UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September
30, 2014
or
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£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000-54871
BIOPHARMX CORPORATION
(Exact name of registrant as specified
in its charter)
Delaware |
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59-3843182 |
(State or Other Jurisdiction
of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
1098 Hamilton Court, Menlo Park, California |
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94025 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant's telephone
number, including area code: 650-889-5020
Indicate
by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes S
No £
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S
No £
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer |
£ |
Accelerated filer |
£ |
Non-accelerated filer |
£ |
Smaller reporting company |
S |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £
No S
As of November 13, 2014, there were
outstanding 11,226,936 shares of the registrant’s common stock, $.001 par value.
Documents incorporated by reference:
None.
BIOPHARMX CORPORATION
Form 10-Q
Table of Contents
PART I – Financial Information |
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Item 1 |
Condensed Consolidated Financial Statements: |
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3 |
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Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited) |
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3 |
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Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2014 and 2013 (unaudited) |
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4 |
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Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited) |
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5 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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6 |
Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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13 |
Item 3 |
Qualitative and Quantitative Disclosures About Market Risk |
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19 |
Item 4 |
Controls and Procedures |
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20 |
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PART II – Other Information |
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Item 1 |
Legal Proceedings |
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21 |
Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
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21 |
Item 3 |
Defaults Upon Senior Securities |
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22 |
Item 4 |
Mine Safety Disclosures |
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22 |
Item 5 |
Other Information |
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22 |
Item 6 |
Exhibits |
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22 |
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SIGNATURES |
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23 |
PART I
ITEM 1. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
BioPharmX
Corporation
Unaudited
Condensed Consolidated Balance Sheets
as
of September 30, 2014 and December 31, 2013
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September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash | |
$ | 1,208,000 | | |
$ | 3,000 | |
Prepaid expenses and other current assets | |
| 302,000 | | |
| 36,000 | |
Total current assets | |
| 1,510,000 | | |
| 39,000 | |
| |
| | | |
| | |
Property and equipment, net | |
| 188,000 | | |
| 32,000 | |
Intangible assets | |
| 150,000 | | |
| 150,000 | |
Other assets | |
| 50,000 | | |
| 150,000 | |
Restricted cash | |
| 35,000 | | |
| - | |
| |
| | | |
| | |
Total assets | |
$ | 1,933,000 | | |
$ | 371,000 | |
| |
| | | |
| | |
Liabilities, Convertible Redeemable Preferred Stock and Stockholders' Deficit | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 1,326,000 | | |
$ | 427,000 | |
Payroll liabilities | |
| 85,000 | | |
| 64,000 | |
Deferred rent | |
| 55,000 | | |
| 65,000 | |
Convertible notes, short term | |
| - | | |
| 90,000 | |
Related party payables | |
| 345,000 | | |
| 125,000 | |
Total current liabilities | |
| 1,811,000 | | |
| 771,000 | |
Convertible notes payable | |
| - | | |
| 938,000 | |
Other long-term liabilities | |
| - | | |
| 32,000 | |
| |
| | | |
| | |
Total liabilities | |
| 1,811,000 | | |
| 1,741,000 | |
| |
| | | |
| | |
Commitments and contingencies (Note 8) | |
| | | |
| | |
| |
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Series A convertible redeemable preferred stock, $0.001 par value; 10,000,000 shares | |
| | | |
| | |
authorized; 2,176,387 and no shares issued and outstanding at September 30, 2014, and December 31, 2013, respectively (liquidation preference of $4,026,000 as of September 30, 2014) | |
| 3,637,000 | | |
| - | |
| |
| | | |
| | |
Stockholders' deficit: | |
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Common stock, $0.001 par value; 90,000,000 shares authorized; | |
| | | |
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11,057,249 and 7,025,000 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | |
| 11,000 | | |
| 7,000 | |
Additional paid-in capital | |
| 3,188,000 | | |
| 306,000 | |
Accumulated deficit | |
| (6,714,000 | ) | |
| (1,683,000 | ) |
Total stockholders' deficit | |
| (3,515,000 | ) | |
| (1,370,000 | ) |
| |
| | | |
| | |
Total liabilities, convertible redeemable preferred stock and stockholders' deficit | |
$ | 1,933,000 | | |
$ | 371,000 | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
BioPharmX Corporation
Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Loss
for
the three and nine months ended September 30, 2014 and 2013
| |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
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| | |
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Operating expenses: | |
| | |
| | |
| | |
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Research and development | |
$ | 807,000 | | |
$ | 221,000 | | |
$ | 1,851,000 | | |
$ | 401,000 | |
Sales and marketing | |
| 757,000 | | |
| 48,000 | | |
| 1,337,000 | | |
| 73,000 | |
General and administrative | |
| 515,000 | | |
| 160,000 | | |
| 1,800,000 | | |
| 306,000 | |
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| | | |
| | | |
| | | |
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Total operating expenses | |
| 2,079,000 | | |
| 429,000 | | |
| 4,988,000 | | |
| 780,000 | |
| |
| | | |
| | | |
| | | |
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Loss from operations | |
| (2,079,000 | ) | |
| (429,000 | ) | |
| (4,988,000 | ) | |
| (780,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income | |
| 16,000 | | |
| - | | |
| 31,000 | | |
| - | |
Interest expense, net | |
| (2,000 | ) | |
| (22,000 | ) | |
| (74,000 | ) | |
| (42,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net and comprehensive loss | |
| (2,065,000 | ) | |
| (451,000 | ) | |
| (5,031,000 | ) | |
| (822,000 | ) |
Deemed dividend on Series A convertible redeemable preferred stock | |
| (37,000 | ) | |
| - | | |
| (70,000 | ) | |
| - | |
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| | | |
| | | |
| | | |
| | |
Net loss available to common stockholders | |
$ | (2,102,000 | ) | |
$ | (451,000 | ) | |
$ | (5,101,000 | ) | |
$ | (822,000 | ) |
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| | | |
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Basic and diluted net loss available to common stockholders per share | |
$ | (0.20 | ) | |
$ | (0.06 | ) | |
$ | (0.52 | ) | |
$ | (0.12 | ) |
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Shares used in computing basic and diluted net loss per share | |
| 10,630,000 | | |
| 7,025,000 | | |
| 9,844,000 | | |
| 7,025,000 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BioPharmX Corporation
Unaudited
Condensed Consolidated Statements of Cash Flows
for
the nine months ended September 30, 2014 and 2013
| |
Nine months ended September 30, | |
| |
2014 | | |
2013 | |
Cash flows from operating activities: | |
| | |
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Net loss | |
$ | (5,031,000 | ) | |
$ | (822,000 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
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| | |
Stock-based compensation expense | |
| 385,000 | | |
| 28,000 | |
Depreciation expense | |
| 10,000 | | |
| 6,000 | |
Warrants issued for services provided | |
| 99,000 | | |
| - | |
Noncash interest expense | |
| 76,000 | | |
| 42,000 | |
