Adhera Therapeutics, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: March 31, 2018

or

For the transition period from _____________ to _____________.

Commission File Number: 000-13789

MARINA BIOTECH, INC.

(Exact name of registrant as specified in its charter)

(626) 964-5788

(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. Yes [X] 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 [X] No [  ]

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: [  ]

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

As of May 17, 2018, there were 10,852,283 shares of the registrant’s common stock outstanding.

MARINA BIOTECH, INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2018

TABLE OF CONTENTS

Items 3, 4 and 5 have not been included as they are not applicable.

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARINA BIOTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

MARINA BIOTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

MARINA BIOTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

MARINA BIOTECH, INC.

Notes to Condensed Consolidated Financial Statements

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Unaudited)

Note 1 – Nature of Operations, Basis of Presentation and Significant Accounting Policies

Business Overview

Marina Biotech, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc., Atossa Healthcare, Inc., and IthenaPharma, Inc. (collectively “Marina,” “we,” “our,” or “us”) is a fully integrated, commercial stage biopharmaceutical company delivering proprietary drug therapeutics for significant unmet medical needs in the U.S., Europe and certain additional international markets. Its portfolio of products currently focuses on fixed dose combinations (“FDC”) in hypertension, arthritis, pain and oncology allowing for innovative solutions to such unmet medical needs. Its mission is to provide effective and patient centric treatment for hypertension – including resistant hypertension. In this connection, we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC, certain of the intellectual property assets related to the patented technology platform known as DyrctAxess, also called Total Care, that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care.

In doing so, we have created a universal platform for the effective treatment of hypertension as well as for the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, and the other products in our pipeline, devices for therapeutic drug monitoring, blood pressure, and other cardiac monitors, as well as services such as counseling and prescription reminders.

We currently have one commercial and three clinical development programs underway: (i) Prestalia® (Prestalia), a single-pill fixed dose combination of perindopril argenine, an angiotensin-converting-enzyme (“ACE”) inhibitor and amlodipine besylate, a calcium channel blocker (“CCB”), which has been approved by the U.S. Food and Drug Administration (“FDA”) and is marketed in the U.S.; (ii) our next generation celecoxib program drug candidates for the treatment of acute and chronic pain, IT-102 and IT-103, each of which is an FDC of celecoxib, a COX-2 selective nonsteroidal anti-inflammatory drug (“NSAID”) and either lisinopril (IT-102) or olmesartan (IT-103) – both Lisinopril and olmesartan are antihypertension drugs; (iii) CEQ508, an oral delivery of small interfering RNA (“siRNA”) against beta-catenin, combined with IT-102 to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis (“FAP”); and (iv) CEQ508 combined with IT-103 to treat Colorectal Cancer.

As reported in our Annual Report on Form 10-K, in April 2018, we raised in excess of $10 million, net of fees and expenses, from a private placement of our newly created Series E Convertible Preferred Stock (See Recent Developments: Series E Convertible Preferred Share Private Placement Offering below). Further, in May 2018, we raised an additional $2 million, net of fees and expenses, from the private placement. The use of funds from the raise will primarily be on the commercialization of Prestalia, funding working capital, capital expenditure needs, payment of certain liabilities and other general corporate requirements. For the development of IT-102 and IT-103, we will seek partners or raise additional funds to advance the development programs. We believe that by combining a COX-2 inhibitor with an antihypertensive in a single FDC oral tablet, IT-102 and IT-103 will each offer improved safety profiles as compared to currently available and previously marketed COX-2 inhibitors as well as address patients with chronic pain who are commonly taking antihypertension drugs concurrently. We further believe that the current opioid addiction epidemic in the U.S. has been driven in part by the withdrawal from the market of certain COX-2 inhibitors due to their associated risk of cardiovascular-related adverse events. We plan to license or divest our other assets since they no longer align with our focus on the treatment of hypertension.

We intend to create value through the commercialization of our FDA-approved product, Prestalia, while moving our FDC development programs forward to further strengthen our commercial presence. We intend to retain ownership and control of all of our product candidates, but in the interest of accelerated growth and market penetration, we will also consider partnerships with pharmaceutical or biotechnology companies in order to reduce time to market and to balance development risks, both clinically and financially.

As our strategy is to be a fully integrated biopharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, with a secondary focus on advancing our FDC pipeline to further enhance our commercial presence.

 Reverse Stock Split

In August 2017, we filed a Certificate of Amendment of our Amended and Restated Certificate of Incorporation to effect a one-for-ten reverse split of our issued and outstanding shares of common stock. Our common stock commenced trading on the OTCQB tier of the OTC Markets on a split-adjusted basis on Thursday, August 3, 2017. Unless indicated otherwise, all share and per share information included in these financial statements and Notes to the Consolidated Financial Statements give effect to the reverse split.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete audited financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2017, included in our 2017 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results for the year ending December 31, 2018 or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of IThenaPharma Inc. and Marina Biotech, Inc. and the wholly-owned subsidiaries, Cequent, MDRNA, and Atossa, and eliminate any inter-company balances and transactions.

Going Concern and Management’s Liquidity Plans

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2018, we had a significant accumulated deficit of approximately $9 million and a negative working capital of approximately $7 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses as we execute our commercialization plans for Prestalia, as well as strategic and business development initiatives. In addition, we have had and will continue to have negative cash flows from operations, at least into the near future. We have previously funded, and plan to continue funding, our losses primarily through the sale of common and preferred stock, combined with or without warrants, the sale of notes, cash generated from the outlicensing or sale of our licensed assets and, to a lesser extent, equipment financing facilities and secured loans. However, we cannot be certain that we will be able to obtain such funds required for our operations at terms acceptable to us or at all.

In April 2018, we raised over $10 million net proceeds from a private placement of shares of our Series E Convertible Preferred Stock, and warrants to purchase shares of our common stock. Further, in May 2018, we raised an additional $2 million net proceeds from the same private placement. For our assessment as of March 31, 2018, we have considered the amount raised and we believe that the $12 million will provide us the ability to continue as a going concern for one year from the issuance date of this Form 10-Q. We may continue to attempt to obtain future financing or engage in strategic transactions and may require us to curtail our operations. We cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional equity or debt financing, or whether such actions would generate the expected liquidity as currently planned.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include valuation allowance for deferred income tax assets, legal contingencies and fair value of financial instruments. Actual results could differ materially from such estimates under different assumptions or circumstances.

Fair Value of Financial Instruments

We consider the fair value of cash, accounts payable, due to related parties, notes payable, notes payable to related parties, convertible notes payable and accrued liabilities not to be materially different from their carrying value. These financial instruments have short-term maturities. We follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Our cash is subject to fair value measurement and is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes, using the probability adjusted Black-Scholes option pricing model (“Black-Scholes”), which management has determined approximates values using more complex methods, using Level 3 inputs. There were no liabilities measured at fair value as of March 31, 2018 or December 31, 2017.

Impairment of Long-Lived Assets

We review all of our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets, at least annually, at December 31. When necessary, we record charges for impairments. Specifically:

Management determined that no impairment indicators were present and that no impairment charges were necessary as of March 31, 2018 or December 31, 2017.

Revenue Recognition 

The Company has adopted the scope and in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606) commencing the period under report.

The Company analyzes its contracts to assess that they are within the scope and in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and services or licensing, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

In terms of licensing agreements entered into by the Company, they typically include payment of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s consolidated balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each deliverable is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best estimate of the selling price for the deliverable.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the good or service promised to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the provisions of ASU 2014-09, entities should recognize revenue in an amount that reflects the consideration to which they expect to be entitled to in exchange for goods and services provided. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017. The Company adopted the provisions of this standard effective January 1, 2018.

Net Income (Loss) per Common Share

Basic net income (loss) per common share (after giving effect of the one for ten reverse stock split) is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards. Diluted net income (loss) per share includes the effect of common stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. Net income (loss) is adjusted for the dilutive effect of the change in fair value liability for price adjustable warrants, if applicable. The following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or cash flows.

Note 2 – Intangible Assets

Acquisition of Prestalia & Dyrct Axess

In June 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Symplmed Pharmaceuticals LLC (“Symplmed”) pursuant to which we purchased from Symplmed, for aggregate consideration of approximately $620,000 (consisting of $300,000 in cash plus the assumption of certain liabilities of Symplmed in the amount of approximately $320,000), Symplmed’s assets relating to a single-pill FDC of perindopril arginine and amlodipine besylate known as Prestalia® (“Prestalia”), that has been approved by the FDA for the treatment of hypertension. In addition, as part of the transactions contemplated by the Purchase Agreement: (i) Symplmed agreed to transfer to us, not later than 150 days following the closing date, the New Drug Applications for the approval of Prestalia as a new drug by the FDA; and (ii) Symplmed assigned to us all of its rights and obligations under that certain Amended and Restated License and Commercialization Agreement by and between Symplmed and Les Laboratoires Servier (“Servier”) dated January 2012, pursuant to which Symplmed has an exclusive license from Servier to manufacture, have manufactured, develop, promote, market, distribute and sell Prestalia in the U.S. (and its territories and possessions) in consideration of regulatory and sales-based milestone payments and royalty payments based on net sales. Management has determined that this acquisition was deemed an asset purchase under FASB ASC 805.

