XOTC:SGTH SignPath Pharma Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2012

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________

Commission file number: 333-158474
 
SIGNPATH PHARMA INC.
(Exact name of Registrant as specified in its charter)

Delaware
20-5079533
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
   
1375 California Road
Quakertown, PA 18951
(Address of principal executive offices)
(215) 538-9996
 
(Registrant’s telephone number, including Area Code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

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.  ý Yes  ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). ý Yes  ¨ 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.  See the definitions of “large accelerated filer,” “accelerated file” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  ¨ Yes  ¨ No

 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
As of May 18, 2012, the Company had authorized 45,000,000 shares, $.001 par value, common stock, of which 12,830,000 shares of common stock were issued and outstanding.
 
 
2

 

SignPath Pharma Inc.
Quarterly Report on Form 10-Q
Period Ended March 31, 2012
 
Table of Contents
 
   
Page
PART I .  FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements:
 
Condensed Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011 (audited)
4
Condensed Statements of Operations for the three months ended March 31, 2012 and 2011 and for the period from Inception on May 15, 2006 through March 31, 2012 (unaudited)
5
Condensed Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and for the period from Inception on May 15, 2006 through March 31, 2012 (unaudited)
6
Notes to Condensed Financial Statements (unaudited)
7-18
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  19
Item 3
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4.
 Controls and Procedures
25
     
PART II .  OTHER INFORMATION
 
     
Item 1
Legal Proceedings
26
Item 1A
Risk Factors – Not Applicable
26
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
26
Item 3
Defaults Upon Senior Securities
27
Item 4
Mine Safety Disclosures
27
Item 5.
Other Information
27
Item 6
Exhibits
27
SIGNATURES
28
EXHIBIT INDEX
29
 
 
3

 

SIGNPATH PHARMA, INC.
 
(A Development Stage Company)
 
Balance Sheets
 
             
             
ASSETS
 
             
 
March 31,
 
December 31,
 
 
2012
 
2011
 
CURRENT ASSETS
(unaudited)
     
             
Cash
  $ 19,901     $ 20,424  
                 
Total Current Assets
    19,901       20,424  
                 
EQUIPMENT, net
    1,093       1,409  
                 
TOTAL ASSETS
  $ 20,994     $ 21,833  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
                 
CURRENT LIABILITIES
               
                 
Accounts payable and accrued expenses
  $ 445,736     $ 499,435  
Derivative liability
    5,648,649       5,377,308  
                 
Total Current Liabilities
    6,094,385       5,876,743  
                 
                 
STOCKHOLDERS' DEFICIT
               
                 
Preferred stock; $0.10 par value, 5,000,000 shares
               
  authorized 4,501 and  4,286 shares issued and
               
  outstanding, respectively
    450       429  
Common stock; $0.001 par value, 45,000,000 shares
               
  authorized; 12,830,000 shares issued
               
  and outstanding, respectively
    12,831       12,831  
Additional paid-in capital
    1,652,185       1,532,432  
Deficit accumulated during the development stage
    (7,738,857 )     (7,400,602 )
                 
Total Stockholders' Deficit
    (6,073,391 )     (5,854,910 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 20,994     $ 21,833  
                 
The accompanying notes are an integral part of these financial statements.

 
4

 

SIGNPATH PHARMA, INC.
 
(A Development Stage Company)
 
Statements of Operations
 
(unaudited)
 
                   
         
 
   
From Inception
 
               
on May 15, 2006
 
   
For the Three Months Ended
   
Through
 
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
                   
REVENUES
  $ -     $ -     $ -  
                         
OPERATING EXPENSES
                       
                         
General and administrative
    8,880       3,694       1,212,923  
Professional fees
    19,342       33,444       873,109  
Financing expense
    -       -       1,063,401  
Research and development
    47,947       477,822       2,564,581  
Salaries and wages
    52,118       27,474       846,113  
                         
Total Operating Expenses
    128,287       542,434       6,560,127  
                         
OPERATING LOSS
    (128,287 )     (542,434 )     (6,560,127 )
                         
OTHER INCOME (EXPENSE)
                       
                         
Gain (loss) on derivative liability
    (209,968 )     (126,869 )     (1,196,291 )
Grant income
    -       -       81,556  
Interest expense
    -       -       (63,995 )
                         
Total Other Income (Expense)
    (209,968 )     (126,869 )     (1,178,730 )
                         
NET LOSS BEFORE INCOME TAXES
    (338,255 )     (669,303 )     (7,738,857 )
Provision for income taxes
    -       -       -  
                         
NET LOSS
  $ (338,255 )   $ (669,303 )   $ (7,738,857 )
                         
BASIC AND DILUTED LOSS PER SHARE
  $ (0.03 )   $ (0.05 )        
                         
WEIGHTED AVERAGE NUMBER
                       
OF SHARES OUTSTANDING
    12,830,000       12,190,000          
                         
The accompanying notes are an integral part of these financial statements.
 
 
 
5

 

SIGNPATH PHARMA, INC.
 
(A Development Stage Company)
 
Statements of Cash Flows
 
(unaudited)
 
               
From Inception
 
               
on May 15, 2006
 
   
For the Three Months Ended
   
Through
 
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
OPERATING ACTIVITIES
                 
Net loss
  $ (338,255 )   $ (669,303 )   $ (7,738,857 )
Adjustments to reconcile net loss to
                       
  net cash used in operating activities:
                       
Common stock issued for services
    -       -       1,266,500  
Warrants and options issued for services
    5,842       5,842       68,420  
Common stock issued with bridge financing
    -       -       1,139,001  
Depreciation expense
    316       316       4,297  
Change in derivative liability, net of bifurcation
    209,968       126,869       1,196,291  
Changes in operating assets and liabilities
                       
Accounts payable and accrued expenses
    (53,699 )     408,433       445,736  
Net Cash Used in Operating Activities
    (175,828 )     (127,843 )     (3,618,612 )
                         
INVESTING ACTIVITIES
                       
Purchase of equipment
    -       -       (5,390 )
Net Cash Used in Investing Activities
    -       -       (5,390 )
                         
FINANCING ACTIVITIES
                       
Preferred stock issued for cash
    215,000       201,000       3,610,500  
Stock offering costs paid
    (39,695 )     (31,536 )     (866,472 )
Common stock issued for cash
    -       -       10,000  
Proceeds from notes payable – related party
    10,000       -       899,875  
Repayments of notes payable – related party
    (10,000 )     -       (10,000 )
Net Cash Provided by Financing Activities
    175,305       169,464       3,643,903  
                         
NET INCREASE (DECREASE) IN CASH
    (523 )     41,621       19,901  
CASH AT BEGINNING OF PERIOD
    20,424       48,993       -  
CASH AT END OF PERIOD
  $ 19,901     $ 90,614     $ 19,901  
                         
SUPPLEMENTAL DISCLOSURES OF
                       
CASH FLOW INFORMATION:
                       
                         
CASH PAID FOR:
                       
Interest
  $ -     $ -     $ -  
Income taxes
  $ -     $ -     $ -  
                         
NON CASH FINANCING ACTIVITIES:
                       
Preferred stock issued for bridge financing
  $ -     $ -     $ 889,875  
Derivative liability
  $ 61,373     $ 302,985     $ 4,452,359  
                         
The accompanying notes are an integral part of these financial statements.
 
