UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
30, 2015
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51476
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
(Exact name of registrant as specified
in its charter)
Delaware |
|
20-2903526 |
(State or other jurisdiction
of |
|
(I.R.S. Employer |
incorporation or
organization) |
|
Identification Number) |
248 Route 25A, No. 2
East Setauket, New York 11733
(Address of principal executive offices)
(631) 942-7959
(Registrant’s telephone number,
including area code)
Not applicable
(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 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, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
Smaller reporting company [X] |
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 October 31, 2015, the Company
had 47,875,814 shares of common stock, $0.0001 par value, issued and outstanding.
Documents incorporated by reference:
None
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
TABLE
OF CONTENTS
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q of Lixte Biotechnology Holdings, Inc. (the “Company”) contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934. These might include statements regarding the Company’s financial position, business strategy and other plans and objectives
for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and
pricing factors are all forward-looking statements. These statements are generally accompanied by words such as “intend,”
“anticipate,” “believe,” “estimate,” “potential(ly),” “continue,”
“forecast,” “predict,” “plan,” “may,” “will,” “could,”
“would,” “should,” “expect” or the negative of such terms or other comparable terminology.
The Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, based
on information available to it on the date hereof, but the Company cannot provide assurances that these assumptions and expectations
will prove to have been correct or that the Company will take any action that the Company may presently be planning. These forward-looking
statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially
from those expected, anticipated or implied in the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, regulatory policies or changes thereto, available cash, research and development
results, competition from other similar businesses, and market and general economic factors. This discussion should be read in
conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report
on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, including the section
entitled “Item 1A. Risk Factors”. The Company does not intend to update or revise any forward-looking statements to
reflect new information, future events or otherwise.
PART
I - FINANCIAL INFORMATION
ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND
SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30, 2015 |
|
|
December
31, 2014 |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
217,557 |
|
|
$ |
44,411 |
|
Money market funds |
|
|
524,087 |
|
|
|
213,699 |
|
Advances on research
and development contract services |
|
|
217,284 |
|
|
|
231,177 |
|
Prepaid expenses
and other current assets |
|
|
68,138 |
|
|
|
50,012 |
|
Total current
assets |
|
|
1,027,066 |
|
|
|
539,299 |
|
Total assets |
|
$ |
1,027,066 |
|
|
$ |
539,299 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses |
|
$ |
121,184 |
|
|
$ |
122,534 |
|
Research and development
contract liabilities, including $46,697 and $18,436 to Theradex at September 30, 2015 and December 31, 2014, respectively |
|
|
100,998 |
|
|
|
58,186 |
|
Due to Chairman
and major stockholder |
|
|
— |
|
|
|
92,717 |
|
Total current
liabilities |
|
|
222,182 |
|
|
|
273,437 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
Series A convertible
preferred stock, $0.0001 par value, $10.00 per share stated value, $50.00 per share redemption value; 175,000 shares authorized,
issued and outstanding at September 30, 2015; aggregate redemption value of $8,750,000; liquidation preference based on assumed
conversion into common shares; 2,187,500 shares of common stock issuable upon conversion |
|
|
1,750,000 |
|
|
|
— |
|
Common stock,
$0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 47,875,814 shares and 45,483,097
shares at September 30, 2015 and December 31, 2014, respectively |
|
|
4,787 |
|
|
|
4,548 |
|
Additional paid-in
capital |
|
|
17,006,515 |
|
|
|
15,979,475 |
|
Accumulated
deficit |
|
|
(17,956,418 |
) |
|
|
(15,718,161 |
) |
Total stockholders’
equity |
|
|
804,884 |
|
|
|
265,862 |
|
Total liabilities
and stockholders’ equity |
|
$ |
1,027,066 |
|
|
$ |
539,299 |
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
|
|
September
30, |
|
|
September
30, |
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative costs, including $6,250 and $82,107 to related parties for the three months ended September 30, 2015 and
2014, respectively, and $93,651 and $531,794 for the nine months ended September 30, 2015 and 2014, respectively |
|
|
155,307 |
|
|
|
192,317 |
|
|
|
615,615 |
|
|
|
926,882 |
|
Research and development
costs, including $162,425 and $85,440 to Theradex for the three months ended September 30, 2015 and 2014, respectively, and
$670,540 and $265,918 for the nine months ended September 30, 2015 and 2014, respectively |
|
|
624,405 |
|
|
|
309,103 |
|
|
|
1,416,940 |
|
|
|
807,597 |
|
Total costs and
expenses |
|
|
779,712 |
|
|
|
501,420 |
|
|
|
2,032,555 |
|
|
|
1,734,479 |
|
Loss from operations |
|
|
(779,712 |
) |
|
|
(501,420 |
) |
|
|
(2,032,555 |
) |
|
|
(1,734,479 |
) |
Interest income |
|
|
25 |
|
|
|
27 |
|
|
|
71 |
|
|
|
56 |
|
Fair value of
warrant extensions |
|
|
— |
|
|
|
— |
|
|
|
(34,016 |
) |
|
|
(302,691 |
) |
Fair value of
warrant discount |
|
|
— |
|
|
|
— |
|
|
|
(171,757 |
) |
|
|
(134,420 |
) |
Net
loss |
|
$ |
(779,687 |
) |
|
$ |
(501,393 |
) |
|
$ |
(2,238,257 |
) |
|
$ |
(2,171,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding – basic and diluted |
|
|
47,060,597 |
|
|
|
45,483,097 |
|
|
|
46,428,767 |
|
|
|
44,042,438 |
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
Nine
Months Ended September 30, 2015
|
|
Series
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Additional
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Value |
|
|
Capital
|
|
|
Deficit
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2014 |
|
|
— |
|
|
$ |
— |
|
|
|
45,483,097 |
|
|
$ |
4,548 |
|
|
$ |
15,979,475 |
|
|
$ |
(15,718,161 |
) |
|
$ |
265,862 |
|
Fair value of
warrant extensions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,016 |
|
|
|
— |
|
|
|
34,016 |
|
Fair value of
warrant discounts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
171,757 |
|
|
|
— |
|
|
|
171,757 |
|
Sales of Series
A Convertible Preferred Stock |
|
|
175,000 |
|
|
|
1,750,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,750,000 |
|
Costs incurred
in connection with sale of Series A convertible preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,608 |
) |
|
|
— |
|
|
|
(12,608 |
) |
Exercise of warrants |
|
|
— |
|
|
|
— |
|
|
|
1,050,000 |
|
|
|
105 |
|
|
|
314,895 |
|
|
|
— |
|
|
|
315,000 |
|
Conversion of
advances due to Chairman and major stockholder |
|
|
— |
|
|
|
— |
|
|
|
92,717 |
|
|
|
9 |
|
|
|
92,708 |
|
|
|
— |
|
|
|
92,717 |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
1,250,000 |
|
|
|
125 |
|
|
|
426,272 |
|
|
|
— |
|
|
|
426,397 |
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,238,257 |
) |
|
|
(2,238,257 |
) |
Balance,
September 30, 2015 |
|
|
175,000 |
|
|
$ |
1,750,000 |
|
|
|
47,875,814 |
|
|
$ |
4,787 |
|
|
$ |
17,006,515 |
|
|
$ |
(17,956,418 |
) |
|
$ |
804,884 |
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended |
|
|
|
September
30, |
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(2,238,257 |
) |
|
$ |
(2,171,534 |
) |
Adjustments to
reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation
expense included in - |
|
|
|
|
|
|
|
|
General
and administrative costs |
|
|
157,370 |
|
|
|
513,042 |
|
Research
and development costs |
|
|
269,027 |
|
|
|
166,466 |
|
Fair value of
warrant - |
|
|
|
|
|
|
|
|
Extensions |
|
|
34,016 |
|
|
|
302,691 |
|
Discounts |
|
|
171,757 |
|
|
|
134,420 |
|
Changes in operating
assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease
in - |
|
|
|
|
|
|
|
|
Advances
on research and development contract services |
|
|
13,893 |
|
|
|
4,350 |
|
Prepaid
expenses and other current assets |
|
|
(18,126 |
) |
|
|
(21,081 |
) |
Increase (decrease)
in - |
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
(1,350 |
) |
|
|
22,716 |
|
Research
and development contract liabilities |
|
|
42,812 |
|
|
|
57,829 |
|
Net
cash used in operating activities |
|
|
(1,568,858 |
) |
|
|
(991,101 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Increase
in money market funds |
|
|
(310,388 |
) |
|
|
(887,554 |
) |
Net
cash used in investing activities |
|
|
(310,388 |
) |
|
|
(887,554 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Proceeds from
sale of Series A Convertible Preferred Stock |
|
|
1,750,000 |
|
|
|
— |
|
Cash
payments made for costs incurred in connection with sale of Series A Convertible Preferred
Stock |
|
|
(12,608 |
) |
|
|
— |
|
Proceeds from
exercise of warrants |
|
|
315,000 |
|
|
|
1,412,500 |
|
Net cash provided
by financing activities |
|
|
2,052,392 |
|
|
|
1,412,500 |
|
|
|
|
|
|
|
|
|
|
Cash: |
|
|
|
|
|
|
|
|
Net increase (decrease) |
|
|
173,146 |
|
|
|
(466,155 |
) |
Balance at beginning
of period |
|
|
44,411 |
|
|
|
475,019 |
|
Balance at end
of period |
|
$ |
217,557 |
|
|
$ |
8,864 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for
- |
|
|
|
|
|
|
|
|
Interest |
|
$ |
— |
|
|
$ |
— |
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Non-cash financing
activities: |
|
|
|
|
|
|
|
|
Conversion
of advances due to Chairman and major stockholder to common stock |
|
$ |
92,717 |
|
|
$ |
— |
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
LIXTE
BIOTECHNOLOGY HOLDINGS, INC.
AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months and Nine Months Ended September 30, 2015 and 2014
1.
Basis of Presentation
The
condensed consolidated financial statements of Lixte Biotechnology Holdings, Inc., a Delaware corporation, and its wholly-owned
Delaware subsidiary, Lixte Biotechnology, Inc. (collectively, the “Company”), at September 30, 2015, and for the three
months and nine months ended September 30, 2015 and 2014, are unaudited. In the opinion of management of the Company, all adjustments
(including normal recurring adjustments) have been made that are necessary to present fairly the financial position of the Company
as of September 30, 2015, and the results of its operations for the three months and nine months ended September 30, 2015 and
2014, and its cash flows for the nine months ended September 30, 2015 and 2014. Operating results for the interim periods presented
are not necessarily indicative of the results to be expected for a full fiscal year. The condensed balance sheet at December 31,
2014 has been derived from the Company’s audited financial statements at such date.