Changes in assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other assets | |
| (166,000 | ) | |
| (191,000 | ) |
Accounts payable and accrued expenses | |
| 889,000 | | |
| 111,000 | |
Payroll liabilities | |
| 21,000 | | |
| 33,000 | |
Related party payables | |
| 220,000 | | |
| 123,000 | |
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| | | |
| | |
Net cash used in operating activities | |
| (3,497,000 | ) | |
| (670,000 | ) |
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Cash flows from investing activities: | |
| | | |
| | |
Change in restricted cash | |
| (35,000 | ) | |
| - | |
Purchases of property and equipment | |
| (166,000 | ) | |
| (24,000 | ) |
Purchase of intellectual property | |
| - | | |
| (50,000 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (201,000 | ) | |
| (74,000 | ) |
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| | | |
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Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of common stock | |
| 43,000 | | |
| - | |
Net proceeds from issuance of convertible redeemable preferred stock | |
| 3,840,000 | | |
| - | |
Proceeds from issuance of convertible notes payable | |
| 1,020,000 | | |
| 630,000 | |
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| | | |
| | |
Net cash provided by financing activities | |
| 4,903,000 | | |
| 630,000 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| 1,205,000 | | |
| (114,000 | ) |
Cash at beginning of period | |
| 3,000 | | |
| 138,000 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 1,208,000 | | |
$ | 24,000 | |
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Noncash investing and financing activities: | |
| | | |
| | |
Intangible assets purchase accrued | |
$ | 90,000 | | |
$ | 100,000 | |
Conversion of convertible notes payable to common stock | |
$ | 1,942,000 | | |
$ | - | |
Fair value of beneficial conversion feature issued in connection with convertible notes payable | |
$ | 204,000 | | |
$ | 126,000 | |
Issuance of common stock warrants in connection with Series A convertible redeemable preferred stock | |
$ | 273,000 | | |
$ | - | |
Issuance of common stock warrants in connection with convertible notes payable | |
$ | 105,000 | | |
$ | - | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
BIOPHARMX
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. |
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION |
Description
of Business
BioPharmX
Corporation (“BioPharmX” or the “Company”) is a Silicon Valley-based company, registered in Delaware and
originally incorporated on August 30, 2010 in Nevada under the name Thompson Designs, Inc. The Company has one wholly-owned subsidiary,
BioPharmX, Inc., a Nevada corporation. The Company seeks to provide innovative products through unique, patented platform technologies
for pharmaceutical and over-the-counter (“OTC”) applications in the fast growing dermatology and health and wellness
markets.
The
strategy of the Company begins with obtaining novel, patented, platform technologies through exclusive licensing, joint development
or acquisition. BioPharmX then develops platform technologies that can be developed into product lines through specialized formulation
and clinical protocol development with a bifurcated market penetration strategy, prescription for the high dose prescription version
and OTC consumer for the low dose version. Identifying such technologies requires a strong knowledge of the markets served through
technology assessment and evaluation of sell-side and buy-side opportunities through relationships with major pharmaceutical companies.
BioPharmX’s products are formulated to address both market pathways to address unmet needs in well-defined, multi-billion
dollar markets for licensing or direct commercialization for both pharmaceutical and OTC distribution and sales.
On
January 23, 2014, the Company, BioPharmX Inc. and stockholders of BioPharmX, Inc. who collectively owned 100% of BioPharmX, Inc.
(the “BioPharmX, Inc. Stockholders”) entered into and consummated transactions pursuant to a Share Exchange Agreement
(the “Share Exchange Agreement,” such transaction referred to as the “Share Exchange Transaction”), whereby
the Company issued to the BioPharmX, Inc. Stockholders an aggregate of 7,025,000 shares of its common stock, par value $0.001
(“Common Stock”), in exchange for 100% of the shares of BioPharmX, Inc. held by the BioPharmX, Inc. Stockholders.
The shares of our Common Stock received by the BioPharmX, Inc. Stockholders in the Share Exchange Transaction constituted approximately
77.8% of our then issued and outstanding Common Stock giving effect to the issuance of shares pursuant to the Share Exchange Agreement.
As
a result of the Share Exchange Transaction, BioPharmX, Inc. became a subsidiary of the Company. The acquisition was
accounted for as a reverse merger and recapitalization effected by a share exchange. BioPharmX, Inc. is considered the
acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought
forward at their book value and no goodwill has been recognized.
On
March 3, 2014, we completed the name change of the Company from Thompson Designs, Inc. to BioPharmX Corporation.
Effective
May 16, 2014, BioPharmX Corporation, previously a Nevada corporation, was redomiciled as a Delaware corporation and effective
June 26, 2014, BioPharmX, Inc, previously a Delaware corporation, was redomiciled as a Nevada corporation.
Basis
of Presentation and Principles of Consolidation
These
unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission
(“SEC”) regarding interim financial reporting and include the accounts of BioPharmX and its subsidiary. Certain information
and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013, filed on March 31, 2014. The condensed consolidated balance sheet as
of December 31, 2013, included herein, was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated
financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s statement of financial
position as of September 30, 2014 and December 31, 2013, the Company’s results of operations and its cash flows for each
of the three and nine months ended September 30, 2014 and 2013 and its cash flows for each of the nine months ended September 30,
2014 and 2013. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results
to be expected for the year ending December 31, 2014. All references to September 30, 2014 or to the three and nine months ended
September 30, 2014 and 2013 in the notes to the condensed consolidated financial statements are unaudited.
Reclassification
Certain prior year amounts have been reclassified to
conform to the current year presentation. The amounts for the prior periods have been reclassified to be consistent with the current
year presentation and have no impact on previously reported total assets, total stockholders’ deficit or net loss.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update 2014-09,Revenue from Contracts with Customers, (“ASU
2014-09”), which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas
of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation
of transfer pricing, licenses, time value of money, contract costs and disclosures. This guidance is effective for the fiscal years
and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption
of ASU 2014-09 will have on its consolidated financial statements and related disclosures.
On June 10, 2014, the FASB issued
ASU 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance
in Topic 810, Consolidation,, which eliminates the definition of a development stage entity, eliminates the development stage
presentation and disclosure requirements under Accounting Standards Codification, or ASC, 915 Development Stage Entities,
or ASC 915, and amends provisions of existing variable interest entity guidance under ASC 810 Consolidation . As a result
of the changes, entities which meet the former definition of a development stage entity will no longer be required to: (1) present
inception-to-date information in the statements of income, cash flows, and stockholder equity; (2) label the financial statements
as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity
is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years
it had been in the development stage. Furthermore, ASU 2014-10 clarifies disclosures about risks and uncertainties under ASC Topic 275,
Risks and Uncertainties, that apply to companies that have not commenced planned principal operations. Finally, variable interest
entity rules no longer contain an exception for development stage entities and, as a result, development stage entities will have
to be evaluated for consolidation in the same manner as non-development stage entities.
