In connection with our August 2013 offering, the Company issued an aggregate of 3,600,024 common stock purchase warrants, including: 3,333,356 issued to investors, and 266,668 to the placement agents. All warrants were issued with an exercise price of $ 1.75 per share.

 

Liability-classified Warrants

 

The Company has assessed its outstanding equity-linked financial instruments and has concluded that certain of its common stock purchase warrants are subject to derivative accounting, as a result of certain anti-dilution provisions contained in the warrants. The fair value of these warrants was classified as a liability in the financial statements with the change in fair value during the periods presented recorded in the statement of operations. At December 31, 2013, all outstanding liability-classified warrants were either exercised or had expired.

 

We did not record a gain or loss during the year ended December 31, 2014, as the outstanding liability-classified warrants were either exercised or had expired. We recorded a gain of $1.1 million during the year ended December 31, 2013, related to the change in fair value of the warrant derivative liability during that period, and for the expiration of such warrants during the year. In 2013, we reclassified approximately $80,000 of the derivative liability as a result of approximately 242,000 warrants being exercised.

 

NOTE 12 ‒ INCOME TAXES

 

The Company had, subject to limitation, $27.8 million of net operating loss carryforwards at December 31, 2014, which will expire at various dates beginning in 2015 through 2025. In addition, the Company has research and development tax credits of approximately $443,000 at December 31, 2014 available to offset future taxable income, which will expire from 2028 through 2035. 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 $2.4 and $1.8 million for the year ended December 31, 2014 and 2013, respectively. Significant components of deferred tax assets and liabilities are as follows (in thousands): 

 

		2014				2013
Deferred tax assets:
Net operating loss carryover		$	9,466			$	7,590
Stock-based compensation			3,372				2,888
Tax credits			443				398
Total deferred tax assets			13,281				10,876
Less: valuation allowance			(13,281	)			(10,876	)
Net deferred tax assets		$	‒			$	‒

 

 

The actual tax benefit differs from the expected tax benefit for the years ended December 31, 2014 and 2013 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes) are as follows:

 

		2014				2013
Statutory federal income tax rate			-34.0	%			-34.0	%
Permanent differences			0.0	%			-7.0	%
Adjustment for R&D Credit			0.2	%			0.2	%
Valuation allowance			33.8	%			40.8	%
Effective income tax rate			‒	%			‒	%

 

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

 

NOTE 13 – SUBSEQUENT EVENTS

  

In February and March 2015, certain holders of the Company’s Series B warrants exercised their warrants to purchase an aggregate of 337,169 shares of our common stock at an exercise price of $0.85 per share, resulting in gross proceeds to the Company of approximately $0.3 million.

 

In March 2015, we entered into a consulting agreement and issued an aggregate of 30,000 shares of our common stock, valued at approximately $27,000, as compensation.

 

 

INDEX TO EXHIBITS

 

						Incorporated by Reference
Exhibit No.		Description		Filed Herewith		Form		Exhibit No.		File No.		Filing Date
3.01		Amended and Restated Certificate of Incorporation dated September 4, 2013				8-K		3.01		333-153829		9/6/13
3.02		Amended and Restated Bylaws				8-K		3.02		333-153829		1/11/10
4.01		Specimen of Common Stock certificate				S-1		4.01		333-153829		10/03/08
4.02**		Amended and Restated GenSpera 2007 Equity Compensation Plan amended January 2010				8-K		4.01		333-153829		1/11/10
4.03**		GenSpera Form of 2007 Equity Compensation Plan Grant and 2009 Executive Compensation Plan Grant				8-K		4.02		333-153829		9/09/09
4.04		Form of 4.0% convertible note issued to shareholder				S-1		4.05		333-153829		10/03/08
4.05		Form of Warrant - July and August 2008 private placements				S-1		4.10		333-153829		10/03/08
4.06		Form of 4.0% convertible debenture modification between GenSpera, Inc. and shareholder				8-K		10.02		333-153829		2/20/09
4.07		Form of Common Stock Purchase Warrant issued February 2009 to TR Winston & Company, LLC				8-K		10.05		333-153829		2/20/09
4.08		Form of Common Stock Purchase Warrant issued February 2009 to Craig Dionne				8-K		10.06		333-153829		2/20/09
4.09		Form of Common Stock Purchase Warrant issued February 2009				8-K		10.02		333-153829		2/20/09
4.10		Form of Common Stock Purchase Warrant issued June 2009				8-K		10.03		333-153829		7/06/09
4.11**		Amended and Restated 2009 Executive				10-K		4.11		333-153829		3/29/13
		Compensation Plan amended on March 25, 2013
4.12		Form of Common Stock Purchase Warrant issued September 2009				8-K		10.02		333-153829		9/09/09

 