The
statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the financial statements and other information included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC.
2.
Business Operations
Business
The
Company is engaged in research and development activities with respect to anti-cancer treatments and other common non-malignant
diseases. The Company’s activities are subject to significant risks and uncertainties, including the need for additional
capital, as described below. The Company has not yet commenced any revenue-generating operations, does not have any cash flows
from operations, and is dependent on debt and equity funding to finance its operations.
The
Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.
Operating
Plans
The
Company’s primary focus is developing new treatments for human cancers for which better therapies are urgently needed. The
scope of potential applications of the Company’s products has expanded to other common non-malignant diseases, including
vascular diseases (heart attacks and stroke, diabetes, and genetic diseases, such as Gaucher’s disease) in which errors
in normal cellular processing lead to loss of functions important to normal cell function. This has occurred because the targets
selected by the Company have multiple functions in the cell, which when altered result in different disorders that may benefit
by treatment from the Company’s products.
The
Company’s drug discovery process is based on discerning clues to potential new targets for disease treatments reported in
the increasingly large body of literature identifying the molecular variants which characterize human cancers and other non-cancer
disorders. The Company designs drugs for which there are existing data suggesting that they may affect the altered pathways of
the cancer cell and may be given safely to humans. The Company seeks to rapidly arrive at patentable structures through analysis
of the literature rather than screening of thousands of structures for activity against a particular biochemical pathway.
This
approach has led to the development of two classes of drugs for the treatment of cancer, consisting of protein phosphatase inhibitors
(PTase-i), designated by the Company as the LB-100 series of compounds, and histone deacetylase inhibitors (HDACi), designated
by the Company as the LB-200 series of compounds. Compounds of both types also have potential use in the prevention and treatment
of neurodegenerative diseases. The LB-100 series consists of novel structures, which have the potential to be first in their class,
and may be useful in the treatment of not only several types of cancer but also vascular and metabolic diseases. The LB-200 series
contains compounds which have the potential to be the most effective in its class and may be useful for the treatment of chronic
hereditary diseases, such as Gaucher’s disease, in addition to cancer and neurodegenerative diseases.
On
August 16, 2011, the United States Patent and Trademark Office (the “PTO”) awarded a patent to the Company for its
lead compound, LB-100, as well as for a number of structurally related compounds. On November 15, 2011, the PTO awarded a patent
to the Company for a lead compound in the LB-200 series and a compound in the LB-100 series as neuroprotective agents for the
prevention and treatment of neurodegenerative diseases. On March 27, 2012, the PTO awarded a patent to the Company for its lead
compound LB-201, as well as for a number of structurally related compounds. Patent applications on these compounds and their use
are pending world-wide.
The
Company’s primary objective has been to bring one lead compound of the LB-100 series to clinical trial. In 2012, the Company
completed the pre-clinical studies required to prepare an Investigational New Drug (“IND”) application to the United
States Food and Drug Administration (“FDA”) to conduct a Phase 1 clinical trial of LB-100, and engaged Theradex Systems,
Inc. (“Theradex”), an international contract research organization (“CRO”) that provides professional
services for the clinical research and development of pharmaceutical compounds, to be responsible for the clinical development
of the Company’s lead compound, LB-100, and to prepare an IND application for filing with the FDA.
The
Company filed an IND application with the FDA on April 30, 2012, and on July 24, 2012, the FDA notified the Company that it would
allow initiation of a Phase 1 clinical trial of LB-100. The purpose of the clinical trial is to demonstrate that LB-100 can be
administered safely to human beings at a dose and at a frequency that achieves the desired pharmacologic effect; in this case,
inhibition of a specific enzyme, without being associated with toxicities considered unacceptable. The Phase 1 clinical trial
of LB-100 was designed to be conducted in two parts. In Part 1, the maximum tolerable dose (“MTD”) of LB-100 is determined.
In Part 2, the MTD of LB-100, in combination with the standard cytotoxic drug docetaxel (which is a well-established anti-mitotic
chemotherapy medication approved by the FDA for the treatment of various cancers), is determined.
The
Phase 1 clinical trial of LB-100 began in April 2013 with the entry of patients into the clinical trial and was initiated at the
City of Hope National Medical Center in Duarte, California, and was extended in December 2013 to include the Mayo Clinic in Rochester,
Minnesota, both of which are Comprehensive Cancer Centers designated by the National Cancer Institute. As the accrual of patients
was slower than anticipated, in October 2014 the Company entered into a Clinical Research Agreement (“CRA”) with US
Oncology Research, LLC, a large community-based research network based in Texas, to increase the rate of entry of patients into
the clinical trial by adding four more active clinical oncologic research sites.
The costs of Part
1 of the Phase 1 clinical trial have exceeded the Company’s estimates in part because patients were able to tolerate higher
doses of LB-100 than originally expected, thus requiring more dose escalation steps to determine the MTD of LB-100 given alone.
In addition, patients have been achieving stabilization without any dose-limiting toxicity (“DLT”), remaining on treatment
with LB-100 for longer periods of time than is usual in a Phase 1 clinical trial of a new drug in patients failing all previous
treatments. The Company’s interpretation of the clinical trial results to date is that LB-100 as a single agent has activity
against several types of cancer, as evidenced by stabilization of progressive disease in the absence of DLT. The Company is continuing
to administer LB-100 to patients if there is no cancer progression and the patient feels well and has no significant toxicity.
The Company had
planned to proceed with Part 2 of the Phase 1 clinical trial to determine the toxicity of LB-100 in combination with docetaxel
against a specific solid tumor for which single agent docetaxel is indicated. However, two developments have altered this plan.
First, LB-100 appears to have anticancer activity in its own right, and second, preclinical studies indicate that LB-100 in combination
with cisplatin (a widely used cytotoxic drug) is more active than LB-100 in combination with docetaxel. LB-100 significantly potentiates
the standard anti-cancer drug cisplatin against several tumor types, including hepatocellular cancer and ovarian cancer. In addition,
it has been reported that inhibition of the enzyme-target of LB-100, PP2A, inhibits certain variants of the hematologic disorder
known as myelodysplastic syndrome (“MDS”). Accordingly, the Company has decided not to proceed with Part 2 of the
Phase 1 clinical trial, and has initiated planning for Phase 2 clinical trials in 2016 to evaluate the effectiveness of LB-100
alone for the treatment of MDS and in combination with a platinum compound for the treatment of ovarian and/or hepatocellular
cancer.
The
Company had previously estimated that Part 1 and Part 2 of the Phase 1 clinical trial would be completed by September 30, 2015
and September 30, 2016, respectively, at a total cost of approximately $2,615,000. As the Company has decided not to proceed with
Part 2 of the Phase 1 clinical trial, the Company estimates that this clinical trial will be completed by December 31, 2015 at
a total cost of approximately $1,800,000.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated
any revenues from operations to date, and does not expect to do so in the foreseeable future. The Company has experienced recurring
operating losses and negative operating cash flows since inception, and has financed its working capital requirements during this
period primarily through the recurring sale of its equity securities and the exercise of outstanding warrants. As a result, management
has concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s
independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the
year ended December 31, 2014, has expressed substantial doubt about the Company’s ability to continue as a going concern.
The
Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately
achieve sustainable revenues and profitable operations. The Company’s condensed consolidated financial statements do not
include any adjustments that might result from the outcome of these uncertainties.
At
September 30, 2015, the Company had not yet commenced any revenue-generating operations. All activity through September 30, 2015
has been related to the Company’s capital raising efforts and research and development activities. As such, the Company
has yet to generate any cash flows from operations, and is dependent on debt and equity funding from both related and unrelated
parties to finance its operations.
Because
the Company is currently engaged in research at an early stage, it will likely take a significant amount of time to develop any
product or intellectual property capable of generating revenues. As such, the Company’s business is unlikely to generate
any sustainable revenues in the next several years, and may never do so. Even if the Company is able to generate revenues in the
future through licensing its technologies or through product sales, there can be no assurance that the Company will be able to
achieve positive earnings and cash flows from operations.
At
September 30, 2015, the Company had cash and money market funds aggregating $741,644. The sale of preferred shares in March 2015
(see Note 4), which generated proceeds of $1,750,000, and the exercise of warrants in April 2015 (see Note 4), which generated
proceeds of $315,000, provided the Company with sufficient funds to complete Part 1 of its Phase 1 clinical trial of its lead
anti-cancer compound LB-100 and to fund its ongoing operating expenses through approximately January 31, 2016.
The
amount and timing of future cash requirements depend on the pace and design of the Company’s clinical trial program. The
Company expects that it will need to raise approximately $2,000,000 of additional capital in the first quarter of 2016, likely
in the form of equity, to fund operations, including the continuing costs of its clinical trial program and the support of its
patent portfolio. The availability of such capital would allow the Company to conduct a Phase 2 clinical trial of LB-100 as a
single agent in 2016.
Market
conditions present uncertainty as to the Company’s ability to secure additional funds. There can be no assurances that the
Company will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct
operations. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be
required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds,
if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights
to certain of its products, or to discontinue its operations entirely.
3.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed consolidated financial statements of the Company are prepared in accordance with United States generally
accepted accounting principles (“GAAP”) and include the financial statements of Holdings and its wholly-owned subsidiary,
Lixte. Intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during
the reporting period. Actual results could differ from those estimates.
Cash
Concentrations
The
Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such
accounts to date. The Company maintains its accounts with financial institutions with high credit ratings.
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates.
Research
and development costs are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the
completion of contracted work, or other information indicates that a different expensing schedule is more appropriate. The costs
of the Phase 1 clinical trial of LB-100 that are being paid through Theradex, the CRO, are recorded and expensed based upon the
documentation provided by the CRO when it becomes available. Payments made pursuant to research and development contracts are
initially recorded as advances on research and development contract services in the Company’s balance sheet and then charged
to research and development costs in the Company’s statement of operations as those contract services are performed. Expenses
incurred under research and development contracts in excess of amounts advanced are recorded as research and development contract
liabilities in the Company’s balance sheet, with a corresponding charge to research and development costs in the Company’s
statement of operations. The Company reviews the status of its research and development contracts on a quarterly basis.