Under
ASU 2014-10, entities are no longer required to apply the presentation and disclosure provisions of ASC 915 during annual periods
beginning after December 15, 2014. In addition, the revisions to the consolidation standards are effective for annual periods
beginning after December 15, 2015 for public entities and are effective for annual periods beginning after December 15,
2016 for nonpublic entities. Early adoption is permitted for any annual reporting period or interim period for which the entity's
financial statements have not yet been issued (public business entities) or made available for issuance (other entities).
The Company has adopted ASU 2014-10 effective as of its issuance date. Adoption of this standard had no impact on its financial
position, results of operations, or cash flows; however, the presentation of the consolidated financial statements and related
disclosures in the notes to the consolidated financial statements has been changed to eliminate the disclosures that are no longer
required.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”).
This standard includes guidance about management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern within one year after the financial statements are issued. If conditions
or events raise substantial doubt, the entity must disclose the conditions or events that raise substantial doubt about the entity’s
ability to continue as a going concern, management’s evaluation of those conditions or events, and management’s plans
to mitigate the conditions or events. This update is effective for interim and annual reporting periods beginning after December
15, 2016. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2014-15 will have
on its consolidated financial statements and related disclosures.
We have reviewed other recent accounting pronouncements and concluded
they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as
a result of future adoption.
2. |
GOING CONCERN CONSIDERATIONS AND MANAGEMENT’S PLAN |
The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. The Company has incurred recurring losses and negative
cash flows from operations since inception. The Company has not generated revenues and has funded its operating losses through
the issuance of convertible notes payable and convertible preferred stock. The Company has a limited operating history and its
prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the industry. These risks include,
but are not limited to, the uncertainty of availability of additional financing and the uncertainty of achieving future profitability.
Management of the Company intends to raise additional funds through the issuance of equity securities. There can be no assurance
that such financing will be available or on terms which are favorable to the Company. Failure to generate sufficient cash flows
from operations, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the
Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not contain any adjustments that might result from the outcome
of this uncertainty.
As shown in the accompanying financial
statements, the Company incurred a net loss of $5.0 million and $822,000 during the nine months ended September 30, 2014 and 2013,
respectively, and has an accumulated deficit of $6.7 million as of September 30, 2014. As of September 30, 2014, the Company had
a working capital deficit of $301,000. As of December 31, 2013, the Company had a working capital deficit of $732,000. While management
of the Company believes that it has a plan to fund on-going operations, there is no assurance that its plan will be successfully
implemented.
Since 2012, the Company has obtained
financing with convertible notes to invite early investors at a 20% discount to the share price in a future offering. Additionally,
during the first half of 2014, the Company has issued Series A convertible redeemable preferred stock and common stock warrants
resulting in gross proceeds of $4.0 million (see details in Note. 9 -- “Convertible Redeemable Preferred Stock and Stockholders’
Equity”) and is looking to raise additional funds as a result of this offering prior
to the end of the third quarter. While the Company has been able to secure a number of investors, there is continued risk in the
Company’s ability to attract additional development-stage investors. Without access to continued funds for working
capital, the Company may not be able to execute its product strategy and pursue research and development activities on its novel
platform technologies.
The discovery of key raw materials to
formulate novel products depends on the Company’s ability to identify, negotiate and secure procurement of such materials.
This also depends on the Company’s ability to establish comprehensive and long term vendor contracts and relationships.
The Company’s ability to compete
and to achieve its product platform strategy depends on its ability to protect its proprietary discoveries and technologies. The
Company currently relies on a combination of copyrights, trademarks, trade secret laws and confidentiality agreements to protect
its intellectual property rights. The Company also relies upon unpatented know-how and continuing technological innovation.
The Company’s continued operations
are dependent upon its ability to identify, recruit and retain adequate management personnel and contractors to perform certain
jobs such as research and development, patent generation, regulatory affairs and general administrative functions. The Company
requires highly trained professionals of varying levels and experience along with a flexible work force.
Research and development for novel prescription
or OTC based products can be very extensive and lengthy in nature; along with the clinical trial process with the Food and Drug
Administration which can require significant funding and time consuming patient studies. The competitive landscape could change
significantly over the time period to complete targeted product development milestones. The current competition for BioPharmX’s
products could also turn into strategic partners or potential acquirers in the future.
The significant risks and uncertainties
described above could have a significant negative impact on the financial viability of BioPharmX and raise substantial doubt about
the Company’s ability to continue as a going concern. Management is working on the Company’s business model to increase
working capital by managing its cash flow, securing financing and working towards bringing its first product to market.
3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated
financial statements and accompanying notes should be read in conjunction with the Company’s annual financial statements
and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant
changes in the Company’s significant accounting policies for the three months ended September 30, 2014, as compared to the
significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2013.
4. |
PROPERTY, PLANT AND EQUIPMENT |
Property and equipment, consisted of
the following:
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Furniture and fixtures | |
$ | 18,000 | | |
$ | 11,000 | |
Laboratory equipment | |
| 26,000 | | |
| 12,000 | |
Computers and equipment | |
| 15,000 | | |
| 15,000 | |
Software | |
| 145,000 | | |
| - | |
| |
| 204,000 | | |
| 38,000 | |
Less: accumulated depreciation | |
| (16,000 | ) | |
| (6,000 | ) |
| |
$ | 188,000 | | |
$ | 32,000 | |
Depreciation expense for the nine months
ended September 30, 2014 and 2013 was $10,000 and $6,000.
The company has restricted cash in the
amount of $35,000 held by Bank of America in a money market account to secure the credit line of the Company’s credit cards.
6. |
RELATED-PARTY PAYABLES |
Since inception, the founding executives
of the Company have made advances to cover short-term operating expenses. Additionally, since the beginning of 2014 a portion of
their compensation is being deferred and is included in this balance. These advances and deferred compensation are non-interest
bearing.
As of September 30, 2014 and December
31, 2013, related party payables were $345,000 and $125,000, respectively.
Financing Arrangements
During the six months ended June 30, 2014,
the Company issued convertible notes payable to twelve individuals in exchange for $1,020,000 in cash. The Notes carry an interest
rate of 6% per annum and mature between January 2015 and March 2017, with principal and interest payable at maturity. Prior to
2014, the Company had issued $1,230,000 of convertible notes payable (the “Notes”).