The purchase price of $620,000 has been allocated based on a preliminary estimate of the fair value of the assets acquired and is included in intangible assets as of December 31, 2017 and is subject to change.

Further, we hired our current Chief Commercial Officer, who was the President and Chief Executive Officer of Symplmed, which appointment became effective in June 2017. We also agreed in such offer letter to issue 60,000 restricted shares of our common stock under our 2014 Long-Term Incentive Plan to our Chief Commercial Officer, with all of such shares vesting on the six (6) month anniversary of the date of grant. These shares were fully vested on December 31, 2017.

In furtherance of the acquisition and commercialization of Prestalia, in July 2017 we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC, certain of the intellectual property assets related to the patented technology platform known as DyrctAxess, also known as Total Care, that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care for $75,000 in cash.

The following table summarizes the estimated fair value of the identifiable intangible asset acquired, their useful life, and method of amortization:

The net intangible asset was $2,432,713, net of accumulated amortization of $623,353, as of March 31, 2018. Amortization expense was $123,261 and $98,378 for the three months ended March 31, 2018 and 2017, respectively.

Note 3 - Related Party Transactions

Due to Related Party

The Company and other related entities have a commonality of ownership and/or management control, and as a result, the reported operating results and /or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.

The Company has a Master Services Agreement (“MSA”) with a related party that is partly-owned by the Company’s Executive Chairman and Interim CEO, Autotelic Inc., effective November 15, 2016. Autotelic Inc. currently owns less than 5% of the Company. The MSA states that Autotelic Inc. will provide business functions and services to the Company and allows Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA includes personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company.

During the period commencing November 15, 2016 (the “Effective Date”) and ending on the date that the Company has completed an equity offering of either common or preferred stock in which the gross proceeds therefrom is no less than $10 million (the “Equity Financing Date”), the Company shall pay Autotelic the following compensation: cash in an amount equal to the actual labor cost (paid on a monthly basis), plus 100% markup in warrants for shares of the Company’s common stock with a strike price equal to the fair market value of the Company’s common stock at the time said warrants are issued. The Company shall also pay Autotelic for the services provided by third party contractors plus 20% mark up. The warrant price per share will be calculated based on the Black-Scholes model.

After the Equity Financing Date, the Company shall pay Autotelic Inc. a cash amount equal to the actual labor cost plus 100% mark up of provided services and 20% mark up of provided services by third party contractors or material used in connection with the performance of the contracts, including but not limited to clinical trial, non-clinical trial, Contract Manufacturing Organizations (“CMO”), FDA regulatory process, Contract Research Organizations (“CRO”) and Chemistry and Manufacturing Controls (“CMC”).

In accordance with the MSA, Autotelic Inc. billed the Company for personnel and service expenses Autotelic Inc. incurred on behalf of the Company. For the three months ended March 31, 2018 and 2017, Autotelic Inc. billed a total of $256,997 and $213,103, including personnel costs of $133,633 and $158,140, respectively. An unpaid balance of $916,270 and $730,629 is included in due to related party in the accompanying balance sheet as of March 31, 2018 and December 31, 2017, respectively. The Company agreed to issue warrants at a future date for the remaining balance due of $739,772, which is included in due to related parties as of March 31, 2018.

In connection with a private placement of our Series E Convertible Preferred Stock (Preferred Shares), Autotelic, Inc. agreed to convert the entire unpaid balance due to it as of March 31, 2018 into shares of Series E Convertible Preferred Stock and warrants in full and complete satisfaction of the unpaid balance. Also see Note 9 – Subsequent Events below.

Note 4 – Notes Payable

Following is a breakdown of notes payable as of March 31, 2018 and December 31, 2017:

Note Payable – Service Provider

In December 2016, we entered into an Agreement and Promissory Note with a law firm for past services performed totaling $121,523. The note calls for monthly payments of $6,000 per month, beginning with an initial payment on March 31, 2017. The note is unsecured and non-interest bearing. The note will be considered paid in full if the Company pays $100,000 by December 31, 2017, which was not paid. The balance due on the note was $97,523 as of March 31, 2018 and December 31, 2017, respectively.

Note Purchase Agreement and Amendment

In June 2016, Marina entered into a Note Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Purchasers”), pursuant to which Marina issued to the Purchasers unsecured promissory notes in the aggregate principal amount of $300,000 (the “Notes”). Interest accrued on the unpaid principal balance of the Notes at the rate of 12% per annum beginning on September 20, 2016. The Notes were due and payable on June 20, 2017.

In July 2017, we entered into an amendment agreement (the “Amendment Agreement”) with respect to those Notes and the warrants to purchase shares of our common stock that are currently held by the Purchasers and that were originally issued pursuant to a certain Note and Warrant Purchase Agreement dated as of February 10, 2012 by and among Marina, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto (as amended from time to time), to, among other things, extend the maturity date of the Notes to December 31, 2017, issuance of consideration securities at a cost of $375,000 (“Consideration Securities”) and to extend the price protection applicable to certain of the warrants held by the Purchasers with respect to dilutive offerings afforded thereunder to February 10, 2020. Refer to our Form 10-Q for the six months ended June 30, 2017 for a more detailed discussion and additional terms for these Notes.

As of March 31, 2018 and December 31, 2017, the accrued interest expense on the Notes amounted to $55,700 and $46,700, respectively, with a total balance of principal and interest of $355,700 and $346,700, respectively.

The unpaid principal balance of the Notes, together with accrued and unpaid interest thereon, as well as the $375,000 of Consideration Securities converted into shares of Series E Convertible Preferred Stock and warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018. As a result of the conversion of the Notes, all obligations of the Company to the Purchasers thereunder have been satisfied and the Notes are no longer outstanding. Also see Note 9 – Subsequent Events below .

Bridge Note Financing

In June 2017, we issued convertible promissory notes (the “Notes”) in the aggregate principal amount of $400,000 to 10 investors pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) that we entered into with such investors. The Notes bear interest at a rate of five percent (5%) per annum and are due and payable at any time on or after the earlier of (i) June 1, 2018 and (ii) the occurrence of an event of default (as defined in the Note Purchase Agreement). Our Executive Chairman and our Chief Science Officer were each investors in the Notes.

Upon written notice delivered to us by the holders of a majority in interest of the aggregate principal amount of Notes that are outstanding at the time of such calculation (the “Majority Holders”) not more than five (5) days following the maturity date of the Notes, the Majority Holders shall have the right, but not the obligation, on behalf of themselves and all other holders of Notes, upon written notice delivered to us, to elect to convert the entire unpaid principal amount of all, but not less than all, of the Notes and the accrued and unpaid interest thereon into such number of shares of our common stock as is equal to, with respect to each Note: (x) the entire unpaid principal amount of such Note and the accrued and unpaid interest thereon on the date of the delivery of such notice by (y) $3.50.

As of March 31, 2018 and December 31, 2017, the accrued interest expense on the Notes amounted to $16,297 and $11,365, with a total balance of principal and interest of $416,297 and $411,365, respectively, and is included in convertible notes payable – related parties on the accompanying balance sheet.

The unpaid principal balance of the Notes, together with accrued and unpaid interest thereon, converted into shares of Series E Convertible Preferred Stock and warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018. As a result of the conversion of the Notes, all obligations of the Company to the holders of the Notes thereunder have been satisfied and the Notes are no longer outstanding. Also see Note 9 – Subsequent Events below.

Convertible Notes Payable

In July 2016, IThena issued convertible promissory notes with an aggregate principal balance of $50,000 to certain related-party investors. Borrowings under each of these convertible notes bore interest at 3% per annum and these notes mature on June 30, 2018. Upon the completion of certain funding events, IThena had the right to convert the outstanding principal amount of these notes into shares of IThena’s common stock. The notes were assumed by Autotelic Inc. on November 15, 2016 as part of its acquisition of the technology asset (IT-101).

In November 2017, the Company issued a convertible promissory note with a related party for $500,000, with annual interest at 8%, maturing on March 31, 2018, and convertible at the price equal to any financing transaction involving the sale by the Company of its equity securities yielding aggregate gross proceeds to the Company of not less than $5 million. Total principal and interest was $514,137 and $504,274 as of March 31, 2018 and December 31, 2017, respectively, and is included in convertible notes to related parties on the accompanying balance sheet. The note included warrants to purchase 66,667 shares of the Company’s common stock, with a 5-year term and an exercise price of $0.75  . The note included a debt discount of $162,210 consisting of loan costs of $50,000 and the fair value of the warrants of $112,210. Total amortization of this debt discount was $113,171 for the quarter ended March 31, 2018, with a remaining unamortized value of $0. The net balance of the note of $514,137 is included in convertible notes to related parties on the accompanying balance sheet at March 31, 2018.