Patent
Costs
Due
to the significant uncertainty associated with the successful development of one or more commercially viable products based on
the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and
filing fees, are expensed as incurred. Patent costs were $139,485 and $83,869 for the three months ended September 30, 2015 and
2014, respectively, and $351,711 and $239,668 for the nine months ended September 30, 2015 and 2014, respectively. Patent costs
are included in research and development costs in the Company’s condensed consolidated statements of operations.
Concentration
of Risk
The
Company periodically contracts with directors, including companies controlled by or associated with directors, to provide consulting
services related to the Company’s research and development and clinical trial activities. Agreements for these services
can be for a specific time period (typically one year) or for a specific project or task, and can include both cash and non-cash
compensation. The only such contract that represents 10% or more of general and administrative or research and development costs
is described below.
On
September 21, 2012, the Company entered into a work order agreement with Theradex, the CRO responsible for the clinical development
of the Company’s lead compound, LB-100, to manage and administer the Phase 1 clinical trial of LB-100. The Phase 1 clinical
trial of LB-100, which began during April 2013 with the entry of patients into the clinical trial, is being carried out by nationally
recognized comprehensive cancer centers, and is estimated to be completed by December 31, 2015.
The
Phase 1 clinical trial is currently estimated to cost approximately $1,800,000, with such payments expected to be allocated approximately
60% for services provided by Theradex and approximately 40% for pass-through costs for clinical center laboratory costs and investigator
costs over the life of the clinical trial. Total costs charged to operations through September 30, 2015 for services paid to or
through Theradex pursuant to this arrangement, which were first incurred in 2013, total $1,361,578, of which $159,042 and $83,483
were incurred during the three months ended September 30, 2015 and 2014, respectively, or approximately 25% and 27% of research
and development costs for the three months ended September 30, 2015 and 2014, respectively. During the nine months ended September
30, 2015 and 2014, the Company incurred $659,750 and $256,716, respectively, or approximately 47% and 32% of research and development
costs for the nine months ended September 30, 2015 and 2014, respectively. Costs pursuant to this agreement are included in research
and development costs in the Company’s condensed consolidated statements of operations.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes.
Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial
statements and the tax basis of assets and liabilities.
The
Company has elected to deduct research and development costs on a current basis for federal income tax purposes. For federal tax
purposes, start-up and organization costs were deferred until January 1, 2008 at which time the Company began to amortize such
costs over a 180-month period.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of
its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination
was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past. The Company had no unrecognized tax benefits as of September
30, 2015 and December 31, 2014 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The
Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.
The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority
as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits
of the position are recognized. As of September 30, 2015, the Company had not recorded any liability for uncertain tax positions.
In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income
tax expense.
Stock-Based
Compensation
The
Company periodically issues stock options to officers, directors and consultants for services rendered. Options vest and expire
according to terms established at the issuance date of each grant.
The
Company accounts for stock-based payments to officers and directors by measuring the cost of services received in exchange for
equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line
basis in the Company’s financial statements over the vesting period of the awards. The Company accounts for stock-based
payments to consultants by determining the value of the stock compensation based upon the measurement date at either (a) the date
at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments
is complete.
Options
granted to members of the Company’s Scientific Advisory Committee and to outside consultants are revalued each reporting
period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on
each vesting date and an adjustment is recorded for the difference between the value already recorded and the value on the date
of vesting.
The
fair value of stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several
variables, the most significant of which are the life of the equity award, the exercise price of the security as compared to the
fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the
equity award.
The
Company recognizes the fair value of stock-based compensation awards in general and administrative costs and in research and development
costs, as appropriate, in the Company’s statement of operations.
The
Company issues new shares to satisfy stock option exercises.
Comprehensive
Income (Loss)
Components
of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which
they are recognized. Comprehensive income or loss is defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any
related tax effect to arrive at comprehensive income (loss). The Company did not have any items of comprehensive income (loss)
for the three months and nine months ended September 30, 2015 and 2014.
Earnings
Per Share
The
Company’s computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as
the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., preferred
shares, warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date,
if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss
per share) are excluded from the calculation of diluted EPS.
Loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted loss per common share is the same for all periods presented because all preferred shares,
warrants and stock options outstanding are anti-dilutive.
At
September 30, 2015 and 2014, the Company excluded the outstanding securities summarized below, which entitle the holders thereof
to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
|
|
September
30, |
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred Stock |
|
|
2,187,500 |
|
|
|
— |
|
Common stock warrants |
|
|
— |
|
|
|
2,928,800 |
|
Common stock options |
|
|
8,250,000 |
|
|
|
7,375,000 |
|
Total |
|
|
10,437,500 |
|
|
|
10,303,800 |
|
Fair
Value of Financial Instruments
The
authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified
and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity
in Level 3 fair value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based
on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels,
the Company performs an analysis of the assets and liabilities at each reporting period end.
Money
market funds are the only financial instrument that is measured and recorded at fair value on the Company’s consolidated
balance sheet on a recurring basis.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition
guidance under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will
require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU
2014-09 also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. Based on the FASB’s Exposure Draft Update issued on April 29, 2015, Revenue from Contracts
With Customers (Topic 606): Deferral of the Effective Date, it is expected that ASU 2014-09 will now be effective for reporting
periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period. Entities will be able to transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2014-09 is not expected
to have any impact on the Company’s financial statement presentation or disclosures.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements –
Going Concern (Subtopic 205-10). ASU 2014-15 provides guidance as to management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should
be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is
not expected to have any impact on the Company’s financial statement presentation and disclosures.
In
January 2015, the FASB issued Accounting Standards Update No. 2015-01 (ASU 2015-01), Income Statement – Extraordinary
and Unusual Items (Subtopic 225-20). ASU 2015-01 eliminates from GAAP the concept of extraordinary items. Subtopic 225-20,
Income Statement – Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose
extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of
the reporting entity unless evidence clearly supports its classification as an extraordinary item. Paragraph 225-20-45-2 contains
the following criteria that must both be met for extraordinary classification: (1) Unusual nature. The underlying event or transaction
should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary
and typical activities of the entity, taking into account the environment in which the entity operates. (2) Infrequency of occurrence.
The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future,
taking into account the environment in which the entity operates. If an event or transaction meets the criteria for extraordinary
classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the
item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose
applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. ASU 2015-01
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity
may apply the guidance prospectively. A reporting entity also may apply the guidance retrospectively to all prior periods presented
in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal
year of adoption. The adoption of ASU 2015-01 is not expected to have any impact on the Company’s financial statement presentation
or disclosures.
In
February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02), Consolidation (Topic 810). ASU 2015-02
changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate
certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation mode. ASU 2015-02
affects the following areas: (1) limited partnerships and similar legal entities; (2) evaluating fees paid to a decision maker
or a service provider as a variable interest; (3) the effect of fee arrangements on the primary beneficiary determination; (4)
the effect of related parties on the primary beneficiary determination; and (5) certain investment funds. ASU 2015-02 is effective
for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the guidance in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting
entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment
to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively.
The adoption of ASU 2015-02 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
In
April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03), Interest – Imputation of Interest
(Subtopic 835-30). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance.
ASU 2015-3 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods
within that fiscal year. Early adoption is permitted for financial statements that have not been previously issued. An entity
is required to apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented
is adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply
with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for
the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively
adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability).
The adoption of ASU 2015-03 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
Management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have
a material impact on the Company’s financial statement presentation or disclosures.
4.
Stockholders’ Equity
Preferred
Stock
The
Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.001 per share. On March 17, 2015, the Company
filed a Certificate of Designation, Preferences, Rights and Limitations, (the “Certificate of Designation”) of its
Series A Convertible Preferred Stock with the Delaware Secretary of State to amend the Company’s certificate of incorporation.
The number of shares designated as Series A Convertible Preferred Stock is 175,000 (which shall not be subject to increase without
the written consent of a majority of the holders of the Series A Convertible Preferred Stock or as otherwise set forth in the
Certificate of Designation). Accordingly, as of September 30, 2015, 9,825,000 shares of preferred stock were undesignated and
may be issued with such rights and powers as the Board of Directors may designate.
Effective
March 17, 2015, the Company entered into a Securities Purchase Agreement with a current stockholder of the Company who owned 10.6%
of the Company’s issued and outstanding shares of common stock immediately prior to the financing transaction, pursuant
to which such stockholder purchased 175,000 shares of the Company’s non-voting Series A Convertible Preferred Stock (the
“Preferred Shares”) at a price per share of $10.00, representing an aggregate purchase price of $1,750,000.
The
Preferred Shares have a dividend equal to 1% of the annual net revenue of the Company until converted or redeemed. Each of the
Preferred Shares may be converted, at the option of the holder, into 12.5 shares of common stock (subject to customary anti-dilution
provisions) and the Preferred Shares are subject to mandatory conversion at the conversion rate in the event of a merger or sale
transaction resulting in gross proceeds to the Company of at least $21,875,000. The Preferred Shares have a liquidation preference
based on their assumed conversion to common shares.
If
fully converted, the Preferred Shares would convert into 2,187,500 shares of common stock, representing an effective price per
share of common stock of $0.80. On the effective date of the transaction, the closing price of the Company’s common stock
was $0.25 per share. The Company has the right to redeem the Preferred Shares up to the fifth anniversary of the closing date
at a price per share equal to $50.00. The Preferred Shares have no right to cash, except for the payment of the aforementioned
dividend if and when the Company is able to generate revenues, and do not have any registration rights.
Based
on the attributes of the Preferred Shares described above, the Company has determined to account for the Preferred Shares as a
permanent component of stockholders’ equity. Legal costs of $12,608 incurred with respect to the issuance of the Preferred
Shares were charged directly to additional paid-in capital.
Common
Stock
Effective
March 17, 2015, the Company’s Chairman and major stockholder converted advances due to him aggregating $92,717 into 92,717
shares of the Company’s common stock, reflecting an effective price of $1.00 per share. On the effective date of the transaction,
the closing price of the Company’s common stock was $0.25 per share. The Company accounted for this transaction as a capital
transaction.