 
 
6

 

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2012, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2011 audited financial statements.  The results of operations for the period ended March 31, 2012 are not necessarily indicative of the operating results for the full year.

NOTE 2 - GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. During the three months ended March 31, 2012, the Company recognized sales revenue of $-0- and incurred a net loss of $338,255.  As of March 31, 2012, the Company had an accumulated deficit of $7,738,857.  The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's planned business. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.

 
7

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments 
In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments.  ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
 
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. 
 
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of March 31, 2012, on a recurring basis:

Description
 
Level 1
   
Level 2
   
Level 3
   
Gains (Losses)
 
Derivative Liability
  $ -     $ -     $ (5,648,649 )   $ (209,968 )
Total
  $ -     $ -     $ (5,648,649 )   $ (209,968 )

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011, on a recurring basis:

Description
 
Level 1
   
Level 2
   
Level 3
   
Gains (Losses)
 
Derivative Liability
  $ -     $ -     $ (5,377,308 )   $ (245,087 )
Total
  $ -     $ -     $ (5,377,308 )   $ (245,087 )

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Derivative Liability:     Market prices are not available for the Company's warrants nor are market prices of similar warrants available. The Company assessed that the fair value of this liability approximates its carrying value since carrying value has been adjusted to fair value.
 
The method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If a readily determined market value became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
 
 
8

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments (continued)
The following tables present the fair value of financial instruments as of March 31, 2012, by caption on the condensed balance sheet and by ASC 820 valuation hierarchy described above.

 
Stock Warrant
 
Level 3 Reconciliation:
Derivative
 
Level 3 assets and liabilities at December 31, 2011
  $ (5,377,308 )
Purchases, sales, issuances and settlements (net)
    (271,341 )
Total level 3 assets and liabilities at December 31, 2011 
  $ (5,648,649 )

Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had nor is it expected to have a material impact on the Company’s financial position, or statements.

NOTE 4 – EQUIPMENT

Property and equipment consists of the following as of March 31, 2012 and December 31, 2011, respectively. Depreciation expense was $316 for the three months ended March 31, 2012 and March 31, 2011.

 
March 31,
 
December 31,
 
 
2012
 
2011
 
Computer equipment
  $ 5,390     $ 5,390  
Accumulated Depreciation
    (4,297 )     (3,981 )
Net Book Value
  $ 1,093     $ 1,409  

NOTE 5 – ACCRUED LIABILITIES

Pursuant to the applicable Codification literature, the Company has concluded it is probable that it will pay $85,738 in liquidated damages pursuant to the registration rights clause in certain of the securities sold in fiscal years 2008 and 2009, the Company was required to file a registration statement by January 27, 2009.  The Company failed to do so until April 7, 2009, resulting in liquidated damages of 2% per month of the gross proceeds, which approximated $1.8 million as of that date.  During the year ended December 31, 2009, the Company’s registration statement covering the securities was declared effective by the SEC.  Each holder is entitled to $47.32 per share owned.  The Company has resolved to pay the liquidated damages in shares of Common Stock valued at $1.00 per share, pursuant to the terms and provisions of the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock.

NOTE 6 – NOTE PAYABLE

In January 2012, the Company received cash pursuant to a short-term promissory note with a related party.  The cash was repaid in full in February 2012.  The note did not bear interest.

 
9

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
NOTE 7 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS

The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with its Series A Preferred Stock and associated warrants to purchase common stock. On January 1, 2009, the Company adopted ASC Topic No. 815-40 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. As of January 1, 2009 the Company had issued 3,572,714 warrants which have exercise prices that are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than $0.85 and $1.27, respectively. If these provisions are triggered, the exercise price of all of those warrants will be reduced.  As a result, the warrants are not considered to be solely indexed to the Company’s own stock and are not afforded equity treatment.

As a result, on January 1, 2009, 3,572,714 of the Company’s outstanding warrants containing exercise price reset provisions, originally classified as permanent equity, were reclassified to derivative liability. These warrants had exercise prices ranging from $0.85 - $1.27 and expire starting in December 2013. As of January 1, 2009, the fair value of these warrants of $1,676,633 was recognized and resulted in a cumulative effect adjustment to retained earnings of $43,808. The change in fair value during the years ended December 31, 2011 and 2010 of $(272,970) and $(538,010), respectively, is recorded as a derivative loss in the accompanying Statements of Operations.

During the three months ended March 31, 2012, the Company issued 151,833 warrants as stock offering costs to the Company’s placement agent.  The combined fair market value of the derivative liability associated with these issuances at the date of issuance was $61,373.

During the year ended December 31, 2011, the Company issued 1,704,884 warrants which were attached to 1,449 shares of convertible preferred stock.  The Company issued an additional 1,022,931 warrants as stock offering costs to the Company’s placement agent.  The combined fair market value of the derivative liability associated with these issuances at the date of issuance was $2,184,753.

During the year ended December 31, 2010, the Company issued 676,775 warrants which were attached to 575 shares of convertible preferred stock.  The Company issued an additional 391,353 warrants as stock offering costs to the Company’s placement agent.  The Combined fair market value of the derivative liability associated with these issuances for the year ended December 31, 2010 was $852,346.

During the year ended December 31, 2009, the Company issued 953,370 warrants which were attached to 810 shares of convertible preferred stock.  The Company issued an additional 286,011 warrants as stock offering costs to the Company’s placement agent.  The Combined fair market value of the derivative liability associated with these issuances for the year ended December 31, 2009 was $988,552.

The Company classifies the fair value of these warrants under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a lattice model that values the compound embedded derivatives based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the conversion feature with the full ratchet reset, and the redemption options.
 
 
 
10
 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
NOTE 7 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS (continued)
 
The Series A Preferred Derivatives were valued using the following assumptions:
 
 
The Company was 3 months from being publicly traded and the Company/Holder would convert the Preferred Stock based on 200% of the adjusted conversion price;
 
The Preferred maturity date used was 7 years following the Company being publically traded (rolling 6 years from the Valuation Date);
 
The stock price of $0.85 was used as the fair value of the common stock based on the previous common stock transaction;
 
The projected volatility curve was based on the average of 15 comparable biotech companies historical volatility:
 
The Holder would automatically convert at a stock price of $1.70 if the Company was not in default;
 
The Holder would convert on a quarterly basis in equal amounts to maturity if in the money; and
 
Capital raising events would occur annually, generating reset events based on pricing not greater than 100% of market.