The unpaid principal balance of the related party note, together with accrued and unpaid interest thereon, automatically converted into shares of Series E Convertible Preferred Stock and Warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018. As a result of the conversion of the related party note, all obligations of the Company to the holder under such note have been satisfied and the note is no longer outstanding. Also see Note 9 – Subsequent Events below.

Convertible Notes Payable, Dr. Trieu

In connection with the Merger, Marina entered into a Line Letter dated November 15, 2016 with Dr. Trieu, our Executive Chairman and Interim CEO, for an unsecured line of credit in an amount not to exceed $540,000, to be used for current operating expenses. Dr. Trieu has advanced the full $540,000 under the Line Letter as of December 31, 2017. Accrued interest on the Line Letter was $32,568 and $25,836 as of March 31, 2018 and December 31, 2017, respectively, and is included in convertible notes payable to related parties on the accompanying balance sheets. The line of credit is currently convertible at any time into shares of the Company’s common stock at a price of $1.77 per share.

The unpaid principal balance of the line of credit, together with accrued and unpaid interest thereon, converted into shares of Series E Convertible Preferred Stock and Warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018, as discussed in the Note 9. As a result of the conversion of the line of credit, all obligations of the Company to Dr. Trieu thereunder have been satisfied and the line of credit is no longer outstanding.

Line Letter with Autotelic Inc.

In April 2017, the Company entered into a Line Letter with Autotelic Inc for an unsecured line of credit in an amount not to exceed $500,000, to be used for current operating expenses. Autotelic Inc. is. a stockholder of IThenaPharma that became the holder of 525,535 shares of Marina common stock as a result of the Merger, and an entity of which Dr. Trieu serves as Chairman of the Board. Autotelic Inc. was to consider requests for advances under the Line Letter until September 1, 2017. Autotelic Inc. shall have the right at any time for any reason in its sole and absolute discretion to terminate the line of credit available under the Line Letter or to reduce the maximum amount available thereunder without notice. Advances made under the Line Letter bear interest at the rate of five percent (5%) per annum, are evidenced by the Demand Promissory Note issued to Autotelic Inc., and are due and payable upon demand by Autotelic, Inc. Autotelic Inc. advanced funds after September 1, 2017 but is no longer considering additional requests for advances as of December 31, 2017.

The balance under the line was $94,782, including accrued interest of $3,966 as of March 31, 2018, and is included in notes to related parties on the accompanying balance sheet. Since this line was not extended, no further funds are available under this line of credit.

The unpaid principal balance of the line of credit, together with accrued and unpaid interest thereon, converted into shares of Series E Convertible Preferred Stock and warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018, as discussed in the Note 9. As a result of the conversion of the line of credit, all obligations of the Company to Autotelic Inc. thereunder have been satisfied and the line of credit is no longer outstanding.

Note 5 – Stockholders’ Equity

Preferred Stock

Marina designated 1,000 shares as Series B Preferred Stock (“Series B Preferred”) and 90,000 shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). No shares of Series B Preferred or Series A Preferred are outstanding. In March 2014, Marina designated 1,200 shares as Series C Convertible Preferred Stock (“Series C Preferred”). In August 2015, Marina designated 220 shares as Series D Convertible Preferred Stock (“Series D Preferred”). In April 2018, Marina designated 3,500 shares of Series E Convertible Preferred Stock,

Series C Preferred

Each share of Series C Preferred has a stated value of $5,000 per share, has a $5,100 liquidation preference per share, has voting rights of 666.67 votes per share, and is convertible into shares of common stock at a conversion price of $7.50 per share. In June 2015, an investor converted 90 shares of Series C Preferred into 60,000 shares of common stock with a value of $5.40 per share. In November 2015, an investor converted an additional 90 shares of Series C Preferred into 60,000 shares of common stock with a value of $3.10 per share. In September 2017, an investor converted 270 shares of Series C Preferred stock into 180,000 shares of our common stock.

Series D Preferred

In August 2015, Marina entered into a Securities Purchase Agreement with certain investors pursuant to which Marina sold 220 shares of Series D Preferred and warrants to purchase up to 344,000 shares of Marina’s common stock at an initial exercise price of $4.00 per share before August 2021, for an aggregate purchase price of $1.1 million. Each share of Series D Preferred has a stated value of $5,000 per share, has a liquidation preference of $300 per share, has voting rights of 1,250 votes per share and is convertible into shares of common stock at a conversion price of $4.00 per share. The Series D Preferred is initially convertible into an aggregate of 275,000 shares of Marina’s common stock, subject to certain limitations and adjustments, has a 5% stated dividend rate, is not redeemable and has voting rights on an as-converted basis. In November 2015, an investor converted 50 shares of Series D Preferred into 62,500 shares of common stock. In February 2016, an investor converted 110 shares of Series D Preferred into 137,500 shares of common stock.

Series E Convertible Preferred Shares

In connection with a private placement, in April 2018 we created a new Series E Convertible Preferred Stock (Preferred Shares). Also see Note 9 – Subsequent Events below.

Each share of Series E Convertible Preferred Stock has a stated value of $5,000 per share and is convertible into shares of common stock at a conversion price of $0.50 per share. In connection with the private placement, we issued 3,500  Preferred Shares for cash and settlement of certain debt and liabilities.

Common Stock

Our common stock currently trades on the OTCQB tier of the OTC Markets under the symbol “MRNA”.

Stock Issuances

We issued no shares of the Company’s common stock during the three months ended March 31, 2018.

Warrants  

As of March 31, 2018, there were 2,548,481 warrants outstanding, with a weighted average exercise price of $3.95 per share, and annual expirations as follows:

The above includes price adjustable warrants totaling 1,895,013 which are described more fully in our 2017 Annual Report on Form 10-K.

A total of 11,131 warrants expired during the three months ended March 31, 2018.

Note 6 — Stock Incentive Plans

Stock Options  

Stock option activity was as follows:

The following table summarizes additional information on Marina’s stock options outstanding at March 31, 2018:

Weighted-Average Exercisable Remaining Contractual Life (Years) 4.44

In January 2018, the Company granted a total of 19,000 stock options to directors and officers for services. The options have an exercise price of $1.56 and a five-year term.

As of March 31, 2018, we had $830,621 of total unrecognized compensation expense related to unvested stock options. Total expense related to stock options was $118,879 for the three months ended March 31, 2018.

As of March 31, 2018, the intrinsic value of options outstanding or exercisable was $5,600 as there were 14,000 options outstanding with an exercise price less than $1.40, the per share closing market price of our common stock at that date.

Note 7 — Intellectual Property and Collaborative Agreements

Novosom Agreements

In July 2010, Marina entered into an agreement with Novosom Verwaltungs GmbH (“Novosom”), pursuant to which Marina acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system. In February 2016, Marina issued Novosom 20,548 shares of common stock valued at approximately $58,000 as additional consideration under such agreement.

In March 2016, Marina entered into a license agreement covering certain of Marina’s platforms for the delivery of an undisclosed genome editing technology. Under the terms of the agreement, Marina received an upfront license fee of $250,000 and could receive up to $40 million in success-based milestones. In April 2016, Marina issued Novosom 47,468 shares of common stock valued at approximately $75,000 for amounts due under this agreement.

In July 2016, Marina entered into a license agreement with an undisclosed licensee that grants such licensee rights to use Marina’s technology and intellectual property to develop and commercialize products combining certain molecules with Marina’s liposomal delivery technology known as NOV582. Under the terms of this agreement, the licensee agreed to pay to us an upfront license fee in the amount of $350,000 (to be paid in installments through the end of 2017), along with milestone payments on a per-licensed-product basis and royalty payments in the low single digit percentages. As of September 30, 2016, Marina had received $50,000 per the terms of this license agreement. In November 2016, we issued 11,905 shares with a value of $15,000 to Novosom as the equity component owed under Marina’s July 2016 license agreement.

In May 2018, we issued to Novosom 51,988 shares of our common stock as additional consideration pursuant to the Asset Purchase Agreement, dated as of July 27, 2010, between our company and Novosom. Such shares were due to Novosom as a result of the receipt by our company of a license fee under the License Agreement that we entered into with Lipomedics Inc. in February 2017.

Arrangements with LipoMedics

In February 2017, we entered into a License Agreement (the “License Agreement”) with LipoMedics, pursuant to which, among other things, we provided to LipoMedics a license to our SMARTICLES platform for further development of Lipomedics’s proprietary phospholipid nanoparticles that can deliver protein, small molecule drugs, and peptides. These are not currently being developed at Marina and Marina has no IP around these products. On the same date, we also entered into a Stock Purchase Agreement with LipoMedics pursuant to which we issued to LipoMedics an aggregate of 86,207 shares of our common stock for a total purchase price of $250,000.

Under the terms of the License Agreement, we could receive up to $90 million in success-based milestones based on commercial sales of licensed products. In addition, if LipoMedics determines to pursue further development and commercialization of products under the License Agreement, LipoMedics agreed, in connection therewith, to purchase shares of our common stock for an aggregate purchase price of $500,000, with the purchase price for each share of common stock being the greater of $2.90 or the volume weighted average price of our common stock for the thirty (30) trading days immediately preceding the date on which LipoMedics notifies us that it intends to pursue further development or commercialization of a licensed product.