See
Note 7 for information with respect to the issuance of common stock in connection with various stock-based compensation arrangements.
Common
Stock Warrants
On
January 28, 2014, the Company’s Board of Directors extended to June 30, 2014 outstanding warrants to acquire 1,748,800 shares
of the Company’s common stock exercisable at $0.50 per share that were issued to investors and the placement agent in connection
with private placements that closed on February 10, 2009, March 2, 2009 and April 6, 2009. On September 30, 2012, the Company
had previously extended all other outstanding warrants to June 30, 2014. Included in the January 2014 extension were warrants
to acquire 815,920 shares of common stock scheduled to expire on February 10, 2014, warrants to acquire 312,880 shares of common
stock scheduled to expire on March 2, 2014, and warrants to acquire 620,000 shares of common stock scheduled to expire on April
6, 2014. The difference in the fair value of the warrants immediately before and after the grant of the extensions, as calculated
pursuant to the Black-Scholes option-pricing model, was determined to be $78,617 (average of $0.04 per share), and such amount
was charged to operations on January 28, 2014. The fair value of the warrant extensions was calculated using the following input
variables: stock price - $0.15 per share; exercise price - $0.50 per share; expected life – 13 to 153 days; expected volatility
– 262%; expected dividend yield - 0%; risk-free interest rate – 1.51%.
On
January 28, 2014, the Company offered to all of its warrant holders an inducement to exercise early by reducing the exercise price
of currently outstanding warrants by 50%, if exercised on a cash basis by April 15, 2014. The exercise prices of the warrants
before reduction were $0.50 per share (2,253,800 warrants) and $0.75 per share (4,575,000 warrants). The difference in the fair
value of the warrants immediately before and after the grant of the discount, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $134,420 (an average of $0.02 per share), and such amount was charged to operations on January 28,
2014. The fair value of the warrant discount was calculated using the following input variables: stock price - $0.15 per share;
exercise price - $0.50 and $0.75 per share; expected life – 77 days (the period during which the discount was available);
expected volatility – 262%; expected dividend yield - 0%; risk-free interest rate – 1.51%.
As
a result of the January 28, 2014 warrant extension and discount offers, warrants to acquire 3,900,000 shares of the Company’s
common stock were exercised in April 2014 at exercise prices ranging from $0.25 to $0.375 per share. The exercise of the warrants
generated aggregate net proceeds to the Company of $1,412,500.
On
June 4, 2014, the Company’s Board of Directors extended to March 31, 2015 outstanding warrants to acquire 2,928,800 shares
of the Company’s common stock that were issued to investors and the placement agent in connection with private placements
that closed on February 10, 2009, March 2, 2009, April 6, 2009 and January 20, 2010, provided that the warrants were exercised
in cash. Warrants to acquire 1,853,800 shares of the Company’s common stock were exercisable at $0.50 per share and 1,075,000
were exercisable at $0.75 per share. All warrants extended were scheduled to expire on June 30, 2014. The difference in the fair
value of the warrants immediately before and after the grant of the extensions, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $224,074 (average of $0.08 per share), and such amount was charged to operations on June 4, 2014.
The fair value of the warrant extensions was calculated using the following input variables: stock price - $0.22 per share; exercise
price - $0.50 and $0.75 per share; expected life – 26 to 300 days; expected volatility – 173%; expected dividend yield
- 0%; risk-free interest rate – 0.10%.
On
March 6, 2015, the Company’s Board of Directors extended to April 15, 2015 the outstanding warrants to acquire 2,928,800
shares of the Company’s common stock, which were then currently scheduled to expire on March 31, 2015, and discounted the
cash exercise prices of the warrants by 50%. Warrants so extended and discounted consisted of 1,075,000 warrants currently exercisable
at $0.75 per share and 1,853,800 warrants currently exercisable at $0.50 per share. The difference in the fair value of the warrants
immediately before and after the grant of the extensions, as calculated pursuant to the Black-Scholes option-pricing model, was
determined to be $34,016 (average of $0.01 per share), and such amount was charged to operations on March 6, 2015. The fair value
of the warrant extensions was calculated using the following input variables: stock price - $0.30 per share; exercise price -
$0.50 and $0.75 per share; expected life – 25 to 40 days; expected volatility – 199%; expected dividend yield - 0%;
risk-free interest rate – 0.01%. The difference in the fair value of the warrants immediately before and after the grant
of the discount, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $171,757 (an average of
$0.06 per share), and such amount was charged to operations on March 6, 2015. The fair value of the warrant discount was calculated
using the following input variables: stock price - $0.30 per share; exercise price - $0.50 and $0.75 per share to $0.25 and $0.375
per share, respectively; expected life – 15 days (the period during which the discount was available); expected volatility
– 199%; expected dividend yield - 0%; risk-free interest rate – 0.01%.
As
a result of the March 6, 2015 warrant extension and discount offers, warrants to acquire 1,050,000 shares of the Company’s
common stock were exercised in April 2015 at exercise prices ranging from $0.25 to $0.375 per share. The exercise of the warrants
generated aggregate net proceeds to the Company of $315,000 (average exercise price of $0.30 per share).
A
summary of common stock warrant activity during the nine months ended September 30, 2015, including warrants to purchase common
stock that were issued in conjunction with the Company’s private placements, is presented below. For presentation purposes,
warrants that were extended are considered as outstanding for the entire period in which such extension occurs.
|
|
|
|
|
|
|
|
Weighted
Average |
|
|
|
Number
of |
|
|
Weighted
Average |
|
|
Remaining
Contractual |
|
|
|
Shares
|
|
|
Exercise
Price |
|
|
Life
(in Years) |
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2014 |
|
|
2,928,800 |
|
|
$ |
0.592 |
|
|
|
|
|
Issued |
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
(1,050,000 |
) |
|
|
0.300 |
|
|
|
|
|
Expired |
|
|
(1,878,800 |
) |
|
|
0.294 |
|
|
|
|
|
Warrants
outstanding at September 30, 2015 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at December 31, 2014 |
|
|
2,807,840 |
|
|
$ |
0.596 |
|
|
|
|
|
Warrants
exercisable at September 30, 2015 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Based
on a fair market value of $0.24 per share on December 31, 2014, there were no exercisable but unexercised in-the-money common
stock warrants on that date. Accordingly, there was no intrinsic value attributed to exercisable but unexercised common stock
warrants at December 31, 2014.
5.
Money Market Funds
Money
market funds at September 30, 2015 and December 31, 2014 consisted of investments in shares of Morgan Stanley New York Municipal
Money Market Trust with a market value of $524,087 and $213,699, respectively.
The
Morgan Stanley New York Municipal Money Market Trust is an open-end fund incorporated in the USA. The Fund’s objective is
as high level of daily income exempt from federal and New York income tax as is consistent with stability of principal and liquidity.
The Fund invests in high quality, short- term municipal obligations that pay interest exempt from federal and NY taxes.
The
following table presents money market funds at their level within the fair value hierarchy at September 30, 2015 and December
31, 2014.
|
|
Total
|
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds |
|
$ |
524,087 |
|
|
$ |
524,087 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
213,699 |
|
|
$ |
213,699 |
|
|
$ |
— |
|
|
$ |
— |
|
6.
Related Party Transactions
The
Company had advances from its Chairman and major stockholder, Dr. John Kovach, aggregating $92,717, which were non-interest bearing,
due on demand, and included in current liabilities in the Company’s consolidated balance sheets through December 31, 2014.
Effective March 17, 2015, such advances were converted into 92,717 shares of the Company’s common stock, reflecting an effective
price of $1.00 per share. On the effective date of the transaction, the closing price of the Company’s common stock was
$0.25 per share.
Dr.
Kovach was paid a salary of $15,000 for the three months ended September 30, 2015 and 2014 and $45,000 for the nine months ended
September 30, 2015 and 2014, which amounts are included in general and administrative costs in the Company’s condensed consolidated
statements of operations.
Dr.
Kovach is not involved in other business activities but could, in the future, become involved in other business opportunities
that become available. Accordingly, Dr. Kovach may face a conflict in selecting between the Company and his other business interests.
The Company has not yet formulated a policy for the resolution of such potential conflicts.
The
Company’s principal office facilities have been provided without charge by Dr. Kovach. Such costs were not material to the
condensed consolidated financial statements and, accordingly, have not been reflected therein.
On
June 18, 2014, the Company entered into a sub-lease agreement for shared office space in New York City with the Eric Forman Law
Office, a party providing legal and consulting services to the Company. The sub-lease was for a term of six months at a base rate
of $875 per month and was not renewed upon its expiration in December 2014. Eric Forman is the son-in-law of Gil Schwartzberg,
a significant stockholder of and consultant to the Company. Legal and consulting fees charged to operations for services rendered
by Eric Forman were $12,000 and $12,000 for the three months ended September 30, 2015 and 2014, respectively, and $36,000 and
$38,000 for the nine months ended September 30, 2015 and 2014, respectively.
Effective
January 1, 2014, the Company entered into an Advisory Agreement with Dr. Kathleen P. Mullinix, a member of the Board of Directors
of the Company, effective for an initial term of one year through December 31, 2014 to advise on business development matters.
The Advisory Agreement provides for annual cash compensation of $25,000. The term of the Advisory Agreement is automatically extended
for a term of one year annually unless a notice of intent to terminate is given by either party at least 90 days before the end
of the applicable term. Accordingly, the Advisory Agreement was extended for an additional term of one year effective January
1, 2015. Consulting and advisory fees charged to operations pursuant to this agreement were $6,250 during the three months ended
September 30, 2015 and 2014, and $18,750 during the nine months ended September 30, 2015 and 2014. All such amounts are included
in general and administrative costs in the Company’s condensed consolidated statements of operations.
Stock-based
compensation arrangements involving members of the Company’s Board of Directors are described at Note 7. Total stock-based
compensation expense relating to directors, officers, affiliates and related parties was $0 and $75,857 for the three months ended
September 30, 2015 and 2014, respectively, and $74,901 and $513,044 for the nine months ended September 30, 2015 and 2014, respectively.
7.
Stock-Based Compensation
The
Company grants stock options as incentive compensation to directors and as compensation for the services of independent contractors
and consultants of the Company.