The warrants were valued at issuance and marked to market quarterly for the period 2009 through December 2011. The five-year warrants are options to purchase shares of common stock at an exercise price of $0.85 per share and $1.27, subject to adjustments. The following assumptions were used for the valuation of the derivative:
 
   
The stock price of $0.85 was used as the fair value of the common stock based on the previous common stock transaction;
  The projected volatility curve was based on the average of comparable companies as provided in the Preferred assumptions above;
  The Holder would exercise the warrant at maturity if the stock price was above the exercise price;
 
The Holder would exercise the warrant at target prices starting at $1.58 for the Investor Warrants and $1.40 for the Placement Agent Warrants, and lowering such target as the warrants approached maturity.
 
The Holder would automatically convert all of the shares at a stock price of $1.58 for the Investor Warrants and $1.40 for the Placement Agent Warrants;
 
The Holder would convert on a quarterly basis in amounts not to exceed the average quarters trading volume based on historical performance, assuming the volume would increase by 5% each quarter; and
 
Capital raising events would occur annually, generating reset events based on pricing not greater than 100% of market for the Placement Agent Warrants and for the Investor Warrants the reset would be 150% of the Preferred.
 
The Company determined the fair value of the preferred stock to be $3,352,205 and $3,146,367 and the fair value of the warrants to be $2,296,444 and $2,230,941 at March 31, 2012 and December 31, 2011, respectively.

The following shows the changes in the level three liability measured on a recurring basis from December 31, 2011 through March 31, 2012:

Balance, December 31, 2011
  $ 5,377,308  
Derivative liability for warrants issued during the period
    61,373  
Derivative loss
    209,968  
Balance, March 31, 2012
  $ 5,648,649  
 
 
11

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)


NOTE 8 – PREFERRED STOCK

Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock (“Preferred Stock”) has been authorized by resolutions adopted by the Company’s Board of Directors and set forth in a Certificate of Designation, Preferences and Rights (“Certificate of Designation”), filed with the Secretary of State of Delaware on November 26, 2008, which contains the designations, rights, powers, preferences, qualifications and limitations of the Series A Preferred Stock.  The shares of Preferred Stock are fully paid and non-assessable.  As of March 31, 2012, the Company has issued 3,256 shares of Series A Preferred Stock.

Rank
The Preferred Stock ranks(i) senior to the common stock and any other class or series of the Company’s capital stock either specifically ranking by its terms junior to the Preferred Stock or not specifically ranking by its terms senior to or on parity with the Preferred Stock, (ii) on parity with any class or series of the Company’s capital stock specifically ranking by its terms on parity with the Preferred Stock, and (iii) junior to any class or series of capital stock specifically ranking by its terms senior to the Preferred Stock, in each case, as to payment of dividends or as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.  The approval of the holders of a majority of the Preferred Stock is required in order for the Company to issue any capital stock with rights on parity with or senior to the Preferred Stock.

Dividends
The holders of the Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% of the liquidation preference of the Preferred Stock, out of funds legally available, prior to any payment of dividends on the Company’s common stock or any other class of stock ranking junior to the Preferred Stock.  Such dividends are payable in cash or shares of common stock, at the option of the Company, semiannually on the last business day of February and August of each year (each a “Dividend Payment Date”), commencing in February 2009 with respect to the period from issuance through such date.  The holders of the Preferred Stock are entitled to share ratably with the holders of the common stock in any dividend declared on the common stock.

Dividends on the Preferred Stock will accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared.  Dividends accumulate to the extent they are not paid on the Dividend Payment Date to which they relate.  Dividends that are due in cash and which are not paid within (5) business days of the Dividend Payment date shall bear interest until paid at the default rate.  According to Delaware law, the Company may declare and pay dividends or make other distributions on its capital stock only out of legally-available funds.  In addition, no dividends or distributions may be declared, paid or made if the Company is or would be rendered insolvent by virtue of such dividend or distribution. The Company may not (i) pay any dividends in respect of any shares of capital stock ranking junior to the Preferred Stock (including the common stock), other than dividends payable in the form of additional shares of the same junior stock as that on which such dividend is declared, or (ii) redeem any shares of capital stock ranking junior to the Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Preferred Stock have been, or contemporaneously are, declared and paid in full.

Conversion
At the election of the holder thereof, each share of Preferred Stock will be convertible into common stock, at any time after issuance, at the Conversion Rate, as it may be adjusted from time to time in accordance with the Certificate of Designation.  The Preferred Stock will not convert automatically into Common Stock upon completion of this offering and only the underlying Common Stock issuable upon conversion is registered for the resale under this prospectus.  The Conversion Rate initially will be 1,177 shares of common stock ($.85 per share) for each Share of Preferred Stock.  If the Company issues or sells any shares of its common stock (or options, warrants or convertible securities, convertible or exchangeable into shares of common stock) hereinafter, a “Subsequent common stock Issuance”), then the Conversion Rate will be adjusted so that the number of shares of common stock issuable upon conversion of each share of preferred stock shall be equal to the quotient obtained by dividing $1,000 by the price per share of common stock (or the conversion price per share in the case of a sale of options, warrants or convertible securities) sold in such Subsequent common stock Issuance.

 
12

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)


 NOTE 8 – PREFERRED STOCK (continued)
 
The Conversion Price is also subject to adjustment from time to time in the event of (i) the issuance of common stock as a dividend or distribution on any class of the Company’s capital stock; or (ii) the combination, subdivision or reclassification of the common stock.  No fractional shares will be issued upon conversion.  Payment of accumulated and unpaid dividends will be made upon conversion to the extent of legally-available funds. The shares of Preferred Stock may also be converted into common stock at the Conversion Rate at the Company’s option following the effectiveness of a Registration Statement, if the Company’s common stock trades above 200% of the Conversion Rate per share for a period of 20 consecutive trading days.

Voting Rights
The affirmative vote of the holders of at least two-thirds of the outstanding shares of Preferred Stock, voting as a class, shall be required to authorize, effect or validate (i) any change in the rights, privileges or preferences of the Preferred Stock that would adversely affect the Preferred Stock, or (ii) the authorization, creation, issuance or increase in the authorized or issued amount of any class or series of stock ranking on parity with or superior to the Preferred Stock with respect to the declaration and payment of dividends or distribution of assets upon liquidation, dissolution or winding-up of our Company.  In addition, the holders of Preferred Stock shall have the right to vote, together with holders of common stock as single class, on all matters upon which the holders of common stock are entitled to vote pursuant to applicable Delaware law or the Company’s Certificate of Incorporation.  The Preferred Stock shall vote on an “as converted basis” with each holder of Preferred Stock having one vote for each Conversion Share underlying such holder’s shares of Preferred Stock.

Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, before any payment or distribution of the assets of the Company (whether capital or surplus), or the proceeds thereof, may be made or set apart for the holders common stock or any stock ranking junior to Preferred Stock, the holders of Preferred Stock will be entitled to receive, out of the assets of the Company available for distribution to stockholders, a liquidating distribution of $1,000 per share, plus any accrued and unpaid dividends, subject to adjustment upon the occurrence of certain events.  If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to make the full payment of $1,000 per share, plus all accrued and unpaid dividends on the Preferred Stock and similar payments on any other class of stock ranking on a parity with the Preferred Stock upon liquidation, then the holders of Preferred Stock and such other shares will share ratably in any such distribution of the Company’s assets in proportion to the full respective distributable amounts to which they are entitled.  Certain events, including a consolidation or merger of the Company with or into another corporation or sale or conveyance of all or substantially all the property and assets of the Company will be deemed to be a liquidation, dissolution or winding-up of the Company for purposes of the foregoing.

Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock (“Series B Preferred Stock”) has been authorized by resolutions adopted by the Company’s Board of Directors and set forth in a Certificate of Designation, Preferences and Rights (“Certificate of Designation”), filed with the Secretary of State of Delaware on September 2, 2011, which contains the designations, rights, powers, preferences, qualifications and limitations of the Series B Preferred Stock.  The shares of Series B Preferred Stock are fully paid and non-assessable.  As of March 31, 2012, the Company had issued 1,245 shares of Series B Preferred Stock.

Rank
The Series B Preferred Stock ranks(i) senior to the common stock and any other class or series of the Company’s capital stock either specifically ranking by its terms junior to the Series B Preferred Stock or not specifically ranking by its terms senior to or on parity with the Series B Preferred Stock, (ii) on parity with any class or series of the

 
13

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)


NOTE 8 – PREFERRED STOCK (continued)

Company’s capital stock specifically ranking by its terms on parity with the Series B Preferred Stock, and (iii) junior to Series A Preferred Stock, in each case, as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.

Dividends
The holders of the Series B Preferred Stock are entitled to receive annual cumulative per share dividends of 6.5% of the liquidation preference of the Series B Preferred Stock, out of funds legally available, prior to any payment of dividends on the Company’s common stock or any other class of stock ranking junior to the Series B Preferred Stock.  Such dividends are payable in cash or shares of common stock, at the option of the Company.  The holders of the Series B Preferred Stock are entitled to share ratably with the holders of the common stock in any dividend declared on the common stock.
 
Dividends on the Series B Preferred Stock will accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared.  Dividends accumulate to the extent they are not paid on the Dividend Payment Date to which they relate.  According to Delaware law, the Company may declare and pay dividends or make other distributions on its capital stock only out of legally-available funds.  In addition, no dividends or distributions may be declared, paid or made if the Company is or would be rendered insolvent by virtue of such dividend or distribution. The Company may not (i) pay any dividends in respect of any shares of capital stock ranking junior to the Series B Preferred Stock (including the common stock), other than dividends payable in the form of additional shares of the same junior stock as that on which such dividend is declared, or (ii) redeem any shares of capital stock ranking junior to the Series B Preferred Stock (including the common stock), unless and until all accumulated and unpaid dividends on the Series B Preferred Stock have been, or contemporaneously are, declared and paid in full.

Conversion
At the election of the holder thereof, each share of Series B Preferred Stock will be convertible into common stock, at any time after issuance, at the Conversion Rate, as it may be adjusted from time to time in accordance with the Certificate of Designation.  The Conversion Rate initially will be 1,177 shares of common stock ($.85 per share) for each Share of Series B Preferred Stock. 

The Conversion Price is subject to adjustment from time to time in the event of (i) the issuance of common stock as a dividend or distribution on any class of the Company’s capital stock; or (ii) the combination, subdivision or reclassification of the common stock but does not contain the same price protection ratchets as the Series A Preferred Stock.  No fractional shares will be issued upon conversion.  Payment of accumulated and unpaid dividends will be made upon conversion to the extent of legally-available funds. The shares of Preferred Stock may also be converted into common stock at the Conversion Rate at the Company’s option following the effectiveness of a Registration Statement, if the Company’s common stock trades above 200% of the Conversion Rate per share for a period of 20 consecutive trading days.

Voting Rights
The affirmative vote of the holders of at least a majority of the outstanding shares of Preferred Stock, voting as a class, shall be required to authorize, effect or validate (i) any change in the rights, privileges or preferences of the Series B Preferred Stock that would adversely affect the Series B Preferred Stock, or (ii) the authorization, creation, issuance or increase in the authorized or issued amount of any class or series of stock ranking on parity with or superior to the Series B Preferred Stock with respect to the declaration and payment of dividends or distribution of assets upon liquidation, dissolution or winding-up of our Company.  In addition, the holders of Preferred Stock shall have the right to vote, together with holders of common stock as single class, on all matters upon which the holders of common stock are entitled to vote pursuant to applicable Delaware law or the Company’s Certificate of Incorporation.  The Series B Preferred Stock shall vote on an “as converted basis” with each holder of Preferred Stock having one vote for each Conversion Share underlying such holder’s shares of Preferred Stock.

 
14

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
NOTE 8 – PREFERRED STOCK (continued)

Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, before any payment or distribution of the assets of the Company (whether capital or surplus), or the proceeds thereof, may be made or set apart for the holders common stock or any stock ranking junior to Preferred Stock, after payment to the holders of Series A Preferred Stock the holders of Preferred Stock will be entitled to receive, out of the assets of the Company available for distribution to stockholders, a liquidating distribution of $1,000 per share, plus any accrued and unpaid dividends, subject to adjustment upon the occurrence of certain events.  If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to make the full payment of $1,000 per share, plus all accrued and unpaid dividends on the Preferred Stock and similar payments on any other class of stock ranking on a parity with the Preferred Stock upon liquidation, then the holders of Preferred Stock and such other shares will share ratably in any such distribution of the Company’s assets in proportion to the full respective distributable amounts to which they are entitled.  Certain events, including a consolidation or merger of the Company with or into another corporation or sale or conveyance of all or substantially all the property and assets of the Company will be deemed to be a liquidation, dissolution or winding-up of the Company for purposes of the foregoing.

During the three months ended March 31, 2012, the Company issued 215 shares of of its par value $0.10 Series B Convertible Preferred Stock for cash at $1,000 per share.

During the year ended December 31, 2011, the Company issued 419 shares of its par value $0.10 Series A Convertible Preferred Stock and 1,030 shares of its par value $0.10 Series B Convertible Preferred Stock, for a total of 1,449 shares of Preferred Stock, for cash at $1,000 per share.

During the year ended December 31, 2010, the Company issued 575 shares of its par value $0.10 Series A Convertible Preferred Stock for cash at $1,000 per share.

During the year ended December 31, 2009, the Company issued 810 shares of its par value $0.10 Series A Convertible Preferred Stock at $1,000 per share.