If LipoMedics breaches the License Agreement, we shall have the right to terminate the License Agreement effective sixty (60) days following delivery of written notice to LipoMedics specifying the breach, if LipoMedics fails to cure such material breach within such sixty (60) day period. LipoMedics may terminate the License Agreement by giving thirty (30) days’ prior written notice to us.

Vuong Trieu, Ph.D., our Executive Chairman and Interim CEO, is the Chairman of the Board and Chief Operating Officer of LipoMedics.

In consideration Lipomedics agreed to the following fee schedule: 1) Evaluations License Fee. Simultaneous with the execution and delivery of the License Agreement, Lipomedics shall enter into a Stock Purchase Agreement in form and substance reasonably acceptable to Marina and Lipomedics, pursuant to which Marina will sell to Lipomedics shares of the common stock of Marina for an aggregate purchase price of $0.25 million, with the purchase price for each share of Marina common stock being $2.90. 2) Commercial License Fee. Unless the License Agreement is earlier terminated, within thirty (30) days following Lipomedics’s delivery of an Evaluation Notice advising that it intends to pursue, or cause to be pursued, further development and commercialization of Licensed Products. 3) For up to and including three Licensed Products, Lipomedics shall pay to Marina a milestone (collectively the “Sales Milestones”) of $10 million upon reaching Commercial Sales in the Territory in any given twelve month period equal to or greater than $500 million for a given Licensed Product and of $20 million upon reaching Commercial Sales in any given twelve month period equal to or greater than $1 million for such Licensed Product, such payments to be made within thirty (30) days following the month in which such Commercial Sale targets are met.

Arrangements with Oncotelic Inc.

In July 2017, we entered into a License Agreement (the “License Agreement”) with Oncotelic, Inc. (“Oncotelic”) pursuant to which, among other things, we provided to Oncotelic a license to our SMARTICLES platform for the delivery of antisense DNA therapeutics, as well as a license to our conformationally restricted nucleotide (“CRN”) technology with respect to TGF-Beta. Under the terms of the License Agreement, Oncotelic also agreed to purchase 49,019 shares of our common stock for an aggregate purchase price of $0.25 million ($5.10 per share), with such purchase and sale to be made pursuant to a Stock Purchase Agreement to be entered into between us and Oncotelic within thirty (30) days following the date of the License Agreement. Oncotelic has not completed the purchase of the stock and we have not been able to reach to a definitive agreement, as such we have terminated the agreement.

License of DiLA² Assets

On March 16, 2018, Marina entered into a Licensing Agreement, whereby Marina granted exclusive rights to the company’s DiLA² delivery system in exchange for an upfront payment of $200,000 and further potential future consideration dependent upon event and sales-based milestones. Under the terms of the agreement, Marina has agreed to assign ownership of the intellectual property associated with the DiLA² delivery system to the purchaser. The Company has yet to complete certain performance obligations under the agreement and accordingly has deferred the recognition of revenue from the sale of the asset until such obligations are fulfilled.   

Asset Purchase Agreement

In July 2017, Marina entered into an Asset Purchase Agreement with Symplmed Pharmaceuticals LLC and its wholly-owned subsidiary Symplmed Technologies, LLC pursuant to which the Company purchased from the Sellers, for an aggregate purchase price of $75,000 in cash, certain specified assets of the Sellers relating to the Sellers’ patented technology platform known as DyrctAxess that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care  (see Note 2).

Note 8 – Commitments and Contingencies

Amendment to Agreement with Windlas Healthcare Private Limited

On August 17, 2017, we entered into an amendment (the “Amendment”) of that certain Pharmaceutical Development Agreement dated as of March 30, 2017 by and between Windlas Healthcare Private Limited (“Windlas”) and our company (the “Development Agreement”), relating to the development by Windlas of certain pharmaceutical products to be used for conducting clinical trials or for regulatory submissions, as more fully described therein. Pursuant to the Amendment, we and Windlas agreed to amend the Development Agreement to reflect our agreement to issue to Windlas, and Windlas’ agreement to accept from us, in lieu of cash payments with respect to forty percent (40%) of the total amount reflected on invoices sent from time to time by Windlas to us, shares of our common stock having an aggregate value equal to forty percent (40%) of such invoiced amount (with the remaining portion of the invoiced amount being paid in cash). The maximum value of common stock that may be issued to Windlas pursuant to the Development Agreement (as modified by the Amendment) is $2 million. The parties also agreed that the foregoing payment arrangement would apply to any Contract Manufacturing and Supply Agreement (or similar agreement) relating to the manufacturing of commercial batches of the products covered by the Development Agreement that may be entered into between the parties.

Litigation

Because of the nature of our activities, we are subject to claims and/or threatened legal actions, which arise out of the normal course of business. Other than the disclosure below, as of the date of this filing, we are not aware of any pending lawsuits against us, our officers or our directors.

We had been named on a complaint filed in New York State as a defendant in the matter entitled Vaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emerson and Marina Biotech, Inc. While this complaint had been filed in the Supreme Court of the State of New York, we had not been legally served. The complaint alleged, in relevant part, that: (i) the sale by Symplmed Pharmaceuticals, Inc. of its assets related to its Prestalia product, and the sale by Symplmed Technologies, Inc. of its assets related to its DyrctAxess platform, should be set aside pursuant to New York law as they were consummated without fair consideration to the sellers (the “Symplmed Defendants”), and thereby had the effect of fraudulently depriving the creditors of the Symplmed Defendants, including Vaya Pharma, Inc., of funds that could have been used to pay their debts; and (ii) we were liable, as successor, for any and all claims by Vaya Pharma, Inc. against the Symplmed Defendants, though pursuant to the agreement we are only contractually responsible for liabilities that accrue after the parties entered into the agreement for Prestalia and any liabilities that existed prior to the agreement are contractually held by Symplmed. In April 2018, we entered into a Stipulation of Settlement requiring us to issue to Vaya Pharma shares of our common stock with a fair value of $250,000, which shares were issued in the second fiscal quarter of 2018. We accrued $250,000, as of March 31, 2018 and December 31, 2017, respectively, and such amount was included in accrued expenses on the accompanying consolidated balance sheets.

Note 9 - Subsequent Events

Except for the event(s) discussed in this Note 9, there were no subsequent events that required recognition or disclosure. The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.

Series E Convertible Preferred Share Private Placement Offering

In April and May 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold 2,812  shares of our Series E convertible preferred stock (the “Preferred Stock”), at a purchase price of $5,000 per share of Preferred Stock. Each share of Preferred Stock is initially convertible into shares of our common stock at a conversion price of $0.50 per share of common stock. In addition, each investor received a 5-year warrant (the “Warrants”, and collectively with the Preferred Stock, the “Securities”) to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Preferred Stock purchased by such investor at an exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. The Preferred Stock has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in April 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.

We received proceeds of approximately $12 million from the sale of the Securities, after deducting placement agent fees and estimated expenses payable by us of approximately $2 million associated with such closing. We intend to use the proceeds of the offering for funding our commercial operations to the sale and promotion of our Prestalia product, working capital needs, capital expenditures, the repayment of certain liabilities and other general corporate purposes. In connection with the private placement described above, we also issued to the placement agent for such private placement a Warrant to purchase 2,958,460 shares of our common stock.

Stipulation of Settlement

As discussed in Note 8, in April 2018, we entered into a Stipulation of Settlement requiring us to issue Vaya Pharma shares of our common stock with a fair value of $250,000, which shares were issued in the second fiscal quarter of 2018. We accrued $250,000, as of March 31, 2018 and December 31, 2017, respectively, and such amount is included in accrued expenses on the accompanying consolidated balance sheets.

Resignation of Officer and Directors

In May 2018, the Board accepted the resignation of Joseph W. Ramelli, our Chief Executive Officer, whereby Mr. Ramelli resigned as an officer of our company, and as a director and/or officer of any and all subsidiaries of our company, effective immediately, to pursue other opportunities. In connection with his resignation, Mr. Ramelli released us from all claims arising prior to the date of his resignation and affirmed his obligations to be bound by the restrictive covenants contained in the employment agreement between Mr. Ramelli and our company dated February 2, 2017, and we: (i) agreed to make severance payments to Mr. Ramelli in the amount of $60,000 to be paid over a six (6) month period; and (ii) granted to Mr. Ramelli fully-vested options, exercisable for a period of five years from the grant date, to purchase up to 100,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock. In May 2018, the Board appointed Vuong Trieu, our Executive Chairman, to serve as our Interim Chief Executive Officer, to replace Mr. Ramelli, effective immediately. In his capacity as Interim Chief Executive Officer, Dr. Trieu shall receive a salary in the amount of $20,000 per month.