The Notes automatically convert into common
stock upon the Company entering into a qualified preferred stock financing at 80% of the price per share at which such preferred
stock is issued in such an offering. Additionally, there is a special conversion that at maturity, unless the Company repays all
outstanding principal and interest, the Notes shall be automatically converted into a number of shares of common stock of the Company
at 80% of the then fair market value per share.
As a result of this beneficial conversion
feature, the Company has recorded $204,000 and $246,000 as a debt discount during the nine months ended September 30, 2014 and
year ended December 31, 2013. The debt discount is being amortized to interest expense over the term of the Notes using the effective
interest rate method. The amortization expense related to the debt discount was $6,000 and $49,000 for the nine months ended September
30, 2014, respectively. The amortization expense related to the debt discount was $17,000 and $24,000 for the three and nine months
ended September 30, 2013.
The Company entered into Subscription
Agreements (the “Subscription Agreements”) for a private placement of shares of our Series A convertible redeemable
preferred stock, par value $0.001 per share (“Series A”), and warrants (the “Warrants”) with two accredited
investors on March 14, 2014 and April 1, 2014, respectively, whereby we sold an aggregate of 810,811 shares of Series A at a per
share price of $1.85 for gross proceeds of $1,500,000 and issued to the investors for no additional consideration the Warrants
to purchase in the aggregate 405,406 shares of the Company’s common stock, par value $0.001 per share, at an exercise price
of $3.70 per share. The closing of the sale of the Series A and the Warrants under the Subscription Agreements occurred on April
11, 2014. See Note 9.
As a result, upon the closing, the 6%
secured convertible notes in the aggregate principal amount of $2.25 million and accrued interest for one of the note holders were
automatically converted into 1,526,001 shares of common stock of the Company (the “Conversion Shares”). The balance
of accrued interest was waived. On April 11, 2014, the convertible notes payable balance, net of unamortized discounts, of $1,942,000
was converted to common stock. As of September 30, 2014, there were no remaining outstanding convertible notes.
8. |
COMMITMENTS AND CONTINGENCIES |
Lease Arrangements
On August 23, 2013, the Company signed
a lease for 10,800 square feet of office and laboratory space in Menlo Park, California. The term of the lease is 39 months from
the lease commencement date of September 1, 2013. Future minimum commitments under this lease are as follows:
Three months remaining of 2014 |
|
$ |
70,000 |
|
2015 |
|
|
288,000 |
|
2016 |
|
|
271,000 |
|
Total |
|
$ |
629,000 |
|
Legal Proceedings
The Company is not currently a party to any
legal proceedings. The Company is not aware of any pending legal proceeding to which any of its officers, directors, or any beneficial
holders of 5% or more of its voting securities are adverse to it or have a material interest adverse to it.
9. |
CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
Common Stock
As described in Note 1, on January 23,
2014, the Company issued 7,025,000 shares of its common stock to BioPharmX, Inc. stockholders. As described in Note
7, on April 11, 2014, the Company’s convertible notes and eligible interest were converted to 1,526,001 shares of common
stock upon the first closing of the offer and sale of Series A Preferred Stock. During the nine months ended September 30, 2014,
the Company issued 506,248 shares of common stock upon the exercise of stock options. At September 30, 2014, the Company
has 11,057,249 shares of common stock currently issued and outstanding.
Series A Preferred Stock
The Company entered into Subscription
Agreements (the “Subscription Agreements”) for a private placement of shares of our Series A convertible redeemable
preferred Stock, par value $0.001 per share (“Series A”), and warrants (the “Warrants”) with 30 accredited
investors through the third quarter of 2014 whereby we sold an aggregate of 2,176,387 shares of Series A at a per share price of
$1.85 for gross proceeds of $4.0 million and issued to the investors for no additional consideration the Warrants to purchase in
the aggregate 1,088,201 shares of the Company’s common stock, par value $0.001 per share, with an exercise price of $3.70
per share.
The Warrants with an allocated fair value of
$273,000 were classified as additional paid in capital. The Company determined the fair value using the Black-Scholes option pricing
model with the following assumptions: dividend rate of 0%, risk-free rate of 1.6% to 1.9%, contractual term of 5 years and expected
volatility of 88.8%. These Warrants were immediately exercisable, and as of September 30, 2014, were all outstanding.
In connection with the Subscription
Agreements, the Company, the majority shareholders of the Company and the Investors entered into Investor Rights Agreements (the
“Investor Rights Agreements”) with the Investors, whereby the Investors were granted certain rights including: (i)
right to receive copies of quarterly and annual reports of the Company, (ii) right of inspection of the Company’s properties
and records, (iii) right of participation in future securities offerings, (iv) tag-along rights in connection with sales of the
Company’s stock by a major shareholder, and (v) board of directors representation rights for the subscribers who purchased
at least 500,000 shares of Series A and hold at least 30% of such shares (the “Qualified Subscribers”). The Company
made certain covenants under the agreement including: (i) uplisting to NYSE or NASDAQ within three years from the issuance shares
of Series A, and (ii) increase of the board of directors to five members including one member to be appointed by the Qualified
Subscribers.
Significant terms of Series A are as
follows:
|
· |
Holders of the
Series A are entitled to interest payment at the rate of 6% of the purchase price per annum. The Company has the option to
pay this interest in shares of common stock or in cash. As of September 30, 2014, $70,000 in interest has been accreted to
the Series A. Holders of the Series A are entitled to receive dividends on an as converted basis with the holders of the
Company’s common stock. |
|
· |
The holders of the Series A are entitled to vote together with the holders of the Company’s common stock, with each such holder of Series A entitled to the number of votes equal to the number of shares of the Company’s common stock into which such Series A would be converted if converted on the record date for the taking of a vote. |
|
· |
Each share of Series A is initially convertible, at any time at the sole option of the holder, into one share of the Company’s common stock, subject to future adjustments as provided for in the Series A Certificate. The Series A shall automatically convert into shares of the Company’s common stock upon the uplisting of the common stock to NYSE or NASDAQ within three years from the issuance of shares of Series A. |
|
· |
If the Company fails to effect the uplisting within three years from the issuance of shares of Series A, the holders will have the right to require the Company to redeem all or a portion of the then outstanding Series A at a price per share equal to the Series A liquidation preference. |
Warrants
In addition to the Warrants issued in conjunction
with the Subscription Agreements, the Company issued warrants on May 15, 2014, to a service provider for 316,395 shares of common
stock at an exercise price of $2.035 per share, which was valued at $99,000 and expensed. The Company also issued to a qualified
investor as a part of his convertible loan package for 343,559 shares of common stock at an exercise price of $1.85 per share,
which was valued at $105,000. These warrants expire after five years. The Company determined the fair value using the Black-Scholes
option pricing model with the following assumptions: dividend rate of 0%, risk-free rate of 1.6%, contractual term of 5 years and
expected volatility of 88.8%. These Warrants were immediately exercisable, and as of September 30, 2014, were all outstanding.