On November 25, 2008, the Company issued 562 shares of its par value $0.10 Series A Convertible Preferred Stock for cash at $1,000 per share.

On November 25, 2008, the Company issued 890 shares of its par value $0.10 Series A Convertible Preferred Stock to extinguish bridge debt financing totaling $889,875.

Between January 24 and April 15, 2008, the Company issued 1,082,500 common shares of the Company at $0.85 per common share in accordance with the Bridge Note agreements.

NOTE 9 – COMMON STOCK

During the year ended December 31, 2011, the Company issued 640,000 shares of common stock to officers and consultants in exchange for services provided.  The shares were valued based on the price of $0.85 per share and the Company recognized $151,000 in salaries and wages, $289,000 in consulting expense, and extinguished $104,000 in accrued officer salary.

On June 16, 2010 the Company issued 400,000 shares of common stock to officers and consultants of the Company in exchange for services provided.  The shares were valued based on the price of $0.85 per share and the Company recognized $340,000 in consulting expense.
 
NOTE 9 – COMMON STOCK (continued)

 
15

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)

 
On December 28, 2010 the Company issued 450,000 shares of common stock to officers and consultants of the Company in exchange for services provided.  The shares were valued based on the price of $0.85 per share and the Company recognized $382,500 in consulting expense.
 
NOTE 10 – WARRANTS

A summary of the status of the Company's warrants as of March 31, 2012 and changes from inception through March 31, 2012 are presented below:
 

Date of
 
Warrant
   
Exercise
   
Value if
   
Expiration
 
Issuance
 
Shares
   
Price
   
Exercised
   
Date
 
11/25/08
    1,259,639       1.27     $ 1,599,742    
08/10/14
 
11/25/08
    530,314       0.85       450,767    
08/10/14
 
11/26/08
    449,220       1.27       570,509    
08/10/14
 
Outstanding at 12/31/2008
    2,239,173       1.17       2,621,018        
03/05/09
    347,215       1.27       440,963    
08/10/14
 
03/05/09
    104,165       0.85       88,540    
08/10/14
 
04/01/09
    17,655       1.27       22,422    
08/10/14
 
04/01/09
    5,296       0.85       4,502    
08/10/14
 
06/17/09
    235,400       1.27       298,958    
08/10/14
 
06/17/09
    70,620       0.85       60,027    
08/10/14
 
07/23/09
    58,850       1.27       74,740    
08/10/14
 
07/23/09
    35,310       0.85       30,014    
08/10/14
 
08/20/09
    58,850       1.27       74,740    
10/14/15
 
09/09/09
    235,400       1.27       298,958    
10/14/15
 
09/09/09
    70,620       0.85       60,027    
10/14/15
 
Outstanding at 12/31/2009
    3,478,554       1.17       4,074,909        
02/11/10
    29,425       1.27       37,370    
10/14/15
 
02/11/10
    17,655       0.85       15,007    
10/14/15
 
05/21/10
    29,425       1.27       37,370    
10/14/15
 
05/21/10
    17,655       0.85       15,007    
10/14/15
 
08/10/10
    88,275       1.27       112,109    
10/14/15
 
08/10/10
    52,965       0.85       45,020    
10/14/15
 
09/15/10
    264,825       1.27       336,328    
10/14/15
 
09/15/10
    52,965       0.85       45,020    
10/14/15
 
09/24/10
    105,930       0.85       90,041    
10/14/15
 
10/27/10
    147,125       1.27       186,849       *  
10/27/10
    73,563       0.85       62,529       *  
11/19/10
    117,700       1.27       149,479       *  
11/24/10
    70,620       0.85       60,027       *  
Outstanding at 12/31/2010
    4,546,682       1.16     $ 5,267,063          
01/26/11
    117,700       1.27       149,479       *  
01/26/11
    60,027       1.27       76,234       *  
01/26/11
    106,636       0.85       90,641       *  
03/15/11
    58,850       1.27       74,740       *  
03/15/11
    35,310       0.85       30,014       *  
04/06/11
    70,620       0.85       60,027       *  
 
 
16

 
 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)
 
Date of
   
Warrant
     
Exercise
     
Value if
     
Expiration
 
Issance
   
Shares
     
Price
     
Exercised
     
Date
 
04/06/11
    117,700       1.27       149,479       *  
06/08/11
    51,200       0.85       43,520       *  
06/08/11
    85,333       1.27       108,373       *  
06/20/11
    17,655       0.85       15,007       *  
06/20/11
    29,425       1.27       37,370       *  
07/26/11
    23,540       1.27       29,896       *  
07/26/11
    14,124       0.85       12,005          
08/22/11
    29,424       1.27       37,368       *  
08/22/11
    17,655       0.85       15,007       *  
08/30/11
    105,930       0.85       90,041       *  
09/02/11
    176,550       1.27       224,219       *  
09/09/11
    58,850       1.27       74,740       *  
09/09/11
    35,310       0.85       30,014       *  
09/22/11
    441,375       1.27       560,546       *  
09/22/11
    264,825       0.85       225,101       *  
11/02/11
    141,240       0.85       120,054       *  
11/02/11
    235,400       1.27       298,958       *  
11/23/11
    35,310       0.85       30,014       *  
11/23/11
    58,850       1.27       74,740       *  
12/27/11
    127,116       0.85       108,049       *  
12/27/11
    211,860       1.27       269,062       *  
Outstanding at 12/31/11
    7,274,497       1.14     $ 8,301,761          
01/31/12
    117,700       1.27       149,479       *  
02/02/12
    76,505       1.27       97,161       *  
02/10/12
    58,850       1.27       74,740       *  
01/31/12
    70,620       0.85       60,027       *  
02/02/12
    45,903       0.85       39,018       *  
02/10/12
    35,310       0.85       30,014       *  
Outstanding at 3/31/12
    7,679,385       1.14       8,752,200          
                                 
*Fifth anniversary date of the next registration statement to be filed.
             

The warrants were issued in connection with the Preferred Stock Offering and were valued using the Lattice model and accounted for as described in Note 7.

NOTE 11 – STOCK OPTIONS

The Company’s 2009 Employee Stock Incentive Plan (the “2009 Option Plan”) was adapted by the Company’s Board of Directors on February 9, 2009 in order to motivate participants by means of stock options and restricted stock to achieve the Company’s long-term performance goals and enable our employees, officers, directors and consultants to participate in our long term growth and financial success. The 2009 Plan, which is administered by our Board of Directors, authorizes the issuance of a maximum of 500,000 shares of our common stock, which may be authorized and unissued shares or treasury shares.  Employee options shall be deemed Incentive Stock Options (as defined in the 2009 Option Plan) to the maximum extent permitted by Section 422 of the Internal Revenue Code including a five-year limit on exercise for 10% or greater stockholders with any excess grant to the above individuals over the limits set by Section 422 being Non-Qualified Stock Options as defined in the 2009 Option Plan. Both the Incentive Stock Options or any Non-Qualified Stock Options must be granted at an exercise price of not less than the fair market value of shares of common stock at the time the option is granted and Incentive Stock Options granted to 10% or greater stockholders must be granted at an exercise price of not less than 110% of the fair market value of the shares on the date of grant.