In May 2018, each of Philip C. Ranker and Philippe P. Calais, Ph.D. resigned as members of the Board, and all committees thereof, effective immediately. In connection with their resignations: (i) each of Mr. Ranker and Dr. Calais released us from all claims arising prior to the date of his resignation; (ii) we granted to Mr. Ranker fully-vested options to purchase up to 200,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock; and (iii) we granted to Dr. Calais fully-vested options to purchase up to 80,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock. The foregoing options are exercisable for a period of five years from the grant date.

Issuance of Preferred Stock and Warrants to Directors

In April 2018, and in connection with the closing of our private placement on that date, we entered into Compromise and Settlement Agreements with four of the current members of our Board of Directors and one former member of our Board of Directors pursuant to which we agreed to issue to such directors an aggregate of 58.25 shares of Preferred Stock and Warrants to purchase up to 436,875 shares of common stock to satisfy accrued and unpaid fees owed to such directors for service as members of the Board of Directors during the period ending on December 31, 2017 in the aggregate amount of approximately $291,250. The Securities that were issued to the directors, which were issued upon the closing of our private placement described above, have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to June 2016 Noteholders

In April 2018, and in connection with the closing of our private placement on that date, we issued to the holders (such holders, the “June 2016 Noteholders”) of those certain promissory notes in the original principal amount of $300,000 that we issued pursuant to that certain Note Purchase Agreement dated June 20, 2016 by and among our company and the June 2016 Noteholders (the “2016 Notes”) an aggregate of 71.46 shares of Preferred Stock and Warrants to purchase up to 535,950 shares of common stock as a result of the conversion of the 2016 Notes. As a result of the conversion of the 2016 Notes and the issuance of the Securities to the June 2016 Noteholders, the entire unpaid principal balance of the 2016 Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and such notes are no longer outstanding.

In addition, in April 2018, and in connection with the closing of our private placement on that date, we issued to the June 2016 Noteholders an aggregate of 75 shares of Preferred Stock and Warrants to purchase up to 562,500 shares of common stock in full and complete satisfaction of our obligations to issue $375,000 worth of “Consideration Securities” to the 2016 Noteholders pursuant to that certain amendment agreement dated July 3, 2017 by and among our company and the June 2016 Noteholders.

Issuance of Securities to June 2017 Noteholders

In April 2018, and in connection with the closing of our private placement on that date, we issued to the holders of those certain promissory notes in the original principal amount of $400,000 (the “2017 Notes”) that we issued to select accredited investors (the “June 2017 Noteholders”) pursuant to Note Purchase Agreements that we entered into with the June 2017 Noteholders during June 2017 an aggregate of 83.44 shares of Preferred Stock and Warrants to purchase up to 625,800 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to the June 2017 Noteholders under the 2017 Notes. As a result of the conversion of the 2016 Notes and the issuance of the Securities to the June 2016 Noteholders, the entire unpaid principal balance of the 2016 Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and such notes are no longer outstanding. The Securities that were issued to the June 2017 Noteholders have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to Blech Trust

In April 2018, and in connection with the closing of our private placement on that date, we issued to a trust affiliated with Isaac Blech, a member of our Board of Directors, an aggregate of 103.18 shares of Preferred Stock and Warrants to purchase up to 777,750 shares of common stock as a result of the conversion of that certain secured convertible promissory note in the original principal amount of $500,000 that we issued to such investor on November 22, 2017 (the “Blech Note”). As a result of the conversion of the Blech Note and the issuance of the Securities to the holder thereof, the entire unpaid principal balance of the Blech Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and the Blech Note is no longer outstanding. The Securities that were issued to the holder of the Blech Note have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to Satisfy Lines of Credit

In April 2018, and in connection with the closing of our private placement on that date, we issued to Vuong Trieu, Ph.D., our Executive Chairman, 114.63 shares of Preferred Stock and Warrants to purchase up to 859,725 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to Dr. Trieu under that certain line of credit in the amount of up to $540,000 that was provided by Dr. Trieu to us, all of which had been drawn down as of the date of the closing of our private placement. The line of credit was extended pursuant to a Line Letter dated November 15, 2016 by and between us and Dr. Trieu. The Securities that were issued to Dr. Trieu have the same terms and conditions as the Securities that were issued to investors in the offering.

In April 2018, and in connection with the closing of our private placement on that date, we issued to Autotelic Inc. 19 shares of Preferred Stock and Warrants to purchase up to 142,500 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to Autotelic Inc. under that certain line of credit in the amount of up to $500,000 that was provided by Autotelic Inc. to us, of which $90,816 had been drawn down as of the date of the closing described above. The line of credit was extended pursuant to a Line Letter dated April 4, 2017 by and between us and Autotelic Inc. Vuong Trieu, our Executive Chairman and Interim CEO, serves as Chairman of the Board of Autotelic Inc. The Securities that were issued to Autotelic Inc. have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities for Payables

In April 2018, and in connection with the closing of our private placement on that date, we entered into a Compromise and Settlement Agreement with Autotelic Inc. pursuant to which we agreed to issue to Autotelic Inc. an aggregate of 162.59 shares of Preferred Stock and Warrants to purchase up to 2,564,465 shares of common stock to satisfy accrued and unpaid fees in the aggregate amount of approximately $812,967, and other liabilities, owed to Autotelic Inc. as of March 31, 2018 pursuant to that certain Master Services Agreement dated as of November 15, 2016 by and between our company and Autotelic Inc. Vuong Trieu, our Executive Chairman and Interim CEO, serves as Chairman of the Board of Autotelic Inc. The Securities that were issued to Autotelic Inc., which were issued upon the closing described above, have the same terms and conditions as the Securities that were issued to investors in the offering.

Stock Issuance to Novosom

In May 2018, we issued to Novosom Verwaltungs GmbH (“Novosom”) 51,988 shares of our common stock as additional consideration pursuant to the Asset Purchase Agreement, dated as of July 27, 2010, between our company and Novosom. Such shares were due to Novosom as a result of the receipt by our company of a license fee under the License Agreement that we entered into with Lipomedics Inc. in February 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements. The following discussion should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) on April 17, 2018. Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are projections in respect of future events or financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.

Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report on Form 10-K or to conform them to actual results, new information, future events or otherwise, except as otherwise required by securities and other applicable laws.

The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated:

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 17, 2018, any of which may cause our company’s or our 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 these forward-looking statements. These risks may cause the Company’s or its industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any forward-looking statements after the date of this report to conform these statements to actual results.

As used in this quarterly report and unless otherwise indicated, the terms “we,” “us,” “our” or the “Company” refer to Marina Biotech, Inc., a Delaware corporation, and its wholly-owned subsidiaries, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc., Atossa Healthcare, Inc., and IthenaPharma, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars. Our common stock is currently listed on the OTC Market, OTCQB tier, under the symbol “MRNA.”

Corporate Overview

We are a fully integrated, commercial stage biopharmaceutical company delivering proprietary drug therapeutics for significant unmet medical needs in the U.S., Europe and certain additional international markets. Our portfolio of products currently focuses on fixed dose combinations (“FDC”) in hypertension, arthritis, pain and oncology allowing for innovative solutions to such unmet medical needs. Our mission is to provide effective and patient centric treatment for hypertension – including resistant hypertension. In this connection, we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC, certain of the intellectual property assets related to the patented technology platform known as DyrctAxess, also called Total Care, that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care.

In doing so, we have created a universal platform for the effective treatment of hypertension as well as for the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, and the other products in our pipeline, devices for therapeutic drug monitoring, blood pressure, and other cardiac monitors, as well as services such as counseling and prescription reminders.

We currently have one commercial and three clinical development programs underway: (i) Prestalia® (Prestalia), a single-pill fixed dose combination of perindopril argenine, an angiotensin-converting-enzyme (“ACE”) inhibitor and amlodipine besylate, a calcium channel blocker (“CCB”), which has been approved by the U.S. Food and Drug Administration (“FDA”) and is marketed in the U.S.; (ii) our next generation celecoxib program drug candidates for the treatment of acute and chronic pain, IT-102 and IT-103, each of which is an FDC of celecoxib, a COX-2 selective nonsteroidal anti-inflammatory drug (“NSAID”) and either lisinopril (IT-102) or olmesartan (IT-103) – both Lisinopril and olmesartan are antihypertension drugs; (iii) CEQ508, an oral delivery of small interfering RNA (“siRNA”) against beta-catenin, combined with IT-102 to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis (“FAP”); and (iv) CEQ508 combined with IT-103 to treat Colorectal Cancer.

As reported in our Annual Report on Form 10-K, in April, 2018, we raised in excess of $10 million, net of fees and expenses, from a private placement of our newly created Series E Convertible Preferred Stock (See Recent Developments: Series E Convertible Preferred Share Private Placement Offering below). Further, in May 2018, we raised an additional $2 million, net of fees and expenses, from the private placement. The use of funds from the raise will primarily be on the commercialization of Prestalia, funding working capital, capital expenditure needs, payment of certain liabilities and other general corporate requirements. For the development of IT-102 and IT-103, we will seek partners or raise additional funds to advance the development programs. We believe that by combining a COX-2 inhibitor with an antihypertensive in a single FDC oral tablet, IT-102 and IT-103 will each offer improved safety profiles as compared to currently available and previously marketed COX-2 inhibitors as well as address patients with chronic pain who are commonly taking antihypertension drugs concurrently. We further believe that the current opioid addiction epidemic in the U.S. has been driven in part by the withdrawal from the market of certain COX-2 inhibitors due to their associated risk of cardiovascular-related adverse events. We plan to license or divest our other assets since they no longer align with our focus on the treatment of hypertension.