Equity Incentive Plan
On January 23, 2014, the Company adopted
the 2014 Equity Incentive Plan (the “2014 Plan”) which permits the Company to grant stock options to directors, officers
or employees of the Company or others to purchase shares of common stock of the Company through awards of incentive and nonqualified
stock options (“Options”), stock (“Restricted Stock” or “Unrestricted Stock”) and stock appreciation
rights (“SARs”). Options previously issued under the BioPharmX, Inc. 2011 Equity Incentive Plan were cancelled, and
options under the 2014 Plan were issued to replace all cancelled BioPharmX, Inc. options.
The Company currently has time-based
options outstanding. The time-based options generally vest in two to four years and expire ten years from the date of grant. Total
number of shares reserved and available for grant and issuance pursuant to this Plan is 2,700,000. Shares issued under the Plan
will be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. At September 30,
2014, there were 79,000 shares available for grant under the Plan.
The following table summarizes the Company’s stock
option activities for the nine month periods ended September 30, 2014 and 2013:
| |
| | |
Weighted
Average | | |
| |
| |
| | |
Exercise | | |
Remaining | |
| |
| | |
Price | | |
Contractual | |
| |
Shares | | |
Per Share | | |
Term | |
| |
| | | |
| | | |
| | |
Outstanding as of January 1, 2014 | |
| 2,606,000 | | |
$ | 0.25 | | |
| | |
Granted | |
| 175,000 | | |
| 1.85 | | |
| | |
Exercised | |
| (506,248 | ) | |
| 0.09 | | |
| | |
Cancelled | |
| (160,000 | ) | |
| 0.37 | | |
| | |
Outstanding as of September 30, 2014 | |
| 2,114,752 | | |
$ | 0.41 | | |
| 8.39 | |
Vested and exercisable | |
| 1,149,809 | | |
$ | 0.32 | | |
| 8.09 | |
Vested and expected to vest | |
| 2,114,752 | | |
$ | 0.41 | | |
| 8.39 | |
10. |
STOCK-BASED COMPENSATION |
The following table summarizes the stock-based
compensation expenses included in our Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss:
| |
For the three months ended of September 30 | | |
For the nine months ended of September 30 | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Research and development | |
$ | 14,000 | | |
$ | 9,000 | | |
$ | 94,000 | | |
$ | 13,000 | |
Sales and marketing | |
| 9,000 | | |
| 3,000 | | |
| 52,000 | | |
| 4,000 | |
General and administrative expenses | |
| 49,000 | | |
| 6,000 | | |
| 239,000 | | |
| 11,000 | |
Stock-based compensation expense | |
$ | 72,000 | | |
$ | 18,000 | | |
$ | 385,000 | | |
$ | 28,000 | |
The Company estimates the fair value
of time-based stock options, if any, granted using the Black-Scholes option pricing model. The fair value is then amortized on
a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Time-based and performance-based
options, if any, typically have a ten-year life from date of grant and vesting periods of two to four years.
Valuation Assumptions
The fair value of stock-based awards
to employees is calculated through the use of the Black-Scholes option pricing model, even though such model was developed to estimate
the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the
Company’s stock option awards. This model also requires subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
Expected Term
The expected term represents the period
that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting
requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of
historical exercise data.
Expected Volatility
The Company uses the historical volatility
of the price of the common shares of selected public companies in the biotechnology sector.
Expected Dividend
The Company has never paid dividends
on its common shares and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.
Risk-Free Interest Rate
The Company bases the risk-free interest
rate used in the Black-Scholes option pricing model upon the implied yield curve currently available on U.S. Treasury zero-coupon
issues with a remaining term equal to the expected term used as the assumption in the model.
During the nine months ended September
30, 2014 and 2013, the Company issued options to non-employees for the purchase of 175,000 and 1,165,000 shares of common stock
in exchange for services. During the nine months ended September 30, 2014, the options were issued with an exercise price of $1.85
per share. The options issued during the nine months ended September 30, 2013, were issued with a range of exercise prices from
$0.05 to $0.35 per share. These options generally vest over four years. The Company accounts for these options as variable awards.
The options were valued using the Black-Scholes option pricing model. The total stock based compensation related to nonemployees
amounted to $381,000 and $18,000 for the nine months ended September 30, 2014 and 2013.
11. |
FAIR VALUE MEASUREMENTS |
The Company recognizes and discloses
the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant
to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining
fair value.
|
● |
Level 1 - Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult. |
|
● |
Level 2 - Pricing is provided by third party sources of market information obtained through investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors. |
|
● |
Level 3 - Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity. |
As of September 30, 2014 and December
31, 2013, the Company held no assets or liabilities with instrument valuations measured on a recurring basis.
No federal income taxes were provided
in the three and nine months ended September 30, 2014 and 2013 due to the Company’s net losses. State minimum income and
franchise taxes are included in general and administrative expenses and were immaterial for the periods presented. The
Company evaluates its ability to recover deferred tax assets, in full or in part, by considering all available positive and negative
evidence, including past operating results and our forecast of future taxable income on a jurisdictional basis. The Company bases
its estimate of current and deferred taxes on the tax laws and rates that are currently in effect in the appropriate jurisdiction.
Changes in laws or rates may affect the tax provision as well as the amount of deferred tax assets or liabilities.
Current tax laws impose substantial
restrictions on the utilization of net operating loss and credit carry-forwards in the event of an “ownership change,”
as defined by the Internal Revenue Code. If there should be an ownership change, the Company’s ability to utilize its carry-forwards
could be limited.
As of September 30, 2014 and December
31, 2013, the Company did not have any material unrecognized tax benefits. The 2013 and 2012 tax years remain open for examination
by the federal and state authorities.
Basic net loss per share
is computed by dividing income attributable to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common
stock equivalents, including common stock options, warrants, and convertible notes, in the weighted average number of common
shares outstanding for a period, if dilutive. Potentially dilutive securities are excluded from the computation if their
effect is anti-dilutive. For the three and nine months ended September 30, 2014 and 2013, 6.0 million, 6.0 million, 1.0
million and 1.0 million potentially dilutive securities, respectively, were excluded from the computation of diluted
loss per share because their effect on net loss per share was anti-dilutive. As a result of the net loss for each of the
three and nine months ended September 30, 2014 and 2013 there is no dilutive impact to the net loss per share calculation for
the periods.
On November 10, 2014, the Company completed
a private placement (the “Private Placement”) of shares of its Series A and warrants to purchase common stock (“Warrants”).
The Private Placement was consummated in a series of closings that occurred between April 2014 and November 2014. In October and
November 2014, the Company sold to accredited investors and non-U.S. persons an additional 3 million shares of Series A at a per
share price of $1.85 and issued to the investors for no additional consideration the Warrants to purchase in the aggregate 1.5
million shares of the Company’s common stock, at an exercise price of $3.70 per share pursuant to a series of subscription
agreements.