 
17

 
SIGNPATH PHARMA, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2012 and December 31, 2011
(unaudited)


NOTE 11 – STOCK OPTIONS (continued)

If any award under the 2009 Plan terminates, expires unexercised, or is cancelled, the shares of common stock that would otherwise have been issuable pursuant thereto will be available for issuance pursuant to the grant of new awards. The 2009 Plan will terminate on February 9, 2019.  As of March 31, 2012 the following options had been granted under the plan:

On July 12, 2010 the Company issued 100,000 options to a member of its board of directors under the 2009 plan. The options have an exercise price of $0.85 per share and have a life of ten years. The options vest as follows: one third on the date of grant, one third on each of the second and third anniversary dates from the date of grant. The Company valued these options using the Black-Scholes option pricing model under the following assumptions:  $0.85 stock price, $0.85 stock price, 10 years to maturity, 400% volatility, 2.02% risk free rate.  The Company has recorded amortization expense of $5,842 related to these options for the three months ended March 31, 2012 and 2011.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to March 31, 2012, the Company issued 109 shares of its par value $0.10 Series B Convertible Preferred Stock for cash at $1,000 per share.

In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and there are no material subsequent events to report.
 
 
18

 

PART I   Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking Statements
 
Statements contained in this Item 2. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and elsewhere in this report that are not historical or current facts may constitute “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements relate to future events or future predictions, including events or predictions relating to our future financial performance, and are generally identifiable by use of the words "may," "will," “forecast,” "should," "expect," "plan," "anticipate," "believe," "feel," "confident," "estimate," "intend," "predict," "potential" or "continue" or the negative of such terms or other variations on these words or comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.  Important factors to consider and evaluate that could cause actual results to differ materially from those predicted in any such forward-looking statements include: (i) the general economic recession and changes in the external competitive market factors which might impact the Company's results of operations; (ii) unanticipated working capital or other cash requirements including those created by the failure of the Company to adequately anticipate the costs associated with clinical trials, manufacturing and other critical activities; (iii) changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the therapeutic drug industry; (iv) the inability or failure of the Company's management to devote sufficient time and energy to the Company's business; and (v) the failure of the Company to complete any or all of the transactions described herein on the terms currently contemplated.  In light of these risks and uncertainties, many of which are described in greater detail in the Risk Factors discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (“SEC”), there can be no assurance that the forward-looking statements contained in this prospectus will in fact transpire.
 
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements.  Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements.  We do not undertake any duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or changes in our expectations.

General
 
The following discussion should be read in conjunction with the financial statements and notes thereto included in this report. Except for the historical information contained herein, the discussion in this report contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions as of the date of this filing. The cautionary statements made above should be read as being applicable to all related forward-looking statements wherever they appear in this document.

 
19

 

Material Changes in Financial Conditions
 
Liquidity and Capital Resources

As of March 31, 2012 and December 31, 2011, the Company had $19,901 and $20,424, respectively, of cash on hand.  The Company’s working capital deficit increased from ($5,856,319) at December 31, 2011 to a deficit of ($6,074,484), as of March 31, 2012.  Excluding the non-cash liability associated with the Company’s derivatives, the working capital deficit decreased from $479,011 as of December 31, 2011 to $425,835 as of March 31, 2012.  The decrease in the working capital deficit was primarily the result of a reduction of outstanding accounts payable.  SignPath had a deficit accumulated during the development stage of $7,738,857, as of March 31, 2012.
 
During the 12 months ended December 31, 2011, SignPath sold 1,448.5 Units (the “2011 Private Placement”) consisting of its securities at a price of $1,000 per Unit.  Each Unit consists of (i) one share of 6.5% Series A Convertible Preferred Stock convertible into 1,177 shares of common stock (equivalent to $.85 per share of common stock) following the effective date of its Registration Statement (the “Effective Date”) subject to adjustment, and (ii) Warrants to purchase 1,177 shares of common stock at $1.27 per share for a five-year period following the Effective Date of a registration statement including the underlying securities.  The Company received gross proceeds of $1,448,500 and incurred stock offering costs of $267,966 related to such offering.  
 
During the three month period ended March 31, 2012, the Company sold 215 Units of Series B Preferred Stock at $1,000 per share.  The Company received gross proceeds of $215,000 and incurred stock offering costs of $39,695 related to the Offerings.
 
The Company has no agreements, arrangements or understandings with any officer, director or shareholder as to any future financing, either equity or debt.  The Company expects to continue to incur losses for the foreseeable future and it is possible the Company may never reach profitability.  Therefore, the Company will require additional capital resources and financing to implement its business plan and continue its operations.  The Company’s current burn rate for salaries, research programs and professional fees averages about $60,000 per month.  Thus, it is expected that the Company currently does not have sufficient cash on hand to operate through the next 12 months.  Management believes it has enough funds to complete its pre-clinical trials.  If the Company receives favorable results, Management believes it will have the ability to raise additional funds to complete INDs.  In view of general economic conditions, there can be no assurance that any additional financing will be available to us, that any affiliate will provide additional investments in the Company or that adequate funds for our operations will otherwise be available when needed or on terms acceptable to us.
 
Cash used in operating activities during the three months ended March 31, 2012 (“Fiscal 2012”) was $175,828 compared to cash used of $127,843 during the comparable period in 2011 (“Fiscal 2011”).  This resulted from a net loss of $338,255 and repayments of accounts payable of $53,699 in Fiscal 2012, offset by an increase in the fair value of the Company’s derivative liability of $209,968.  This compared to a loss of $669,303 during Fiscal 2011 and a change in the fair value of the Company’s derivative liability of $126,869 and an increase in accounts payable of $408,433.
 
 
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The Series B Preferred Stock is substantially the same as the Series A Preferred Stock with regard to dividends and conversion price, however, is junior to the Series A Preferred Stock on liquidation and does not have anti-dilution price protection, nor do the Class B Warrants issued as part of the Units.
 
The Company had net cash provided by financing activities of $175,305 in Fiscal 2012 as a result of the $215,000 received in the 2012 Private Placement described above, reduced by $39,695 of offering costs.  During Fiscal 2011, the Company had $169,464 of net cash provided by financing activities as a result of the $201,000 received from the 2011 Private Placement of Preferred Stock less the stock offering costs of $31,536.
 
As a result of the foregoing, the Company’s cash decreased by $523 during Fiscal 2012 from $20,424 to $19,901.
 