On
June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”),
which provides for the granting of awards, consisting of common stock options, stock appreciation rights, performance shares,
or restricted shares of common stock, to employees and independent contractors, for up to 2,500,000 shares of the Company’s
common stock, under terms and condition, as determined by the Company’s Board of Directors. As of September 30, 2015, stock
options for 650,000 shares had been issued under the 2007 Plan, and stock options for 1,850,000 were available for issuance under
the 2007 Plan.
The
fair value of each option awarded is estimated on the date of grant and subsequent measurement dates using the Black-Scholes option-pricing
model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because
the Company’s stock options have characteristics significantly different from those of traded options, and because changes
in the subjective assumptions can materially affect the fair value estimate, in management’s opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of its stock options. The expected dividend yield assumption
is based on the Company’s expectation of dividend payouts. Expected volatilities are based on historical volatility of the
Company’s stock. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date. Expected
life of the options is the average of the vesting term and the full contractual term of the options.
For
options requiring an assessment of value during the nine months ended September 30, 2015, the fair value of each option award
was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest
rate |
|
0.68%
to 1.66 |
% |
Expected
dividend yield |
|
0 |
% |
Expected volatility |
|
243 |
% |
Expected life |
|
3.5
to 5.0 years |
|
For
options requiring an assessment of value during the nine months ended September 30, 2014, the fair value of each option award
was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest
rate |
|
0.30%
to 1.67 |
% |
Expected
dividend yield |
|
0 |
% |
Expected volatility |
|
173 |
% |
Expected life |
|
3.0
to 4.5 years |
|
On
January 28, 2014, the Company approved a second amendment to the Company’s consulting agreement with Gil Schwartzberg, a
significant stockholder of and consultant to the Company, dated September 12, 2007 to extend it for an additional four years to
January 28, 2019 and granted to Mr. Schwartzberg stock options to purchase an additional aggregate of 4,000,000 shares of common
stock, exercisable for a period of the earlier of five years from the grant date or the termination of the consulting agreement
at $0.50 per share, with one-half of the options (2,000,000 shares) vesting immediately and one-half of the options (2,000,000
shares) vesting on January 28, 2015. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $596,400 ($0.15 per share) on January 28, 2014, of which $298,200 was attributed to the options fully-vested
on January 28, 2014 and as such was charged to operations on that date. The remaining unvested portion of the fair value of the
options was charged to operations ratably from January 28, 2014 through January 28, 2015. During the three months ended September
30, 2015 and 2014, the Company recorded charges to operations of $0 and $75,857, respectively, with respect to these options.
During the nine months ended September 30, 2015 and 2014, the Company recorded charges to operations of $74,901 and $486,145,
respectively, with respect to these options.
Effective
September 16, 2012, in connection with her election to the Company’s Board of Directors, Dr. Kathleen P. Mullinix was granted
stock options to purchase 200,000 shares of the Company’s common stock, vesting 25,000 shares on September 16, 2012, and
25,000 shares quarterly thereafter until all of the shares are vested, exercisable for a period of five years from the date of
grant at $0.65 per share, which was the fair market value of the Company’s common stock on such date. The fair value of
these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $118,000 ($0.59 per share),
and was being charged to operations from September 16, 2012 through June 16, 2014. During the three months ended September 30,
2014 and the nine months ended September 30, 2014, the Company recorded charges to operations of $0 and $26,899, respectively,
with respect to these options.
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice
in the field of oncology research and drug development. As part of the agreement, NDA agreed to cause its president, Dr. Daniel
D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. In connection with this agreement,
NDA was granted stock options to purchase 100,000 shares of the Company’s common stock, vesting 25,000 shares on June 24,
2014, and thereafter 25,000 shares annually on June 24, 2015, 2016 and 2017, exercisable for a period of five years from the date
of grant at $0.13 per share, which was the fair market value of the Company’s common stock on the grant date. The fair value
of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $12,960 ($0.13
per share), and is being charged to operations from December 24, 2013 through June 24, 2017. During the three months ended September
30, 2015 and 2014, the Company recorded a (credit)/charge to operations of ($4,056) and $857 with respect to these options. During
the nine months ended September 30, 2015 and 2014, the Company recorded a (credit)/charge to operations of ($183) and $4,316 with
respect to these options.
On
June 26, 2014, the Company granted to Francis Johnson, a consultant to the Company and a co-owner of Chem-Master International,
Inc., a vendor of the Company, immediately vesting stock options to purchase 500,000 shares of common stock, exercisable for a
period of five years from the grant date at $0.25 per share. The fair value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $118,650 ($0.24 per share), which was charged to operations on that date. The options
were granted to Mr. Johnson as compensation for his contributions to the Company’s compound development activities.
On
October 7, 2014, the Company entered into an Advisory Agreement with Andrew Robell for consultation and advice with respect to
identifying and assessing potential licensing and strategic opportunities through September 30, 2016. In connection with the agreement,
the Company granted stock options to Mr. Robell to purchase 200,000 shares of the Company’s common stock, vesting 100,000
shares on October 7, 2014 and 100,000 shares on October 7, 2015, exercisable for a period of five years from the date of grant
at $0.50 per share. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined
to be $20,000 ($0.10 per share), of which $10,000 is attributed to the options fully-vested on October 7, 2014 and as such was
charged to operations on that date. The remaining unvested portion of the fair value of the options will be charged to operations
ratably from October 7, 2014 through October 7, 2015. During the three months and nine months ended September 30, 2015, the Company
recorded a (credit)/charge to operations of ($3,341) and $9,775, respectively, with respect to these options.
On
October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC (“ProActive”) for
strategic advisory, investor relations and public relations services through October 6, 2015. In connection with the agreement,
the Company agreed to pay ProActive a monthly fee of $1,500 in cash and agreed to issue to ProActive 250,000 shares of the Company’s
common stock, vesting 125,000 shares upon execution of the agreement on October 7, 2014 and 125,000 shares six months thereafter
on April 7, 2015. Additionally, the Company issued an option in the form of a warrant to ProActive to purchase 500,000 shares
of the Company’s common stock, vesting upon execution of the agreement on October 7, 2014, and exercisable for a period
of one year from the date of grant at $0.25 per share. The fair value of the warrant, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $33,000 ($0.066 per share). The Company inadvertently neglected to timely record a
charge to operations in 2014 of $45,500 with respect to this transaction, as well as to record a portion of the fair value of
the remaining unvested 125,000 shares in 2014 (which had a fair value on the grant date of $12,500). The Company recorded a charge
to operations for the aggregate fair value of these securities of $76,750 during the six months ended June 30, 2015. Management
performed an evaluation with respect to this matter and determined that this correction was not qualitatively or quantitatively
material to the Company’s financial statements for the year ended December 31, 2014 or for the three months ended March
31, 2015, and thus determined that no restatement of such prior periods was necessary or appropriate under the circumstances.
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks LLC (“BioPharmaWorks”),
pursuant to which the Company engaged BioPharmaWorks to perform certain services for the Company as described at Note 8. In connection
with the Collaboration Agreement, the Company agreed to issue to BioPharmaWorks 1,000,000 fully-vested shares of the Company’s
common stock, valued at $260,000, based upon the closing price of the Company’s common stock of $0.26 per share, on September
14, 2015. Additionally, the Company issued to BioPharmaWorks two options in the form of warrants, to purchase 1,000,000 shares
(500,000 shares per warrant) of the Company’s common stock. The first warrant vests on September 14, 2016, and is exercisable
for a period of five years from the date of grant at $1.00 per share. The second warrant vests on September 14, 2017, and is exercisable
for a period of five years from the date of grant at $2.00 per share. The fair value of the first and second warrants, as calculated
pursuant to the Black-Scholes option-pricing model, was determined to be $128,400 ($0.2568 per share) and $127,850 ($0.2557 per
share), respectively. During the three months and nine months ended September 30, 2015, the Company recorded a charge to operations
of $265,157 with respect to these common shares and warrants.
Total
stock-based compensation expense was $257,760 and $120,214 for the three months ended September 30, 2015 and 2014, respectively,
and $426,397 and $679,510 for the nine months ended September 30, 2015 and 2014, respectively.
A
summary of stock option activity during the nine months ended September 30, 2015 is presented in the tables below.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Of
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in
Years) |
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2014 |
|
|
6,850,000 |
|
|
$ |
0.582 |
|
|
|
|
|
Granted |
|
|
1,500,000 |
|
|
|
1.083 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Expired |
|
|
(100,000 |
) |
|
|
0.500 |
|
|
|
|
|
Options outstanding
at September 30, 2015 |
|
|
8,250,000 |
|
|
$ |
0.674 |
|
|
|
2.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at December 31, 2014 |
|
|
4,675,000 |
|
|
$ |
0.626 |
|
|
|
|
|
Options exercisable
at September 30, 2015 |
|
|
7,100,000 |
|
|
$ |
0.564 |
|
|
|
2.39 |
|
Total
deferred compensation expense for the outstanding value of unvested stock options was approximately $159,000 at September 30,
2015, which is being recognized subsequent to September 30, 2015 over a weighted-average period of approximately eighteen months.
The
exercise prices of common stock options outstanding and exercisable are as follows at September 30, 2015:
|
|
|
Options
|
|
|
Options
|
|
Exercise
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Prices
|
|
|
(Shares)
|
|
|
(Shares)
|
|
|
|
|
|
|
|
|
|
$ |
0.130 |
|
|
|
100,000 |
|
|
|
50,000 |
|
$ |
0.250 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
$ |
0.500 |
|
|
|
4,200,000 |
|
|
|
4,100,000 |
|
$ |
0.650 |
|
|
|
700,000 |
|
|
|
700,000 |
|
$ |
0.980 |
|
|
|
250,000 |
|
|
|
250,000 |
|
$ |
1.000 |
|
|
|
1,500,000 |
|
|
|
1,000,000 |
|
$ |
2.000 |
|
|
|
500,000 |
|
|
|
— |
|
|
|
|
|
|
8,250,000 |
|
|
|
7,100,000 |
|
The
intrinsic value of exercisable but unexercised in-the-money stock options at September 30, 2015 was approximately $1,500, based
on a fair market value of $0.16 per share on September 30, 2015.
The
intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2014 was approximately $2,750, based
on a fair market value of $0.24 per share on December 31, 2014.
Outstanding
options to acquire 1,150,000 shares of the Company’s common stock had not vested at September 30, 2015.
The
Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.
8.