Additionally, under the subscription
agreement with one of the investors, the investor commits them to purchasing an additional 1,081,081 shares of Series A at a per
share price of $1.85 on the achievement of certain milestones which would raise another $2 million in gross proceeds for total
proceeds of $9,537,546. The milestones include the Company receiving revenues of $2 million for its Violet product or uplisting
of the Company’s stock to NYSE or NASDAQ. The Company, two majority shareholders of the
Company and this Investor also entered into a Voting Agreement (the “Voting Agreement”), whereby the stockholders agreed
to (i) vote in favor of any merger or sale of the Company which has been approved by the board of directors and holders of at least
50% of the then outstanding shares of Series A, and (ii) irrevocably grant to the Investor a proxy to vote in favor of such business
combination transaction. The shareholders also agreed to sell their shares to a purchaser in a transaction approved by holders
of at least 67% of shares of Series A or 67% of shares of common stock and Series A.
On November 7, 2014, the Company increased the stock available
to the 2014 Equity Incentive Plan for options grants from 2,700,000 shares to 4,500,000 shares.
On November
10, 2014, Mr. Ping Wang was appointed as a director of the Company. Mr. Wang is a principal of Korea Investment Partners.
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q
and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking
statements,” all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their
use of words such as “expect,” “plan,” “will,” “may,” “anticipate,”
“believe,” “estimate,” “should,” “intend,” “forecast,” “project”
the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial
results and product and development programs. One must carefully consider any such statement and should understand that many factors
could cause actual results to differ from the Company’s forward-looking statements. These factors include inaccurate assumptions
and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement
can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors described in the Company’s filings with the
SEC, especially the Company’s Annual Report on Form 10-K and the Company’s Quarterly Reports on Form 10-Q. In various
filings the Company has identified important factors that could cause actual results to differ from expected or historic results.
One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider
any such list to be a complete list of all potential risks or uncertainties.
The following discussion is presented
on a consolidated basis, and analyzes our financial condition and results of operations for the three months ended September 30,
2014 and 2013. Unless the context indicates or suggests otherwise, reference to “we”, “our”, “us”
and the “Company” in this section refers to the consolidated operations of BioPharmX Corporation and BioPharmX, Inc.,
as defined in Note 1 —Description of Business and Basis of Presentation to the financial statements.
The following Management's Discussion
and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to help the reader understand our results
of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our financial
statements and the accompanying notes to the financial statements and other disclosures included in this Quarterly Report on Form
10-Q. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented
in U.S. dollars.
Overview
BioPharmX Corporation, a Delaware corporation,
was originally incorporated in Nevada on August 30, 2010 under the name “Thompson Designs, Inc.” The business
plan of the Company was originally to design and build custom signs for residential and commercial properties. Immediately after
the completion of the Share Exchange Transaction (see details below), the Company discontinued its custom signs business and changed
its business plan to development of novel delivery mechanisms and routes of administration for known drugs and tissues.
BioPharmX, Inc., a Nevada corporation,
was originally incorporated in Delaware on August 18, 2011, and is headquartered in Menlo Park, California. It is a wholly-owned
subsidiary of the Company. It is a research-based biopharmaceutical company that seeks to provide innovative products through unique,
proprietary platform technologies for pharmaceutical and over-the-counter, or OTC, applications in the fast growing health and
wellness markets, including women’s health, dermatology, and otolaryngology (ears, nose & throat).
We are primarily a research and development,
or R&D, company focusing on the development of novel delivery mechanisms and novel routes of administration for known drugs
and tissues. We have expertise in formulation development, intellectual property generation, clinical trial execution,
and regulatory strategy definition. Our business model is to outsource much of its manufacturing and commercialization
activities in order to maintain its focus on technology sourcing, acquisitions, and partner development to create new products to
address unmet needs in well-defined, multi-billion dollar markets.
Share Exchange Agreement
On January 23, 2014, we, BioPharmX,
Inc. and stockholders of BioPharmX, Inc., who collectively owned 100% of BioPharmX, Inc., or the BiopharmX,
Inc. Stockholders, entered into and consummated transactions pursuant to a Share Exchange Agreement referred to as the Share Exchange
Transaction, whereby we issued to the BioPharmX, Inc. Stockholders an aggregate of 7,025,000 shares of its common stock, par value
$0.001, in exchange for 100% of the shares of BioPharmX, Inc. held by the BioPharmX, Inc. Stockholders. The shares of our
common stock received by the BioPharmX, Inc. Stockholders in the Share Exchange Transaction constituted approximately 77.8% of
our then issued and outstanding common stock giving effect to the issuance of shares pursuant to the Share Exchange Agreement.
Series A Preferred Stock
During the nine months ended September
30, 2014, we entered into Subscription Agreements for a private placement of shares of our Series A convertible redeemable preferred
Stock, par value $0.001 per share, or Series A, and warrants with 28 accredited investors through the third quarter of 2014 whereby
we sold an aggregate of 2,176,387 shares of Series A at a per share price of $1.85 for gross proceeds of $4.0 million and issued
to the investors for no additional consideration the warrants to purchase in the aggregate 1,088,201 shares of our common stock,
par value $0.001 per share, at an exercise price of $3.70 per share.
In connection with the Subscription
Agreements, we, the majority of our shareholders and our investors entered into the Investor Rights Agreement with the Investors,
whereby the Investors were granted certain rights including: (i) right to receive copies of our quarterly and annual reports, (ii)
right of inspection of our properties and records, (iii) right of participation in future securities offerings, (iv) tag-along
rights in connection with sales our stock by a major shareholder, and (v) board of directors representation rights for the subscribers
who purchased at least 500,000 shares of Series A and hold at least 30% of such shares, or the Qualified Subscribers. We made certain
covenants under the agreement including: (i) uplisting to NYSE or NASDAQ within three years from the issuance shares of Series
A, and (ii) increase of the board of directors to five members including one member to be appointed by the Qualified Subscribers.
Upon the first closing of the Private
Placement on April 11, 2014, the 6% secured convertible notes in the aggregate principal amount of $2.25 million and $8,000 in
eligible accrued interest previously issued were automatically converted into 1,526,001 shares of our common stock.
Critical Accounting Policies
Our financial statements and related
public financial information are based on the application of accounting principles generally accepted in the United States, or
GAAP. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have
an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information
contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our
use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during
the preparation of our financial statements.
Our significant accounting policies
are summarized in Note 1 of our audited financial statements which are included in our Annual Report on Form 10-K for the
year ended December 31, 2013. While all these significant accounting policies impact our financial condition and results of operations,
we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant
impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may
differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any
other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or
liquidity for the periods presented in this report.