We intend to create value through the continued commercialization of our FDA-approved product, Prestalia, while moving our FDC development programs forward to further strengthen our commercial presence. We intend to retain ownership and control of all of our product candidates, but in the interest of accelerated growth and market penetration, we will also consider partnerships with pharmaceutical or biotechnology companies in order to reduce time to market and to balance development risks, both clinically and financially.

As our strategy is to be a fully integrated biopharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, with a secondary focus on advancing our FDC pipeline to further enhance our commercial presence.

Reverse Merger with IThenaPharma

On November 15, 2016, Marina entered into, and consummated the transactions contemplated by, an Agreement and Plan of Merger between and among IthenaPharma, Inc., a Delaware corporation (“IThena”), IThena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Marina (“Merger Sub”), and Vuong Trieu as the IThena representative (the “Merger Agreement”), pursuant to which IThena merged into Merger Sub (the “Merger”). For a more detailed discussion on the reverse merger, refer to Note 2 – Intangible Assets in our Notes to the Financial Statements as well as our 2017 Annual Report on Form 10K filed with the SEC.

Acquisition of Prestalia

Subsequent to the Merger we executed on our strategy to become a commercial stage company with the acquisition of Prestalia from Symplmed. Specifically, on June 6, 2017 we entered into an Asset Purchase Agreement with Symplmed for the purchase of Prestalia, which is an FDA-approved and marketed anti-hypertensive drug. This is a FDC of perindopril arginine, an ACE inhibitor, and amlodipine besylate, a calcium channel blocker (“CCB”), and is indicated as a first line therapy for hypertension control.

We believe that the acquisition of Prestalia transforms our company from a clinical stage company to a commercial organization. Prestalia was approved in January 2015 and has been marketed in select U.S. states since then by Symplmed. Prestalia sales saw solid growth through September of 2016, via new patient acquisition and strong patient retention. Due to lack of funding, further revenues and marketing of Prestalia was ceased by the end of calendar year 2016. In the near term our focus will be dedicated to re-acquiring prior Prestalia patients, with subsequent efforts dedicated to building a strong sales team to fully market the product. This includes our efforts to re-establish our relationships with our contract manufacturers to support marketing Prestalia.

We believe that the Prestalia acquisition will not only make us a revenue-stage company, but also that the marketing, distribution and sales network that we will build will pave a strong foundation for the promotion and commercialization of our two other hypertension pipeline products – namely IT-102 and IT-103, as well as any other similar products that we internally develop or acquire.

Line Letters with Related Parties

In connection with the Merger, Marina entered into a Line Letter dated November 15, 2016 with Dr. Trieu, our Executive Chairman and Interim CEO, for an unsecured line of credit in an amount not to exceed $540,000, to be used for current operating expenses. Dr. Trieu has advanced the full $540,000 under the Line Letter as of December 31, 2017. Accrued interest on the Line Letter was $32,568 and $25,836 as of March 31, 2018 and December 31, 2017, respectively, and is included in convertible notes payable to related parties on the accompanying balance sheets. The line of credit is currently convertible at any time into shares of the Company’s common stock at a price of $1.77 per share.

The unpaid principal balance of the line of credit, together with accrued and unpaid interest thereon, converted into shares of Series E Convertible Preferred Stock and warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018. As a result of the conversion of the line of credit, all of our obligations to Dr. Trieu thereunder have been satisfied and the line of credit is no longer outstanding.

In April 2017, we entered into a Line Letter with Autotelic Inc for an unsecured line of credit in an amount not to exceed $500,000, to be used for current operating expenses. Autotelic Inc. is. a stockholder of IThenaPharma that became the holder of 525,535 shares of Marina common stock as a result of the Merger, and an entity of which Dr. Trieu serves as Chairman of the Board. Autotelic Inc. was to consider requests for advances under the Line Letter until September 1, 2017. Autotelic Inc. shall have the right at any time for any reason in its sole and absolute discretion to terminate the line of credit available under the Line Letter or to reduce the maximum amount available thereunder without notice. Advances made under the Line Letter bear interest at the rate of five percent (5%) per annum, are evidenced by the Demand Promissory Note issued to Autotelic Inc., and are due and payable upon demand by Autotelic, Inc. Autotelic Inc. advanced funds after September 1, 2017 but is no longer considering additional requests for advances as of December 31, 2017.

The balance under the line was $94,782, including accrued interest of $3,966 as of March 31, 2018, and is included in notes to related parties on the accompanying balance sheet. Since this line was not extended, no further funds are available under this line of credit.

The unpaid principal balance of the line of credit, together with accrued and unpaid interest thereon, converted into shares of Series E Convertible Preferred Stock and warrants to purchase shares of common stock upon the closing of our private placement of Series E Convertible Preferred Stock and warrants in April 2018. As a result of the conversion of the line of credit, all of our obligations to Autotelic Inc. thereunder have been satisfied and the line of credit is no longer outstanding.

Recent Developments During the Three Months Ended March 31, 2018

Agreement with Autotelic BIO

On January 11, 2018, we entered into a binding agreement with Autotelic BIO (“ATB”) pursuant to which, among other things, and subject to the satisfaction of certain conditions on or prior to January 15, 2019, we shall grant to ATB a perpetual exclusive right of development and marketing of our IT-103 product candidate, which is a fixed dose combination of celecoxib and olmesartan medoxomil (the “Product”), at the currently approved dose/approved indications only for celecoxib (100 mg, 200mg and 400mg) for combined hypertension and arthritis only, with such right extending throughout the entire world (excluding the United States and Canada, and the territories of such countries) (the “Territory”). The grant of the license would be memorialized in a definitive license agreement to be entered into between the parties. The conditions to the grant of the license include, without limitation, that: (i) ATB shall obtain funding in a certain specified amount (the “Fundraising”); or (ii) ATB shall obtain a co-development and licensing deal with other third-party pharmaceutical companies with respect to the Product; or (iii) ATB shall obtain a government-sponsored research and development project in the Republic of Korea.

The agreement provides that, following the date on which the license is granted: (A) if ATB should sub-license the Product, we and ATB would share all proceeds of such sub-license equally; and (B) if ATB markets the Product on its own, ATB would provide us with a royalty equal to a percentage of net profits in the mid-single digits. The agreement also provides that ATB will make a payment to us in the amount of $100,000 upon the successful completion of the Fundraising, and a payment to us in the amount of $300,000 following the date on which we have provided certain specified technology and assistance regarding the manufacturing and production of the Product. We will be entitled to the clinical trial data and any enhancements and inventions developed by ATB during this process.

Autotelic LLC, an entity that owns approximately 22% of the issued and outstanding shares of our common stock and of which Dr. Trieu, our Executive Chairman and Interim CEO, serves as Chief Executive Officer, owns approximately 19% of the issued and outstanding shares of the common stock of ATB.

Sale of DiLA² Assets

On March 16, 2018, we entered into a Licensing Agreement, whereby we granted exclusive rights to our DiLA² delivery system in exchange for an upfront payment of $200,000 and further potential future consideration dependent upon event and sales-based milestones. Under the terms of the agreement, we agreed to assign ownership of the intellectual property associated with the DiLA² delivery system. The Company has yet to complete certain performance obligations under the agreement and accordingly has deferred the recognition of revenue from the sale of the asset until such obligations are fulfilled.   

Series E Convertible Preferred Stock Private Placement

In April 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold 2,334 shares of our Series E convertible preferred stock (the “Preferred Stock”), at a purchase price of $5,000 per share of Preferred Stock. Further in May 2018, we sold 478 shares of our Preferred Stock. Each share of Preferred Stock is initially convertible into shares of our common stock at a conversion price of $0.50 per share of common stock. In addition, each investor received a 5-year warrant (the “Warrants”, and collectively with the Preferred Stock, the “Securities”) to purchase 0.75 shares of our common stock for each share of common stock issuable upon the conversion of the Preferred Stock purchased by such investor at an exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. The Preferred Stock has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in April 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.

We received total proceeds of approximately $12 million from the sale of the Securities, after deducting placement agent fees and estimated expenses payable by us associated with such closing. We intend to use the proceeds of the offering for funding our commercial operations to the sale and promotion of our Prestalia product, working capital needs, capital expenditures, the repayment of certain liabilities and other general corporate purposes. In connection with the private placement described above, we also issued to the placement agent for such private placement a Warrant to purchase 2,958,460 shares of our common stock.