Commitments and Contingencies
On
September 21, 2012, the Company entered into a work order agreement with Theradex, the CRO responsible for the clinical development
of the Company’s lead compound, LB-100, to manage and administer the Phase 1 clinical trial of LB-100. The Phase 1 clinical
trial of LB-100, which began during April 2013 with the entry of patients into the clinical trial, is being carried out by nationally
recognized comprehensive cancer centers, and is estimated to be completed by December 31, 2015. The Phase 1 clinical trial is
currently estimated to cost approximately $1,800,000, with such payments expected to be allocated approximately 60% for services
provided by Theradex and approximately 40% for pass-through costs for clinical center laboratory costs and investigator costs
over the life of the clinical trial. Total costs charged to operations through September 30, 2015 for services paid to or through
Theradex pursuant to this arrangement, which were first incurred in 2013, totaled $1,361,578, of which $159,042 and $83,483 were
incurred during the three months ended September 30, 2015 and 2014, respectively, and $659,750 and $256,716 were incurred during
the nine months ended September 30, 2015 and 2014, respectively. Costs pursuant to this agreement are included in research and
development costs in the Company’s condensed consolidated statements of operations.
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice
in the field of oncology research and drug development. As part of the agreement, NDA agreed to cause its president, Dr. Daniel
D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. The term of the agreement is for one
year and provides for a quarterly cash fee of $4,000. The agreement was automatically renewed on its anniversary date for an additional
one-year term. Consulting and advisory fees charged to operations pursuant to this agreement were $4,000 during the three months
ended September 30, 2015 and 2014, and $12,000 during the nine months ended September 30, 2015 and 2014.
Effective
January 1, 2014, the Company entered into an Advisory Agreement with Dr. Kathleen P. Mullinix, a member of the Board of Directors
of the Company, effective for an initial term of one year through December 31, 2014 to advise on business development matters.
The Advisory Agreement provides for annual cash compensation of $25,000. The term of the Advisory Agreement is automatically extended
for a term of one year annually unless a notice of intent to terminate is given by either party at least 90 days before the end
of the applicable term. Accordingly, the Advisory Agreement was extended for an additional term of one year effective January
1, 2015. Consulting and advisory fees charged to operations pursuant to this agreement were $6,250 during the three months ended
September 30, 2015 and 2014, and $18,750 during the nine months ended September 30, 2015 and 2014.
On
October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC for strategic advisory, investor
relations and public relations services through October 6, 2015. Among other things, the agreement provides for compensation in
the form of a monthly fee of $1,500 in cash. Fees charged to operations pursuant to this agreement were $4,500 and $3,000 during
the three months ended September 30, 2015 and 2014, respectively, and $13,500 and $9,000 during the nine months ended September
30, 2015 and 2014, respectively.
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks, pursuant to which the Company engaged
BioPharmaWorks to perform certain services for the Company. Those services include, among other things: (a) assisting the Company
to (i) commercialize its products and strengthen its patent portfolio, (ii) identify large pharmaceutical companies with potential
interest in the Company’s product pipeline, and (iii) prepare and deliver presentations concerning the Company’s products;
(b) at the request of the Board of Directors, serving as backup management for up to three months should the Company’s chief
executive officer and scientific leader be temporarily unable to carry out his duties; (c) being available for consultation in
drug discovery and development; and (d) identifying providers and overseeing tasks relating to clinical use and commercialization
of new compounds. The Collaboration Agreement is for an initial term of two years and automatically renews for subsequent annual
periods unless terminated by a party not less than 60 days prior to the expiration of the applicable period. In connection with
the Collaboration Agreement, the Company agreed to pay BioPharmaWorks a monthly fee of $10,000, subject to the right of the Company
to pay a negotiated hourly rate in lieu of the monthly payment, and agreed to issue to BioPharmaWorks certain equity-based compensation
are described at Note 7. Fees charged to operations pursuant to this agreement were $5,000 during the three months and nine months
ended September 30, 2015.
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
September 30, 2015 aggregating $575,223, of which $96,657 is included in current liabilities in the Company’s condensed
consolidated balance sheet at September 30, 2015. Amounts included in the 2015 column represent amounts due at September 30, 2015
for the remainder of the 2015 fiscal year ending December 31, 2015.
|
|
|
|
|
Payments
Due By Year |
|
|
|
Total
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development contracts |
|
$ |
71,121 |
|
|
$ |
71,121 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Clinical trial
agreements |
|
|
258,602 |
|
|
|
258,602 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consulting agreements |
|
|
245,500 |
|
|
|
35,500 |
|
|
|
120,000 |
|
|
|
90,000 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
575,223 |
|
|
$ |
365,223 |
|
|
$ |
120,000 |
|
|
$ |
90,000 |
|
|
$ |
— |
|
|
$ |
— |
|
9.
Subsequent Events
Effective
as of October 28, 2015, the Company entered into a two-year advisory agreement with Dr. Fritz Henn, M.D., Ph.D., for consultation
and advice on the development of certain of the Company’s products for clinical neurological and neuropsychiatric applications.
The advisory agreement is automatically extendable on an annual basis subsequent to October 28, 2017 unless a notice of intent
to terminate is given by either party at least 90 days before the end of the applicable term. In connection with the advisory
agreement, Dr. Henn was granted stock options to purchase 200,000 shares of the Company’s common stock, with 100,000 shares
vesting on October 28, 2015, and 100,000 shares vesting on October 28, 2016. The options are exercisable for a period of five
years from the grant date at $0.50 per share. Dr. Henn is an internationally recognized investigative neuroscientist and psychiatrist.
The
Company performed an evaluation of subsequent events through the date of filing of these financial statements with the SEC, noting
no other items requiring disclosure.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Lixte
Biotechnology Holdings, Inc., a Delaware corporation, including its wholly-owned Delaware subsidiary, Lixte Biotechnology, Inc.
(collectively, the “Company”) is engaged in research and development activities with respect to anti-cancer treatments
and other common non-malignant diseases. The Company’s activities are subject to significant risks and uncertainties, including
the need for additional capital, as described below. The Company has not yet commenced any revenue-generating operations, does
not have any cash flows from operations, and is dependent on debt and equity funding to finance its operations.
The
Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated
any revenues from operations to date, and does not expect to do so in the foreseeable future. The Company has experienced recurring
operating losses and negative operating cash flows since inception, and has financed its working capital requirements during this
period primarily through the recurring sale of its equity securities and the exercise of outstanding warrants. As a result, management
has concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s
independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the
year ended December 31, 2014, has expressed substantial doubt about the Company’s ability to continue as a going concern.
The
Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately
achieve sustainable revenues and profitable operations. The Company’s condensed consolidated financial statements do not
include any adjustments that might result from the outcome of these uncertainties.
At
September 30, 2015, the Company had not yet commenced any revenue-generating operations. All activity through September 30, 2015
has been related to the Company’s capital raising efforts and research and development activities. As such, the Company
has yet to generate any cash flows from operations, and is dependent on debt and equity funding from both related and unrelated
parties to finance its operations.
Because
the Company is currently engaged in research at an early stage, it will likely take a significant amount of time to develop any
product or intellectual property capable of generating revenues. As such, the Company’s business is unlikely to generate
any sustainable revenues in the next several years, and may never do so. Even if the Company is able to generate revenues in the
future through licensing its technologies or through product sales, there can be no assurance that the Company will be able to
achieve positive earnings and cash flows from operations.
At
September 30, 2015, the Company had cash and money market funds aggregating $741,644. The sale of preferred shares in March 2015,
which generated proceeds of $1,750,000, and the exercise of warrants in April 2015, which generated proceeds of $315,000, provided
the Company with sufficient funds to complete Part 1 of its Phase 1 clinical trial of its lead anti-cancer compound LB-100 and
to fund its ongoing operating expenses through approximately January 31, 2016.
The
amount and timing of future cash requirements depend on the pace and design of the Company’s clinical trial program. The
Company expects that it will need to raise approximately $2,000,000 of additional capital in the first quarter of 2016, likely
in the form of equity, to fund operations, including the continuing costs of its clinical trial program and the support of its
patent portfolio. The availability of such capital would allow the Company to conduct a Phase 2 clinical trial of LB-100 as a
single agent in 2016.
Market
conditions present uncertainty as to the Company’s ability to secure additional funds. There can be no assurances that the
Company will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct
operations. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be
required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds,
if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights
to certain of its products, or to discontinue its operations entirely.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition
guidance under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will
require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU
2014-09 also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. Based on the FASB’s Exposure Draft Update issued on April 29, 2015, Revenue from Contracts
With Customers (Topic 606): Deferral of the Effective Date, it is expected that ASU 2014-09 will now be effective for reporting
periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period. Entities will be able to transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2014-09 is not expected
to have any impact on the Company’s financial statement presentation or disclosures.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements –
Going Concern (Subtopic 205-10). ASU 2014-15 provides guidance as to management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should
be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is
not expected to have any impact on the Company’s financial statement presentation and disclosures.
In
January 2015, the FASB issued Accounting Standards Update No. 2015-01 (ASU 2015-01), Income Statement – Extraordinary
and Unusual Items (Subtopic 225-20). ASU 2015-01 eliminates from GAAP the concept of extraordinary items. Subtopic 225-20,
Income Statement – Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose
extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of
the reporting entity unless evidence clearly supports its classification as an extraordinary item. Paragraph 225-20-45-2 contains
the following criteria that must both be met for extraordinary classification: (1) Unusual nature. The underlying event or transaction
should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary
and typical activities of the entity, taking into account the environment in which the entity operates. (2) Infrequency of occurrence.
The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future,
taking into account the environment in which the entity operates. If an event or transaction meets the criteria for extraordinary
classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the
item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose
applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. ASU 2015-01
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity
may apply the guidance prospectively. A reporting entity also may apply the guidance retrospectively to all prior periods presented
in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal
year of adoption. The adoption of ASU 2015-01 is not expected to have any impact on the Company’s financial statement presentation
or disclosures.
In
February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02), Consolidation (Topic 810). ASU 2015-02
changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate
certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation mode. ASU 2015-02
affects the following areas: (1) limited partnerships and similar legal entities; (2) evaluating fees paid to a decision maker
or a service provider as a variable interest; (3) the effect of fee arrangements on the primary beneficiary determination; (4)
the effect of related parties on the primary beneficiary determination; and (5) certain investment funds. ASU 2015-02 is effective
for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the guidance in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting
entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment
to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively.