We believe the following critical accounting
policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our financial
statements:
Results of Operations
Three and nine months ended September
30, 2014 and 2013
Revenue
For September 30, 2014, we have not
had any revenues. We are in the research and development stage, but we project our molecular iodine dietary supplement
product will be released in late 2014.
Research and Development Expenses
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
807,000 |
|
|
$ |
221,000 |
|
|
$ |
586,000 |
|
|
|
265 |
% |
|
$ |
1,851,000 |
|
|
$ |
401,000 |
|
|
$ |
1,450,000 |
|
|
|
362 |
% |
Research and development expenses for
the three months ended September 30, 2014 and 2013 increased $586,000. Headcount when comparing these periods increased by 7 scientists
which increased payroll and consulting costs by approximately $261,000 and stock compensation expense by $5,000. For the same period
we increased expenses by $242,000 for one-time tooling, travel and quality costs related with the initial production run of our
Violet breast health supplement and an increase in laboratory costs of $20,000. Allocated occupancy cost overhead increased by
$54,000.
Research and development expenses for
the nine months ended September 30, 2014 and 2013 increased $1.5 million. Headcount, when comparing these periods, increased by
7 scientists which increased payroll costs by approximately $810,000 and stock compensation expense by $81,000. For the same period
we increased expenses by $279,000 for one-time tooling, travel and quality costs related with the initial production run of our
Violet breast health supplement and an increase in laboratory costs of $90,000. Allocated occupancy cost overhead increased by
$142,000.
As of September 30, 2014, we had 10 full-time
employees in Research and Development (“R&D”). Since the end of the quarter, we have hired two additional employees
in R&D.
Sales and Marketing Expenses
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
757,000 |
|
|
$ |
48,000 |
|
|
$ |
709,000 |
|
|
|
1477% |
|
|
$ |
1,337,000 |
|
|
$ |
73,000 |
|
|
$ |
1,264,000 |
|
|
|
1732% |
|
Sales and Marketing expenses for
the three months ended September 30, 2014 and 2013 increased $712,000. Consultants, agencies and stock compensation expense
accounted for almost $465,000 of the increase from period to period. As a precursor to introducing our breast health
supplement, we spent approximately $102,000 more on programs to educate medical professionals on fibrocystic breast condition
and the options for treating it and an increase of $62,000 for related advertising and tradeshows. An increase in travel
accounted for $34,000 of the increase and $51,000 of increased allocated occupancy overhead.
Sales and Marketing expenses for the
nine months ended September 30, 2014 and 2013 increased $1,264,000. Consultants, agencies and stock compensation expense accounted
for about $762,000 of the increase from period to period. As a precursor to introducing our breast health supplement, we spent
approximately $306,000 more on programs to educate medical professionals on fibrocystic breast condition and the options for treating
it and an increase of $56,000 for related advertising and tradeshows. The remaining $58,000 increase was attributable to travel
and overhead. An increase in travel accounted for $64,000 increase and $81,000 of increased allocated occupancy overhead.
As of September 30, 2014, we had one
employee in sales and marketing. Since the end of the quarter, we have hired two of our consultants bringing the department total
to 3.
General and Administrative Expenses
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
515,000 |
|
|
$ |
160,000 |
|
|
$ |
355,000 |
|
|
|
222 |
% |
|
$ |
1,800,000 |
|
|
$ |
306,000 |
|
|
$ |
1,494,000 |
|
|
|
488 |
% |
General and administrative expenses for the
three months ended September 30, 2014 and 2013 increased $355,000. Headcount when comparing these periods increased by 4 employees
and additional consultants causing a $248,000 increase in payroll and consulting costs, along with a $43,000 increase to stock
compensation expense. Also contributing to the increase was a $10,000 increase for quarterly audit fees, $36,000 for corporate
public and investor relations and an approximately $50,000 increase in allocated corporate occupancy costs.
General and administrative expenses
for the nine months ended September 30, 2014 and 2013 increased $1.5 million. Headcount when comparing these periods increased
by 3 employees and additional consultants causing a $760,000 increase in payroll and consulting costs and a $228,000 increase for
stock compensation expense. Also contributing to the increase was a $87,000 increase in audit and legal fees, $222,000 for corporate
public and investor relations, $99,000 for the value of warrants issued for services related to the reverse merger and an approximately
$50,000 increase in allocated corporate occupancy costs.
As of September 30, 2014, the company
had 4 full-time employees in general and administrative.
Loss from Operations
Loss from operations for the three months ended
September 30, 2014 and 2013 was $2.1 million and $429,000, respectively. The increase in the loss from year-to-year
is due to ramping up research and development, one-time costs related to bringing our Violet breast health supplement to production,
increased payroll expense and legal costs related to the requirements of public companies.
Loss from operations for the nine months ended
September 30, 2014 and 2013 was $5.0 million and $780,000, respectively. The increase in the loss from year-to-year
is due to ramping up research and development, one-time costs related to bringing our Violet breast health supplement to production,
increased payroll, and legal and audit costs related to the reverse acquisition we completed in the first quarter of 2014 and
other operations.
Net Loss
Net loss for the three months ended
September 30, 2014 and 2013 was $2.1 million and $451,000, respectively. Net loss for the nine months ended September 30, 2014
and 2013 was $5.0 million and $822,000, respectively
Inflation did not have a material impact
on our operations for either of the periods. Other than the foregoing, we know of no trends, demands, or uncertainties that are
reasonably likely to have a material impact on our results of operations.
Capital Resources and Liquidity
A summary of the sources and uses of
cash and cash equivalents is as follows:
| |
For the nine months ended of September 30, |
| |
2014 | |
2013 |
Net cash used in operating activities | |
$ | (3,497,000 | ) | |
$ | (670,000 | ) |
Net cash used in investing activities | |
| (201,000 | ) | |
| (74,000 | ) |
Net cash used in financing activities | |
| 4,903,000 | | |
| 630,000 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
$ | 1,205,000 | | |
$ | (114,000 | ) |
At September 30, 2014, we had working capital deficit
of $301,000.
Net cash used for operating activities for
the nine months ended September 30, 2014 was $3.5 million. Cash used in operating activities was primarily due to net
loss for the nine months ended September 30, 2014 of $5.0 million which was partially offset by changes in operating assets
and liabilities of $964,000, non-cash interest expense of $76,000, warrants issued for services of $99,000 and stock-based compensation
of $385,000. Net cash used in investing activities was primarily due to the change in restricted cash and for acquisition
of fixed assets.
Net cash used for operating activities
for the nine months ended September 30, 2013 was $670,000. Cash used in operating activities was primarily due
to net loss for the nine months ended September 30, 2013 of $822,000 which was partially offset by changes in operating
assets and liabilities of $76,000, non-cash interest expense of $42,000 and stock-based compensation of $28,000. Cash used
in investing activities was primarily for acquisition of intellectual property and fixed assets.