Stipulation of Settlement

As discussed in Note 8, in April 2018, we entered into a Stipulation of Settlement requiring us to issue Vaya Pharma shares of our common stock with a fair value of $250,000, which shares were issued during the second fiscal quarter of 2018. We accrued $250,000, as of March 31, 2018 and December 31, 2017, respectively, and such amount is included in accrued expenses on the accompanying consolidated balance sheets.

Resignation of Officer and Directors

In May 2018, the Board accepted the resignation of Joseph W. Ramelli, our Chief Executive Officer, whereby Mr. Ramelli resigned as an officer of our company, and as a director and/or officer of any and all subsidiaries of our company, effective immediately, to pursue other opportunities. In connection with his resignation, Mr. Ramelli released us from all claims arising prior to the date of his resignation and affirmed his obligations to be bound by the restrictive covenants contained in the employment agreement between Mr. Ramelli and our company dated February 2, 2017, and we: (i) agreed to make severance payments to Mr. Ramelli in the amount of $60,000 to be paid over a six (6) month period; and (ii) granted to Mr. Ramelli fully-vested options, exercisable for a period of five years from the grant date, to purchase up to 100,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock. In May 2018, the Board appointed Vuong Trieu, our Executive Chairman, to serve as our Interim Chief Executive Officer, to replace Mr. Ramelli, effective immediately. In his capacity as Interim Chief Executive Officer, Dr. Trieu shall receive a salary in the amount of $20,000 per month.

In May 2018, each of Philip C. Ranker and Philippe P. Calais, Ph.D. resigned as members of the Board, and all committees thereof, effective immediately. In connection with their resignations: (i) each of Mr. Ranker and Dr. Calais released us from all claims arising prior to the date of his resignation; (ii) we granted to Mr. Ranker fully-vested options to purchase up to 200,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock; and (iii) we granted to Dr. Calais fully-vested options to purchase up to 80,000 shares of our common stock at an exercise price equal to $0.98 per share of common stock. The foregoing options are exercisable for a period of five years from the grant date.

Issuance of Preferred Stock and Warrants to Directors

In April 2018, and in connection with the closing of our private placement described above, we entered into Compromise and Settlement Agreements with four of the current members of our Board of Directors and one former member of our Board of Directors pursuant to which we agreed to issue to such directors an aggregate of 58.25 shares of Preferred Stock and Warrants to purchase up to 436,875 shares of common stock to satisfy accrued and unpaid fees owed to such directors for service as members of the Board of Directors during the period ending on December 31, 2017 in the aggregate amount of approximately $291,250. The Securities that were issued to the directors, which were issued upon the closing described above, have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to June 2016 Noteholders

In April 2018, and in connection with the closing of our private placement described above, we issued to the holders (such holders, the “June 2016 Noteholders”) of those certain promissory notes in the original principal amount of $300,000 that we issued pursuant to that certain Note Purchase Agreement dated June 20, 2016 by and among our company and the June 2016 Noteholders (the “2016 Notes”) an aggregate of 71.46 shares of Preferred Stock and Warrants to purchase up to 535,950 shares of common stock as a result of the conversion of the 2016 Notes. As a result of the conversion of the 2016 Notes and the issuance of the Securities to the June 2016 Noteholders, the entire unpaid principal balance of the 2016 Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and such notes are no longer outstanding.

In addition, in April 2018, and in connection with the closing of our private placement described above, we issued to the June 2016 Noteholders an aggregate of 75 shares of Preferred Stock and Warrants to purchase up to 562,500 shares of common stock in full and complete satisfaction of our obligations to issue $375,000 worth of “Consideration Securities” to the 2016 Noteholders pursuant to that certain amendment agreement dated July 3, 2017 by and among our company and the June 2016 Noteholders.

Issuance of Securities to June 2017 Noteholders

In April 2018, and in connection with the closing of our private placement described above, we issued to the holders of those certain promissory notes in the original principal amount of $400,000 (the “2017 Notes”) that we issued to select accredited investors (the “June 2017 Noteholders”) pursuant to Note Purchase Agreements that we entered into with the June 2017 Noteholders during June 2017 an aggregate of 83.44 shares of Preferred Stock and Warrants to purchase up to 625,800 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to the June 2017 Noteholders under the 2017 Notes. As a result of the conversion of the 2016 Notes and the issuance of the Securities to the June 2016 Noteholders, the entire unpaid principal balance of the 2016 Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and such notes are no longer outstanding. The Securities that were issued to the June 2017 Noteholders have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to Blech Trust

In April 2018, and in connection with the closing of our private placement described above, we issued to a trust affiliated with Isaac Blech, a member of our Board of Directors, an aggregate of 103.18 shares of Preferred Stock and Warrants to purchase up to 777,750 shares of common stock as a result of the conversion of that certain secured convertible promissory note in the original principal amount of $500,000 that we issued to such investor on November 22, 2017 (the “Blech Note”). As a result of the conversion of the Blech Note and the issuance of the Securities to the holder thereof, the entire unpaid principal balance of the Blech Notes, and the accrued and unpaid interest thereon, has been satisfied in full, and the Blech Note is no longer outstanding. The Securities that were issued to the holder of the Blech Note have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities to Satisfy Lines of Credit

In April 2018, and in connection with the closing of our private placement described above, we issued to Vuong Trieu, Ph.D., our Executive Chairman and Interim CEO, 114.63 shares of Preferred Stock and Warrants to purchase up to 859,725 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to Dr. Trieu under that certain line of credit in the amount of up to $540,000 that was provided to us by Dr. Trieu, all of which had been drawn down as of the date of the closing described above. The line of credit was extended pursuant to a Line Letter dated November 15, 2016 by and between our company and Dr. Trieu. The Securities that were issued to Dr. Trieu have the same terms and conditions as the Securities that were issued to investors in the offering.

In April 2018, and in connection with the closing of our private placement described above, we issued to Autotelic Inc. 19 shares of Preferred Stock and Warrants to purchase up to 142,500 shares of common stock as full and complete satisfaction of the unpaid principal balance (and accrued but unpaid interest thereon) owed by us to Autotelic Inc. under that certain line of credit in the amount of up to $500,000 that was provided to us by Autotelic Inc., of which $90,816 had been drawn down as of the date of the closing described above. The line of credit was extended pursuant to a Line Letter dated April 4, 2017 by and between Autotelic Inc. and us. Vuong Trieu, our Executive Chairman and Interim CEO, serves as Chairman of the Board of Autotelic Inc. The Securities that were issued to Autotelic Inc. have the same terms and conditions as the Securities that were issued to investors in the offering.

Issuance of Securities for Payables

In April 2018, and in connection with the closing of our private placement described above, we entered into a Compromise and Settlement Agreement with Autotelic Inc. pursuant to which we agreed to issue to Autotelic Inc. an aggregate of 162.59 shares of Preferred Stock and Warrants to purchase up to 2,564,465 shares of common stock to satisfy accrued and unpaid fees in the aggregate amount of approximately $812,967, and other liabilities, owed to Autotelic Inc. as of March 31, 2018 pursuant to that certain Master Services Agreement dated as of November 15, 2016 by and between our company and Autotelic Inc. Vuong Trieu, our Executive Chairman and Interim CEO, serves as Chairman of the Board of Autotelic Inc. The Securities that were issued to Autotelic Inc., which were issued upon the closing described above, have the same terms and conditions as the Securities that were issued to investors in the offering.

Stock Issuance to Novosom

In May 2018, we issued to Novosom Verwaltungs GmbH (“Novosom”) 51,988 shares of our common stock as additional consideration pursuant to the Asset Purchase Agreement, dated as of July 27, 2010, between our company and Novosom. Such shares were due to Novosom as a result of the receipt by our company of a license fee under the License Agreement that we entered into with Lipomedics Inc. in February 2017.

Results of Operations

Comparison of the Three Months Ended March 31, 2018 to the Three Months Ended March 31, 2017

Our loss before income taxes for the three months ended March 31, 2018 is summarized as follows in comparison to the three months ended March 31, 2017.

Revenues

We had no revenues during the three months ended March 31, 2018 or 2017, respectively. As the Company has yet to complete certain performance obligations under the agreement, we have deferred the recognition of revenue of $200,000 from the sale of the DiLA2 assets until such obligations are fulfilled.   The majority of our licensing deals provide for clinical and regulatory milestones, so significant revenues could result from the existing licenses, but are uncertain as to timing or probability. We will continue to seek research and development collaborations as well as licensing transactions to fund business operations.

Expenses

Our expenses for the three months ended March 31, 2018 are summarized as follows in comparison to our expenses for the three months ended March 31, 2017.

Research and Development

Research and development (“R&D”) expense increased by $99,825, as compared to the three months ended March 31, 2017, primarily due to costs related to the MSA with Autotelic Inc., where the Company pays cash to Autotelic Inc. for their services totaling $85,243, and on a non-cash basis, through the issuance of warrants valued at $85,493 for the three months ended March 31, 2018, partially offset by lower other R&D expenses. Other R&D expenses consist of costs of sublicensing fees, clinical development, pre-clinical studies, consulting, other outside services, and other costs.