The adoption of ASU 2015-02 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
In
April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03), Interest – Imputation of Interest
(Subtopic 835-30). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance.
ASU 2015-3 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods
within that fiscal year. Early adoption is permitted for financial statements that have not been previously issued. An entity
is required to apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented
is adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply
with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for
the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively
adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability).
The adoption of ASU 2015-03 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
Management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have
a material impact on the Company’s financial statement presentation or disclosures.
Concentration
of Risk
The
Company periodically contracts with directors, including companies controlled by or associated with directors, to provide consulting
services related to the Company’s research and development and clinical trial activities. Agreements for these services
can be for a specific time period (typically one year) or for a specific project or task, and can include both cash and non-cash
compensation. The only such contract that represents 10% or more of general and administrative or research and development costs
is described below.
On
September 21, 2012, the Company entered into a work order agreement with Theradex Systems, Inc. (“Theradex”), the
CRO responsible for the clinical development of the Company’s lead compound, LB-100, to manage and administer the Phase
1 clinical trial of LB-100. The Phase 1 clinical trial of LB-100, which began during April 2013 with the entry of patients into
the clinical trial, is being carried out by nationally recognized comprehensive cancer centers, and is estimated to be completed
by December 31, 2015. The Phase 1 clinical trial is currently estimated to cost approximately $1,800,000, with such payments expected
to be allocated approximately 60% for services provided by Theradex and approximately 40% for pass-through costs for clinical
center laboratory costs and investigator costs over the life of the clinical trial. Total costs charged to operations through
September 30, 2015 for services paid to or through Theradex pursuant to this arrangement, which were first incurred in 2013, were
$1,361,578, of which $159,042 and $83,483 were incurred during the three months ended September 30, 2015 and 2014, respectively,
or approximately 25% and 27% of research and development costs for the three months ended September 30, 2015 and 2014, respectively.
During the nine months ended September 30, 2015 and 2014, the Company incurred $659,750 and $256,716, respectively, or approximately
47% and 32% of research and development costs for the nine months ended September 30, 2015 and 2014, respectively. Costs pursuant
to this agreement are included in research and development costs in the Company’s condensed consolidated statements of operations.
Critical
Accounting Policies and Estimates
The
Company prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates
the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors
that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different
assumptions or conditions.
The
following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s
consolidated financial statements.
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates.
Research
and development costs are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the
completion of contracted work, or other information indicates that a different expensing schedule is more appropriate. The costs
of the Phase 1 clinical trial of LB-100 that are being paid through Theradex, the CRO, are recorded and expensed based upon the
documentation provided by the CRO when it becomes available. Payments made pursuant to research and development contracts are
initially recorded as advances on research and development contract services in the Company’s balance sheet and then charged
to research and development costs in the Company’s statement of operations as those contract services are performed. Expenses
incurred under research and development contracts in excess of amounts advanced are recorded as research and development contract
liabilities in the Company’s balance sheet, with a corresponding charge to research and development costs in the Company’s
statement of operations. The Company reviews the status of its research and development contracts on a quarterly basis.
Patent
Costs
Due
to the significant uncertainty associated with the successful development of one or more commercially viable products based on
the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and
filing fees, are expensed as incurred.
Stock-Based
Compensation
The
Company periodically issues stock options to officers, directors and consultants for services rendered. Options vest and expire
according to terms established at the grant date.
The
Company accounts for stock-based payments to officers and directors by measuring the cost of services received in exchange for
equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line
basis in the Company’s financial statements over the vesting period of the awards. The Company accounts for stock-based
payments to consultants by determining the value of the stock compensation based upon the measurement date at either (a) the date
at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments
is complete.
Options
granted to members of the Company’s Scientific Advisory Committee and to outside consultants are revalued each reporting
period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on
each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value
on the date of vesting.
The
fair value of stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several
variables, the most significant of which are the life of the equity award, the exercise price of the security as compared to the
fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the
equity award.
The
Company recognizes the fair value of stock-based compensation awards in general and administrative costs and in research and development
costs, as appropriate, in the Company’s statement of operations.
The
Company issues new shares to satisfy stock option exercises.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes.
Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial
statements and the tax basis of assets and liabilities.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of
its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination
was made. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future,
an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Plan
of Operation
General
Overview of Plans
The
Company’s original focus was the development of new treatments for the most common and most aggressive type of brain cancer
of adults, glioblastoma multiforme (“GBM”), and the most common cancer of children, neuroblastoma. The Company has
expanded the scope of its anti-cancer investigational activities to include the most common brain tumor of children, medulloblastoma,
and also to several other types of more common cancers. This expansion of activity is based on documentation that each of two
distinct types of drugs being developed by the Company has activity against cell lines of breast, colon, lung, prostate, pancreas,
ovary, stomach and liver cancer, as well as against the major types of leukemias. LB-100 has now been shown to have activity in
animal models of brain tumors of adults and children, and also against melanomas and sarcomas. Studies in animal models of human
melanoma, lymphoma, sarcoma, brain tumors, and the rare neuroendocrine cancer, pheochromocytoma, have demonstrated marked potentiation
by LB-100 of the anti-tumor activity of the widely used standard chemotherapeutic drugs. These studies confirm that the LB-100
compounds, in combination with any of several standard anti-cancer drugs, have broad activity affecting many different cell types
of cancer. This is unusual and important because these compounds may be useful for treatment of cancer in general.
The
research on brain tumors was conducted in collaboration with the National Institute of Neurological Disorders and Stroke (“NINDS”)
of the National Institutes of Health (“NIH”) under a Cooperative Research and Development Agreement (“CRADA”)
entered into on March 22, 2006. The CRADA was extended through a series of amendments and remained in effect until April 1, 2013.
The research at NINDS was led by Dr. Zhengping Zhuang, an internationally recognized investigator in the molecular pathology of
cancer who was aided by two senior research technicians supported by the Company as part of the CRADA. The goal of the CRADA was
to develop more effective drugs for the treatment of GBM through the processes required to gain allowance from the FDA for clinical
trials. The CRADA terminated as scheduled on April 1, 2013.
During
2009, the Company signed material transfer agreements with academic investigators at major cancer centers in the United States,
as well as with one investigator in China with a unique animal model of a sarcoma, to expand molecular and applied studies of
the anti-cancer activity of the Company’s compounds. The Company retained the right to all discoveries made in these studies.
The Company’s
immediate focus has been to determine the safety and appropriate dose of LB-100 when used alone and in combination with widely
used anti-cancer drugs in its Phase 1 clinical trial. The Company’s longer-term objective is to secure one or more strategic
partnerships with pharmaceutical companies with major programs in cancer, vascular disease and/or neurologic disease.
The significant
diversity of the potential therapeutic value of the Company’s Series 2 compounds (LB-201 and homologs) stems from the fact
that these agents modify critical pathways in cancer cells and in microorganisms such as fungi, and appear to ameliorate pathologic
processes that lead to brain injury caused by trauma or toxins or through as yet unknown mechanisms that underlie the major chronic
neurologic diseases, including Alzheimer’s disease, Parkinson’s disease, and Amyotrophic Lateral Sclerosis (ALS, or
Lou Gehrig’s disease).
Operating
Plans
The
Company’s primary focus is developing new treatments for human cancers for which better therapies are urgently needed. The
scope of potential applications of the Company’s products has expanded to other common non-malignant diseases, including
vascular diseases (heart attacks and stroke, diabetes, and genetic diseases, such as Gaucher’s disease) in which errors
in normal cellular processing lead to loss of functions important to normal cell function. This has occurred because the targets
selected by the Company have multiple functions in the cell, which when altered result in different disorders that may benefit
by treatment from the Company’s products.
The
Company’s drug discovery process is based on discerning clues to potential new targets for disease treatments reported in
the increasingly large body of literature identifying the molecular variants which characterize human cancers and other non-cancer
disorders. The Company designs drugs for which there are existing data suggesting that they may affect the altered pathways of
the cancer cell and may be given safely to humans. The Company seeks to rapidly arrive at patentable structures through analysis
of the literature rather than screening of thousands of structures for activity against a particular biochemical pathway.
This
approach has led to the development of two classes of drugs for the treatment of cancer, consisting of protein phosphatase inhibitors
(PTase-i), designated by the Company as the LB-100 series of compounds, and histone deacetylase inhibitors (HDACi), designated
by the Company as the LB-200 series of compounds. Compounds of both types also have potential use in the prevention and treatment
of neurodegenerative diseases. The LB-100 series consists of novel structures, which have the potential to be first in their class,
and may be useful in the treatment of not only several types of cancer but also vascular and metabolic diseases. The LB-200 series
contains compounds which have the potential to be the most effective in its class and may be useful for the treatment of chronic
hereditary diseases, such as Gaucher’s disease, in addition to cancer and neurodegenerative diseases.
On
August 16, 2011, the United States Patent and Trademark Office (the “PTO”) awarded a patent to the Company for its
lead compound, LB-100, as well as for a number of structurally related compounds. On November 15, 2011, the PTO awarded a patent
to the Company for a lead compound in the LB-200 series and a compound in the LB-100 series as neuroprotective agents for the
prevention and treatment of neurodegenerative diseases. On March 27, 2012, the PTO awarded a patent to the Company for its lead
compound, LB-201, as well as for a number of structurally related compounds. Patent applications on these compounds and their
use are pending world-wide.
The
Company has demonstrated that lead compounds of both series of drugs are active against a broad spectrum of human cancers in cell
culture and against several types of human cancers in animal models. The research on new drug treatment was initiated in 2006
with the National Institute of Neurological Disorders and Stroke (“NINDS”) of the National Institutes of Health (“NIH”)
under a Cooperative Research and Development Agreement (“CRADA”) effective March 22, 2006. The research at NINDS was
led by Dr. Zhengping Zhuang, an internationally recognized investigator in the molecular pathology of cancer. The initial focus
of the CRADA was on the most common and uniformly fatal brain tumor of adults, GBM. The work at NIH was then extended to the most
common brain tumor of children, medulloblastoma, and to the most common extracranial solid tumor of children, neuroblastoma. The
CRADA was extended through a series of amendments and remained in effect until April 1, 2013, when it terminated as scheduled.