Net cash obtained through all financing
activities for the nine months ended September 30, 2014 and 2013 was $4.9 million and $630,000, respectively, primarily
in proceeds from issuing convertible redeemable preferred stock and convertible notes payable, respectively.
Between September 2012 and March 2014,
we issued 6% unsecured convertible notes to investors in the aggregate principal amount of $2.3 million. In April 2014, the notes
were automatically converted into common stock after the completion of the reverse acquisition and closing of a financing in the
amount of $1,500,000 at a conversion price per share equal to 80% of the per share offering price of such financing.
During the first three quarters of 2014, we
sold an aggregate of 2,176,387 million shares of our Series A at a per share price of $1.85 for gross proceeds of $4.0 million
and issued to the investors for no additional consideration warrants to purchase 1,088,201 shares of our common stock in the aggregate
at an exercise price of $3.70 per share.
Going Concern
As reflected in the accompanying financial
statements, we had a net loss of $5.0 million and $822,000, respectively, for the nine months ended September 30, 2014 and
2013, respectively and a deficit accumulated of $6.7 million as of September 30, 2014. The net cash used in operations
for the nine months ended September 30, 2014 and 2013 was $3.5 million and $670,000, respectively.
Our ability to continue operations is
dependent on our plans, which include the raising of capital through debt and/or equity markets with some additional funding from
other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to
fund working capital requirements. We may need to incur additional liabilities with certain related parties to sustain
our existence.
We may require additional funding
to finance the growth of our current and expected future operations as well as to achieve our strategic objectives. We believe
our current available cash along with anticipated revenues may be insufficient to meet our cash needs for the near future if we
do not receive the anticipated additional funding. There can be no assurance that financing will be available in acceptable amounts
or terms, if at all. In that event, we would be required to change our growth strategy and seek funding on that basis,
if at all.
The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. These financial statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.
In response to the above, management
will:
|
● |
seek additional third party debt and/or equity financing; |
|
● |
continue with the implementation of the business plan; |
|
● |
seek to generate revenue through commercialization of the technology. |
To date, all of our funding has been
generated from private investments. During the next twelve months, we anticipate raising funding to continue expansion; however,
as of this writing, we only have sufficient funds to proceed with basic company operations only. We do not have sufficient funds
to fully implement our business plan until such time that we are able to raise additional funding, to which there is no guarantee.
If we do not obtain the funds necessary for us to continue our business activities we may need to curtail or cease our operations
until such time as we have sufficient funds.
ITEM 3. |
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK |
Pursuant to Item 305(e) of Regulation
S-K the Company, as a smaller reporting company, is not required to provide the information required by this item.
ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures.
Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures
designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange
Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosure.
Based upon that evaluation, including
our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective
as of the end of the period covered by this quarterly report.
Changes in Internal Controls over
Financial Reporting
No change in our system of internal
control over financial reporting occurred during the three and nine months ended September 30, 2014 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. |
LEGAL PROCEEDINGS |
We are not currently a party to any
legal proceedings. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the month of November,
2014, the Company received $45,000 to from accredited investors to purchase 24,324 shares of Series A Preferred Stock
and warrants to purchase 12,162 shares of common stock at a price of $1.85 per share.
During the month of October, 2014, the
Company received $2,466,230 to from accredited investors to purchase 1,333,097 shares of Series A Preferred Stock and
warrants to purchase 666,548 shares of common stock at a price of $1.85 per share.
During the month of September, 2014,
the Company received $1,546,319 to from accredited investors to purchase 835,848 shares of Series A Preferred Stock and
warrants to purchase 417,924 shares of common stock at a price of $1.85 per share.
During the month of July, 2014, the
Company received $130,000 to from accredited investors to purchase 70,270 shares of Series A Preferred Stock and warrants
to purchase 35,135 shares of common stock at a price of $1.85 per share.
During the month of June, 2014, the
Company received $100,000 to from accredited investors to purchase 54,054 shares of Series A Preferred Stock and warrants
to purchase 27,027 shares of common stock at a price of $1.85 per share.
During the month of May, 2014, the Company
received $200,000 to from accredited investors to purchase 108,108 shares of Series A Preferred Stock and warrants to
purchase 54,054 shares of common stock at a price of $1.85 per share.
During the month of April, 2014, the
Company received $1.1 million to from accredited investors to purchase 567,567 shares of Series A Preferred Stock and
warrants to purchase 283,784 shares of common stock at a price of $1.85 per share.
During the month of March, 2014, the
Company received $1.0 million to from accredited investors to purchase 540,540 shares of Series A Preferred Stock and
warrants to purchase 405,406 shares of common stock at a price of $1.85 per share.
The above-referenced warrants have
an initial exercise price of $3.70 per share, are exercisable for a five year period and entitle the holder to purchase fifty
percent (50%) of the number of shares of common stock into which the shares of Series A Preferred stock held by the holder are
convertible.
The foregoing issuances of the equity
securities were effectuated pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended
(the “Securities Act”), provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder as
a transaction not involving a public offering and are restricted shares as defined in the Securities Act. The Company did no engage
in any general solicitation or advertising in connection with the foregoing issuances.
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
None.
ITEM 5. |
OTHER INFORMATION |
None.
Exhibit No. |
|
Description |
|
|
|
31.1 |
|
Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
XBRL Instance Document. |
|
|
|
101.SCH |
|
XBRL Schema Document |
|
|
|
101.CAL |
|
XBRL Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
BioPharmX Corporation |
|
|
|
|
|
Date: November 14, 2014 |
By: |
/s/ James Pekarsky |
|
|
|
Name: James Pekarsky |
|
|
|
Title: Chief Executive Officer,
Chief Financial Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer) |
23
Exhibit 31.1
CERTIFICATION
I, James Pekarsky, certify that:
(1) |
I have reviewed this quarterly report on Form 10-Q of BioPharmX Corporation; |
|
|
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
|
|
|
(4) |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and |
|
|
|
(5) |
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): |
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and |
|
|
|
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. |
Date: November 14, 2014 |
|
/s/ James Pekarsky |
|
|
|
James Pekarsky |
|
|
Chief Executive Officer, Chief Financial Officer and
Director (Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer) |
Exhibit 32.1
Certification
Pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection
with the Form 10-K of BioPharmX Corporation (the “Company”) for the fiscal quarter ended June 30, 2014, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in his capacity as an officer
of the company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended,
and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: November 14, 2014 |
|
/s/ James Pekarsky |
|
|
|
James Pekarsky |
|
|
Chief Executive Officer, Chief Financial Officer and
Director (Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer) |
A signed original
of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
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