4.13		Form of Securities Purchase Agreement - Jan - Mar 2010 offering				10-K		4.27		333-153829		3/31/10
4.14		Form of Common Stock Purchase Warrant issued Jan - Mar 2010				10-K		4.28		333-153829		3/31/10
4.15		Form of Consultant Warrants issued in May 2010				10-Q		4.29		333-153829		5/14/10
4.16		Form of Securities Purchase Agreement - May 2010				8-K		10.01		333-153829		5/25/10
4.17		Form of Common Stock Purchase Warrant - May 18, 2010 offering, and June 2010 Consultant Warrants				8-K		10.02		333-153829		5/25/10
4.18**		Form of 2007 Equity Compensation Plan Restricted Stock Grant and 2009 Executive Compensation Plan Restricted Stock Grant				S-8		4.03		333-171783		1/20/11
4.19		Form of Securities Purchase Agreement - January and February of 2011				8-K		10.01		333-153829		1/27/11
4.20		Form of Common Stock Purchase Warrant dated January and February of 2011				8-K		10.02		333-153829		1/27/11
4.21**		Form of 2007 Equity Compensation Plan Restricted Stock Unit Agreement and 2009 Executive Compensation Plan Restricted Stock Unit Agreement				10-K		4.22		333-153829		3/30/11
4.22		Form of Securities Purchase Agreement dated April 2011				8-K		10.01		333-153829		5/03/11
4.23		Form of Common Stock Purchase Warrant dated April 2011				8-K		10.02		333-153829		5/03/11
4.24**		Form of Executive Deferred Compensation Plan				8-K		99.01		333-153829		7/08/11
4.25		Form of Common Stock Purchase Warrant issued to consultants in December of 2011				10-K		4.26		333-153829		3/06/12
4.26		Form of Common Stock Purchase Warrant issued to LifeTech on January 12, 2012				10-K		4.27		333-153829		3/06/12
4.27		Form of Securities Purchase Agreement for December 2012 through March 2013 Offering				8-K		10.01		333-153829		3/28/13
4.28		Form of Common Stock Purchase Warrant for December 2012 through March 2013 Offering				8-K		4.01		333-153829		3/28/13

  

 

4.29		Form of Registration Rights Agreement for December 2012 through March 2013 Offering				8-K		10.02		333-153829		3/28/13
4.30		Form of Subscription Agreement or August 2013 Offering				8-K		10.01		333-153829		8/16/13
4.31		Form of Securities Purchase Agreement for August 2013 Offering				8-K		10.02		333-153829		8/16/13
4.32		Form of Registrants Rights Agreement for August 2013 Offering				8-K		10.03		333-153829		8/16/13
4.33		Form of Warrant from August 2013 Offering				8-K		10.04		333-153829		8/16/13
4.34		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
4.35		Form of Securities Purchase Agreement for May 2014 Registered Offering				S-1/A		10.12		333-194687		5/22/14
4.36		Form of Series D Common Stock Purchase Warrant for June 2014 Private Placement				10-Q		4.36		333-153829		8/8/14
4.37		Form of Securities Purchase Agreement for June 2014 Private Placement				10-Q		4.37		333-153829		8/8/14
4.38		Form of Consultant Common Stock Purchase Warrant issued February and August 2014				10-Q		4.38		333-153829		8/8/14
10.01		Exclusive Supply Agreement between GenSpera and Thapsibiza dated April 2012				10-K		10.01		333-153829		3/29/13
10.02**		Craig Dionne Employment Agreement				8-K		10.04		333-153829		9/09/09
10.03**		Amendment dated May 14, 2010 to the Employment Agreement of Craig Dionne				10-Q		10.03		333-153829		8/13/10
10.04**		Craig Dionne Severance Agreement				8-K		10.05		333-153829		9/09/09
10.05**		Craig Dionne Proprietary Information, Inventions And Competition Agreement				8-K		10.06		333-153829		9/09/09
10.06**		Form of Indemnification Agreement				8-K		10.07		333-153829		9/09/09
10.07**		Russell Richerson Employment Agreement				8-K		10.08		333-153829		9/09/09
10.08**		Amendment dated May 14, 2010 to the Employment Agreement of Russell Richerson				10-Q		10.08		333-153829		8/13/10
10.09**		Russell Richerson Proprietary Information, Inventions And Competition Agreement				8-K		10.09		333-153829		9/09/09

 

 

10.10**

Independent Director Agreement

8-K

10.01

333-153892

06/1/12

10.11

Engagement Letter with H.C. Wainwright for May 2014 Registered Offering

S-1/A

10.11

333-194687

5/22/14

23.01

Consent of Liggett, Vogt & Webb, P.A.

*

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.

*

101.INS

XBRL Instance Document

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101.SCH

XBRL Taxonomy Extension Schema

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101.CAL

XBRL Taxonomy Extension Calculation Linkbase

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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.