The financial statements included in this report have been prepared in conformity with generally accepted accounting principles that contemplate our continuance as a going concern.  The Company has had no revenues and has generated losses from operation.  As set forth in Note 2 to the audited Financial Statements, the continuation of the Company as a going concern is dependent upon the Company obtaining adequate capital to fund operating losses until it becomes profitable, if ever.  The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Material Changes in Results of Operations
 
Three months ended March 31, 2012, as compared with the three months ended March 31, 2011
 
The Company does not expect to receive any revenues prior to 2013.  Total operating expenses during the three months ended March 31, 2012 (the “2012 Period”) decreased to $128,287, as compared with $542,434 during the three months ended March 31, 2011 (the “2011 Period”) primarily as a result of a decrease of $429,875 of research and development expenses related to the continued manufacture and preclinical development of its lead curcumin formulations.  General and administrative expenses increased to $8,880 in the 2012 Period from $3,694 in the 2011 Period, primarily as a result of an increase in travel and other office related expenses.  Professional fees decreased to $19,342 in the 2012 period from $33,444 in the 2011 Period, primarily as a result of consulting contracts in the 2011 Period that were not renewed in the 2012 Period.
 
Research and Development fees in the 2012 Period included $23,156 paid to University of Texas, MD Anderson Cancer Center (“UTMDACC”) for non-clinical and mouse pre-clinical non-GLP studies of lipsomal curcumin.  Other research and development payments included $242,897, $137,559 and $15,600 to Polymnun, Nucro Technology and Regis Pharmaceuticals, respectively, for lab fees and other costs related to the Company’s research and development efforts.

 
21

 

Research and Development fees in the 2012 Period included $10,000 paid to University of Texas, MD Anderson Cancer Center (“UTMDACC”) for non-clinical and mouse pre-clinical non-GLP studies of lipsomal curcumin.  Other major research and development expenses included payments to Metabolon, Johns Hopkins University and ClinicPace Worldwide for $11,400, $5,788 and $2,465, respectively, for lab fees and other costs related to the Company’s research and development efforts.
 
The amount paid for research and development in the 2012 Period consisted of payments for overhead and patent fees for non-clinical studies and pre-clinical studies in the nanocurcumin compound and to produce polymer under the JHU Agreement for animal studies of nanocurcumin.  During the 2011 Period, the Company paid UTMDACC for non-clinical and mouse pre-clinical pre-GLP studies of lipomal curcumin.  It also includes expenses relating to development of depotcurcumin, a slow release formulation.  Depotcurcumin was originally made at UNT under non-GLP conditions from curcumin extract (and PLGA, a chemical surrounding the curcumin) originally purchased from a U.S. chemical supplier, Sigma Aldrich Fine Chemicals (“SAFC”).
 
As a result of the foregoing, the Company had a net loss of $338,255 in the 2012 Period as compared to a net loss of $669,303 in the 2011 period.  This translates to a loss per share of $0.03 in the 2012 Period compared to $0.05 in the 2011 Period.
 
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 

Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.
 

Fair Value of Financial Instruments 
In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments.  ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
 
 Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 
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Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. 
 
 Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
 
The carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of March 31, 2012, on a recurring basis:

Description
 
Level 1
   
Level 2
   
Level 3
   
Gains (Losses)
 
Derivative Liability
  $ -     $ -     $ (5,648,649 )   $ (209,968 )
Total
  $ -     $ -     $ (5,648,649 )   $ (209,968 )

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011, on a recurring basis:

 
Description
 
Level 1
   
Level 2
   
Level 3
   
Gains (Losses)
 
Derivative Liability
  $ -     $ -     $ (5,377,308 )   $ (245,087 )
Total
  $ -     $ -     $ (5,377,308 )   $ (245,087 )

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
 Derivative Liability:     Market prices are not available for the Company's warrants nor are market prices of similar warrants available. The Company assessed that the fair value of this liability approximates its carrying value since carrying value has been adjusted to fair value.
 
 The method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If a readily determined market value became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
 
 
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The following tables present the fair value of financial instruments as of March 31, 2012, by caption on the condensed balance sheet and by ASC 820 valuation hierarchy described above.
 

 
Stock Warrant
 
Level 3 Reconciliation:
Derivative
 
Level 3 assets and liabilities at December 31, 2011
  $ (5,377,308 )
Purchases, sales, issuances and settlements (net)
    (271,341 )
Total level 3 assets and liabilities at December 31, 2011 
  $ (5,648,649 )

 
Plan of Operations
 
The Company's current focus is on the manufacture and preclinical development of its lead curcumin formulations (intravenous liposomal curcumin, oral and intravenous nanocurcumin and a slow release PLGA formulation) with a view toward filing two IND applications with the FDA. The Company's product candidates are still in the preclinical development phase.
 
The Company believes that a novel pharmaceutical preparation with enhanced absorption of the active compound with resistance to hepatic inactivation could potentially have greater clinical efficacy than the oral versions. The laboratory and oral administration studies by other researchers to date suggest that curcumin has high potency. The Company believes that an alternate route for administering this compound, such as the Company's parenteral (taken into the body other than through the digestive canal) formulation, could be more effective at lower dosages. SignPath intends to develop a parenteral liposomal formulation, and a nanoparticle formulation, nanocurcumin, to overcome the limitations of the oral form.
 
SignPath believes that the development and comparison of liposomal curcumin, nanocurcumin and PLGA formulation could expose potential differences in biological effects and distribution to different tissues. The Company intends to manufacture good manufacturing practice (GMP) grade of liposomal curcumin, nanocurcumin and PLGA formulation. These formulations will require outsourcing production to one or more commercial facilities. Our initial goals are to obtain sufficient material for in vitro and animal analysis and to develop these formulations in order to submit INDs to the FDA. Determination of safety, dosage, and efficacy of these formulations in a quantifiable manner will permit us to pursue clinical registration trials for a variety of malignant diseases. Following submission of the INDs, the Company plans to initially run Phase I studies with both of the parenteral formulations in patients with treatment refractory malignant disease. Subsequently, if the Phase I trials are successful, the Company plans to seek FDA authorization to run Phase II trials in selected malignancies.
 
Liposomal curcumin: The Company has agreements with contract manufacturers for the manufacture, chemistry. and controls for supplies of the drugs to be tested. Liposomal curcumin is manufactured by our contract manufacturer, Polymun, Inc. Initial quantities of GMP grade liposomal curcumin to conduct preclinical studies to corroborate previously published data from other researchers were obtained from Sigma Aldrich Fine Chemicals ("SAFC") or from Sabinsa. Final production of liposmal curcumin GMP was completed at Polymun in Vienna, Austria during 2009. Using Iipocurc, anti-cancer activity without toxicity in human colon and pancreatic cancer xenograft models were published.  Following the determination of safety and the optimum dosage and schedule in the most sensitive of the three species, we will be able to estimate starting dosages for Phase I trials in humans. We plan to outsource corroborative studies of Iiposomal absorption, distribution, metabolism, and excretion (ADME), and pharmacokinetics in rats with the aim of estimating optimum dosage schedules, as well as dosage and safety in mice, rats and dogs to satisfy IND regulations to GLP laboratories in M.D. Anderson Cancer Center in Houston, Texas.