General and Administrative

General and administrative (“G&A”) expense increased by $124,464 for the three months ended March 31, 2108, as compared to the three months ended March 31, 2017, primarily due to a charge of $375,000 related to the settlement of our 2016 notes, an increase in stock option expense of $74,639, an increase in insurance costs of $18,380, and an increase in payroll expense of $81,667. These increases were partially offset by a decrease in accounting fees of $67,374 and a decrease in legal fees of $304,092.

Amortization Expense

Amortization expenses relates to amortization of intangible assets acquired in the November 15, 2016 merger and the asset purchases on June 5, 2017 and July 21, 2017, with a combined estimated fair value of $3,056,066.

Other Expense

Total net other expense for the three months ended March 31, 2018 increased $30,019 compared to the three months ended March 31, 2017. The increase is primarily attributable to an increase in interest expense from new notes payable assumed since the three months ended March 31, 2017. There was no gain or loss on the change in fair value liability of warrants during the three months ended March 31, 2018 due to the adoption of Accounting Standards Update 2017-11 in November 2017 relating to the issuance of financial statements that include down round provisions utilizing the modified retrospective approach.

Liquidity & Capital Resources

Working Capital Deficiency

Current assets increased by $21,961, which was attributable to an increase in prepaid expenses of $80,571 offset by a decrease in cash of $58,610.

Current liabilities increased by $1.140,990, which was primarily attributable to an increase of accounts payable of $428,906, an increase of $319,524 in amounts due related parties, deferred recognition of revenue of $200,000 from the sale of the DiLA2 asset and an increase of $135,744 in convertible notes to related parties.

Cash Flows

The decrease in net cash used in operating activities during the three months ended March 31, 2018, compared to 2017, was mainly due to our net loss of $1,361,169, offset by an increase in accounts payable of $428,906, an increase in accrued expenses of $47,816 and an increase in amounts due to related party of $319,524.  

The $475,064 in net cash provided by financing activities during the three months ended March 31, 2017, is primarily attributable to proceeds of $250,000 from the sale of stock, and $230,514 from additional borrowings on the convertible note to related party.

Going Concern and Management’s Liquidity Plans

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2018, we had a significant accumulated deficit of approximately $9 million and a negative working capital of approximately $7 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses as we execute our commercialization plans for Prestalia, as well as strategic and business development initiatives. In addition, we have had and will continue to have negative cash flows from operations, at least into the near future. We have previously funded, and plan to continue funding, our losses primarily through the sale of common and preferred stock, combined with or without warrants, the sale of notes, cash generated from the outlicensing or sale of our licensed assets and, to a lesser extent, equipment financing facilities and secured loans. However, we cannot be certain that we will be able to obtain such funds required for our operations at terms acceptable to us or at all.

In April, 2018, we raised over $10 million net proceeds from a private placement of shares of our Series E Convertible Preferred Stock, and warrants to purchase shares of our common stock. Further, in May 2018, we raised an additional $2 million net proceeds from the same private placement. For our assessment as of March 31, 2018, we have considered the amount raised and we believe that the $12 million will provide us the ability to continue as a going concern for one year from the issuance date of this Form 10-Q. We may continue to attempt to obtain future financing or engage in strategic transactions and may require us to curtail our operations. We cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional equity or debt financing, or whether such actions would generate the expected liquidity as currently planned

Future Financing

We will require additional funds to implement the growth strategy for our business. As mentioned above, we have, in the past, raised additional capital to both supplement our commercialization, clinical development and operational expenses. We will need to raise additional funds required through equity financing, debt financing, strategic alliances or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. If we will not be able to obtain the additional financing on a timely basis as required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and will be forced to scale down or perhaps even cease our operations.

Off-Balance Sheet Arrangements

As of March 31, 2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in the notes to our financial statements included herein for the period ended March 31, 2018 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

New and Recently Adopted Accounting Pronouncements

Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the period ended March 31, 2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Management identified material weaknesses in internal control over financial reporting as described under the heading “Management Report on Internal Control” contained in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”), which have not been fully remediated, and therefore our principal executive officer and our principal financial officer concluded that, as of March 31, 2018, our disclosure controls and procedures were not effective.

Internal Control Over Financial Reporting

Management has reported to the Board of Directors and the Audit Committee thereof material weaknesses described under the heading “Management Report on Internal Control” contained in Item 9A of the 2017 Form 10-K. The material weaknesses discussed therein have not been fully remediated. In connection with such remediation efforts, in October 2017 we engaged Amit Shah to serve as our Chief Financial Officer . There have been no changes in our internal control over financial reporting or in other factors during the fiscal quarter ended March 31, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. To remediate the material weakness identified in our Form 10-K for the year ended December 31, 2017, we plan to hire additional experienced accounting and other personnel to assist with filings and financial record keeping, and to take additional steps to improve our financial reporting systems and enhance our existing policies, procedures and controls, as resources allow.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We had been named in a complaint filed in the Supreme Court of the State of New York as a defendant in the matter entitled Vaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emerson and Marina Biotech, Inc. Although the complaint had been filed, we had not been legally served. The complaint alleged, in relevant part, that: (i) the sale by Symplmed Pharmaceuticals, Inc. of its assets related to its Prestalia product, and the sale by Symplmed Technologies, Inc. of its assets related to its DyrctAxess platform, should be set aside pursuant to New York law as they were consummated without fair consideration to the sellers (the “Symplmed Defendants”), and thereby had the effect of fraudulently depriving the creditors of the Symplmed Defendants, including Vaya Pharma, Inc., of funds that could have been used to pay their debts; and (ii) we were liable, as successor, for any and all claims by Vaya Pharma, Inc. against the Symplmed Defendants, though pursuant to the agreement we were only contractually responsible for liabilities that accrue after the parties entered into the agreement for Prestalia and any liabilities that existed prior to the agreement are contractually held by Symplmed. In April 2018, we entered into a Stipulation of Settlement requiring us to issue to Vaya Pharma shares of our common stock with a fair value of $250,000, which shares were issued in the second fiscal quarter of 2018. We accrued $250,000, as of March 31, 2018 and December 31, 2017, respectively, and such amount was included in accrued expenses on the accompanying consolidated balance sheets.

Our Prestalia product is currently involved in a paragraph IV challenge regarding patents issued to perindopril arginine. This challenge, which is currently pending in the United States District Court for the District of Delaware (No. 1:17-cv-00276), is captioned Apotex Inc. and Apotex Corp. v. Symplmed Pharmaceuticals, LLC and Les Laboratoires Servier. The challengers (Apotex Inc. and Apotex Corp. (“Apotex”)) have filed an Abbreviated New Drug Application seeking FDA approval to market a generic version of Prestalia and included a Paragraph (IV) certification. In the litigation, Apotex seeks a declaratory judgment that no valid claims of the two patents Symplmed listed in the FDA Orange Book as having claims covering Prestalia, U.S. Patent No. 6,696,481 and 7,846,961, will be infringed by the Apotex proposed generic version of Prestalia and that the claims of those patents are invalid. The challenge is designed to provide Apotex with an opportunity to enter the market with a generic version of Prestalia, ahead of the expiration of the patents with claims covering that product. Apotex entered into negotiations with Symplmed Pharmaceuticals, LLC (which entity sold its assets relating to Prestalia to us in June 2017, including its License and Commercialization Agreement with Les Laboratories Servier) and Les Laboratories Servier (which entity owns or controls intellectual property rights relating to pharmaceutical products containing as an active pharmaceutical ingredient perindopril in combination with other active pharmaceutical ingredients, which rights have been licensed to Symplmed Pharmaceuticals) to resolve the challenge in the second quarter of 2017, and such parties, along with us, have come to a general agreement on terms that will result in a delay to the challengers’ ability to enter the market with a generic version of Prestalia, while still providing the challenger with the right to enter the market prior to the expiration of the patent covering such product. The term sheet memorializing such terms is pending execution in a final settlement agreement. In the meantime, the District Court has entered an order extending the time for the defendants to respond to Apotex’s Complaint .  Resolution of the Apotex litigation continues with alignment from all parties, including Servier, Apotex, Symplmed and Marina. Necessary extensions have been agreed upon and final resolution is anticipated this year.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Annual Report”), as filed with the SEC on April 17, 2018, in addition to other information contained in those documents and reports that we have filed with the Securities and Exchange commission pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, since the date of the filing of the Annual Report, including, without limitation, this Quarterly Report on Form 10-Q, in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be adversely affected due to any of those risks.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In April 2018, we entered into a Stipulation of Settlement in the matter entitled Vaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emerson and Marina Biotech, Inc., requiring us to issue to Vaya Pharma shares of our common stock with a fair value of $250,000, which shares were issued in May 2018. We issued he shares in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended.

In May 2018, we issued to Novosom Verwaltungs GmbH (“Novosom”) 51,988 shares of our common stock as additional consideration pursuant to the Asset Purchase Agreement, dated as of July 27, 2010, between our company and Novosom. Such shares were due to Novosom as a result of the receipt by our company of a license fee under the License Agreement that we entered into with Lipomedics Inc. in February 2017. We issued the shares in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.