 
24

 

Nanocurcumin: The Company intends to obtain commercial volumes of purified curcumin from third party manufacturers,  Sabinsa, and/or Regis Pharmaceutical(s) in quantities suitable to satisfy preclinical and clinical demands. The Company believes that the manufacture of Iiposomal curcumin and nanocurcumin can also be scaled up as necessary since these additional substances are readily available from commercial sources utilizing established production technologies. We plan to outsource nanocurcumin pre-clinical development to M.D. Anderson. We will continue non-clinical and preclinical analyses of nanocurcumin at the NCI Nanocharacterization Laboratory. The nanocurcumin program will be managed by M.D. Anderson through the filing of the Company's IND. However, we intend to develop direct injection nanocurc, a new clinical entity at Johns Hopkins Cancer Center for preventive therapy of inducted curcumin in situ in rats. Nanocurc, a parenteral formulation of nanocurcumin in human pancreatic cancer xenografts in nude mice has demonstrated anti-cancer effects. This formulation has activity against breast cancer-DCIS and passes the blood brain barrier. We intend to conduct a European Phase I dose funding in Parkinson's Disease for volunteers in collaboration with Polymun, Vienna, Austria. Upon completion, we will also continue studies of nanocurcumin, PLGA-nanocurcumin and lipsomal curcumin against L-DOPA induced dyskinesias in dogs. We will measure inhibiting effects of curcumin on disease progression in Parkinson's Disease patients at the University of Western Ontario, Canada. Contracts with these institutions will be initiated upon receipt of manufactured nanocurcumin.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk associated with interest rate movement. We regularly assess these risks and have established policies and business practices intended to protect against these and other exposures. As a result, we do not anticipate material potential losses in these areas.
 
As of March 31, 2012, we had cash and cash equivalents of $19,901.  
 
Item 4.  Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, our management has validated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the " Exchange Act"), as of March 31, 2012.  Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures were ineffective to ensure that (i) information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  This conclusion is based on the fact that due to limited resources, the Company is unable to maintain adequate segregation of duties.
 
 
25

 
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. A clear and concise segregation of duties is important to maximize checks and balances so that no single individual has control over two or more phases of a transaction or operation. A strong segregation of duty also is critical to reduce effectively the risk of mistakes and inappropriate actions preventing fraud and discourages collusion. It can be difficult for small businesses to always have a clear separation of duties because there simply are not enough personnel to cover each and every process and procedure. Ultimately, checks and balances need to be in place as a supportive measure to the business operations, but also as a fraud prevention measure as well. Because we have limited financial personnel, and limited resources, compliance with segregation of duties and proper oversight of control requirements is extremely difficult.  In connection with the evaluation referred to in the foregoing paragraph, we have identified no change in our internal control of financial reporting that occurred during the quarter ended March 31, 2012, 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.

As of the date of this Quarterly Report on Form 10-Q, we are not a party to any legal proceedings.
 
Item 1A.  Risk Factors

In accordance with the requirements of Form 10-Q, the Company, as a smaller reporting company, is not required to make disclosure under this item.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the three-month period ended March 31, 2012, Registrant sold 215 units (the “Units”), of its securities at a price of $1,000 per Unit or $215,000.  Each Unit consists of (i) one share of 6.5% Series B Convertible Preferred Stock (215 shares) convertible into 1,177 shares of common stock (equivalent to $.85 per share of common stock) subject to adjustment, and (ii) one Warrant to purchase 1,177 shares of common stock at $1.27 per share for a five-year period following the Effective Date of its registration statement.  The Company received gross proceeds of $215,000 and paid 10% sales commissions of $21,500 to Meyers Associates, L.P. the Company’s placement agent.
 
 
26

 

The Units were sold to 7 different accredited investors who were customers of the placement agent.  The Company claimed an exemption from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, based upon subscription agreements executed by each investor.
 
The net proceeds of the offering were used for working capital and research and development towards filing an investigational new drug application to commence clinical trials.
 
Item 3.  Defaults Upon Senior Securities.
 
None.
 
Item 4.  Mine Safety Disclosures
 
Item 5.  Other Information.
 
None.
 
Item 6.  Exhibits.
 
Exhibits.
 
Set forth below is a list of the exhibits to this quarterly report on Form 10-Q.
 
Exhibit
 Number
Description
3.1
Certificate of Incorporation of the registrant (1)
3.2
Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock (1)
3.3
Amended and Restated Certificate of Incorporation of the registrant dated August 2, 2006 (1)
3.4
Certificate of Amendment of the Registrant dated May 27, 2008 (1)
3.5
Certificate of Designation Preference and Rights of Series B Convertible Preferred Stock (3)
3.6
Certificate of Amendment of the Registrant  dated October 20, 2011 (2)
3.7
By-Laws of the registrant (1)
4.1
Form of Common Stock Certificate (1)
4.2
Form of Common Stock Purchase Warrant (1)
4.3
Form of Bridge Note (1)
4.4
Form of Series A Subscription Rights Agreement (1)
4.5
Form of Series A Subscription Agreement (1)
4.6
Form of Series B Subscription Agreement (3)
*31.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101 INS
XBRL Instance Document**
*101 SCH
XBRL Schema Document**
*101 CAL
XBRL Calculation Linkbase Document**
*101 DEF
XBRL Definition Linkbase Document**
*101 LAB
XBRL Labels Linkbase Document**
*101 PRE
XBRL Presentation Linkbase Document**
_______________

*              Filed with this Report.
**           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
 
(1)           Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-158474, declared effective on August 10, 2009.
(2)           Incorporated by reference to the Company’s Form 8-K for October 20, 2011 filed on October 21, 2011.
(3)           Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for September 30, 2011 filed on November 21, 2011.
 

 
 
27

 

SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated:  May 18, 2012
SIGNPATH PHARMA INC.
 
By:
/S/ Lawrence Helson 
   
Dr. Lawrence Helson, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
 
 
 
28

 

SignPath Pharma Inc.
 
Quarterly Report on Form 10-Q
Quarter Ended March 31, 2012
 
EXHIBITS
 
Exhibit
 Number
Description
   
31.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101 INS
XBRL Instance Document*
101 SCH
XBRL Schema Document*
101 CAL
XBRL Calculation Linkbase Document*
101 DEF
XBRL Definition Linkbase Document*
101 LAB
XBRL Labels Linkbase Document*
101 PRE
XBRL Presentation Linkbase Document*
*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

 
29

 

XOTC:SGTH SignPath Pharma Inc Quarterly Report 10-Q Filling

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XOTC:SGTH Quarterly Report 10-Q Filing - 3/31/2012
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