Effective
October 18, 2013, the Company entered into a Materials Cooperative Research and Development Agreement (M-CRADA) with the National
Institute of Neurological Disorders and Stroke of the National Institutes of Health (NINDS, NIH) for a term of four years. The
Surgical Neurology Branch of NINDS, NIH will conduct research characterizing a variety of compounds proprietary to the Company,
and will examine the compounds’ potential for anti-cancer activity, reducing neurological deficit due to ischemia and brain
injury, and stabilizing catalytic function of misfolded proteins for inborn brain diseases. Under an M-CRADA, a party provides
research material, in this case proprietary compounds from the Company’s pipeline, for study by scientists at NIH. The exchange
of material is for research only and implies no endorsement of the material on the part of either party. Under the M-CRADA the
NIH grants a collaborator an exclusive option to elect an exclusive or non-exclusive commercialization license. The M-CRADA does
not generate any incremental cost to the Company.
Effective
treatment of brain tumors depends upon the ability of compounds to penetrate a physiological barrier known as the “blood-brain
barrier”, which protects the brain from exposure to potentially toxic substances in the blood. Because there is no certainty
that the Company’s compounds will be active against tumors confined to the brain, the LB-100 compounds have been studied
against a variety of common and rare cancer types and have been shown to potentiate the activity of standard anti-cancer drugs
in animal models of breast and pancreatic cancer, melanoma, pheochromcytomas and sarcomas. Because the LB-100 compounds appear
to exert their ability to improve the effectiveness of different forms of chemotherapy and radiation therapy by inhibiting a process
upon which most, if not all, cancer cell types depend on to survive treatment, the Company believes the LB-100 series of compounds
may be useful against most, if not all, cancer types.
The
second class of drugs under development by the Company, referred to as LB-200, is the histone deacetylase inhibitors. Many pharmaceutical
companies are also developing drugs of this type, and at least two companies have HDACi approved for clinical use, in both cases
for the treatment of a type of lymphoma. Despite this significant competition, the Company has demonstrated that its HDACi has
broad activity against many cancer types, has neuroprotective activity, and has anti-fungal activity. In addition, these compounds
have low toxicity, making them attractive candidates for development. It appears that one type of molecule has diverse effects,
affecting biochemical processes that are fundamental to the life of the cell, whether they are cancer cells, nerve cells, or even
fungal cells. The neuroprotective activity of the Company’s HDACi has been demonstrated in the test tube in model systems
that mimic injury to brain cells, such as occurs in stroke and Alzheimer’s disease. This type of protective activity may
have potential application to a broad spectrum of other chronic neurodegenerative diseases, including Parkinson’s disease
and Amytrophic Lateral Sclerosis (ALS, or Lou Gehrig’s disease).
The
Company’s primary objective has been to bring one lead compound of the LB-100 series to clinical trial. In 2012, the Company
completed the pre-clinical studies needed to prepare an Investigational New Drug (“IND”) application to the United
States Food and Drug Administration (“FDA”) to conduct a Phase 1 clinical trial of LB-100, and engaged the CRO responsible
for the clinical development of the Company’s lead compound, LB-100, to prepare an IND application for filing with the FDA.
This task included preparing the detailed clinical protocol known as the “Investigator’s Brochure”, a document
containing a detailed summary of all that is known about LB-100, and development of the formal IND application for submission
to the FDA. The CRO also established the procedures for assuring appropriate collection and reporting of data generated during
the clinical trial of LB-100 to the FDA.
The
Company filed an IND application with the FDA on April 30, 2012, and on July 24, 2012, the FDA notified the Company that it would
allow initiation of a Phase 1 clinical trial of LB-100. The purpose of the clinical trial is to demonstrate that LB-100 can be
administered safely to human beings at a dose and at a frequency that achieves the desired pharmacologic effect; in this case,
inhibition of a specific enzyme, without being associated with toxicities considered unacceptable. The Phase 1 clinical trial
of LB-100 was designed to be conducted in two parts. In Part 1, the maximum tolerable dose (“MTD”) of LB-100 is determined.
In Part 2, the MTD of LB-100, in combination with the standard cytotoxic drug docetaxel (which is a well-established anti-mitotic
chemotherapy medication approved by the FDA for the treatment of various cancers), is determined.
The
Phase 1 clinical trial of LB-100 began in April 2013 with the entry of patients into the clinical trial and was initiated at the
City of Hope National Medical Center in Duarte, California, and was extended in December 2013 to include the Mayo Clinic in Rochester,
Minnesota, both of which are Comprehensive Cancer Centers designated by the National Cancer Institute. As the accrual of patients
was slower than anticipated, in October 2014 the Company entered into a Clinical Research Agreement (“CRA”) with US
Oncology Research, LLC, a large community-based research network based in Texas, to increase the rate of entry of patients into
the clinical trial by adding four more active clinical oncologic research sites.
The costs of Part
1 of the Phase 1 clinical trial have exceeded the Company’s estimates in part because patients were able to tolerate higher
doses of LB-100 than originally expected, thus requiring more dose escalation steps to determine the MTD of LB-100 given alone.
In addition, patients have been achieving stabilization without any dose-limiting toxicity (“DLT”), remaining on treatment
with LB-100 for longer periods of time than is usual in a Phase 1 clinical trial of a new drug in patients failing all previous
treatments. The Company’s interpretation of the clinical trial results to date is that LB-100 as a single agent has activity
against several types of cancer, as evidenced by stabilization of progressive disease in the absence of DLT. The Company is continuing
to administer LB-100 to patients if there is no cancer progression and the patient feels well and has no significant toxicity.
As a prelude to
determining the therapeutic effectiveness of LB-100 in a subsequent Phase 2 clinical trial of common cancers, a key goal of Part
1 of the Phase 1 clinical trial was to demonstrate that the target enzyme of LB-100, protein phosphatase 2A (“PP2A”),
can be inhibited in humans with readily tolerable toxicity. Part 1 of the current clinical trial of LB-100 is continuing with
escalating doses in groups of three patients to determine the MTD. As an anti-cancer drug, LB-100 is likely to be used at maximum
tolerable doses. However, for the potential treatment of non-malignant diseases, such as acute vascular diseases and metabolic
diseases, lower doses may achieve therapeutic benefit by inhibition of the target enzyme, PP2A, thus opening up the possibility
of a host of therapeutic applications for LB-100 and related proprietary compounds.
As this is an experimental
treatment not reimbursable by medical insurance, the cost of continuing treatment beyond the standard two cycles (one cycle is
defined as the administration of the drug daily for three days every three weeks) that are required for the assessment of toxicity
at a given dose level has been more than double the expected cost.
The
costs of the Phase 1 clinical trial of LB-100 are being paid to or through Theradex, the CRO responsible for the clinical development
of LB-100. Total costs charged to operations through September 30, 2015 for services paid to or through Theradex pursuant to this
arrangement, which were first incurred in 2013, totaled $1,361,578, of which $159,042 and $83,483 were incurred during the three
months ended September 30, 2015 and 2014, respectively, and $659,750 and $256,716 were incurred during the nine months ended September
30, 2015 and 2014, respectively.
The Company had
planned to proceed with Part 2 of the Phase 1 clinical trial to determine the toxicity of LB-100 in combination with docetaxel
against a specific solid tumor for which single agent docetaxel is indicated. However, two developments have altered this plan.
First, LB-100 appears to have anticancer activity in its own right, and second, preclinical studies indicate that LB-100 in combination
with cisplatin (a widely used cytotoxic drug) is more active than LB-100 in combination with docetaxel. LB-100 significantly potentiates
the standard anti-cancer drug cisplatin against several tumor types, including hepatocellular cancer and ovarian cancer. In addition,
it has been reported that inhibition of the enzyme-target of LB-100, PP2A, inhibits certain variants of the hematologic disorder
known as myelodysplastic syndrome (“MDS”). Accordingly, the Company has decided not to proceed with Part 2 of the
Phase 1 clinical trial, and has initiated planning for Phase 2 clinical trials in 2016 to evaluate the effectiveness of LB-100
alone for the treatment of MDS and in combination with a platinum compound for the treatment of ovarian and/or hepatocellular
cancer.
The
Company had previously estimated that Part 1 and Part 2 of the Phase 1 clinical trial would be completed by September 30, 2015
and September 30, 2016, respectively, at a total cost of approximately $2,615,000. As the Company has decided not to proceed with
Part 2 of the Phase 1 clinical trial, the Company estimates that this clinical trial will be completed by December 31, 2015 at
a total cost of approximately $1,800,000.
As
a compound moves through the FDA approval process, it becomes an increasingly valuable property, but at a cost of additional investment
at each stage. As the potential effectiveness of LB-100 has been documented at the clinical trial level, the Company has allocated
resources to expand the depth and extent of its patent portfolio. The Company’s approach has been to operate with a minimum
of overhead, moving compounds forward as efficiently and inexpensively as possible, and to raise funds to support each of these
stages as certain milestones are reached.
Results
of Operations
The
Company is considered a development stage company at September 30, 2015, as the Company has not yet commenced any revenue-generating
operations, does not have any cash flows from operations, and is dependent on debt and equity funding to finance its operations.
Three
Months Ended September 30, 2015 and 2014
General
and Administrative. For the three months ended September 30, 2015, general and administrative costs were $155,307, which consisted
of a credit for the vested portion of the fair value of stock options and warrants issued to directors and consultants of $3,341,
consulting and professional fees of $117,421, insurance expense of $15,646, officer’s salary and related costs of $16,864,
stock transfer fees of $2,537, travel and entertainment costs of $2,300, filing fees of $1,389, and other operating costs of $2,491.
For
the three months ended September 30, 2014, general and administrative costs were $192,317, which consisted of the fair value of
stock options issued to directors and consultants of $75,857, consulting and professional fees of $65,382, insurance expense of
$10,245, officer’s salary and related costs of $16,638, stock transfer fees of $2,918, travel and entertainment costs of
$6,402, investor relations of $8,085 and other operating costs of $6,790.
General
and administrative costs decreased by $37,010 or 19.2% in 2015 as compared to 2014, primarily as a result of a decrease of $79,198
in stock-based compensation and a decrease in investor relations of $8,085, offset by an increase in professional fees of $52,039.
The
charge to operations for the fair value of stock options issued to directors and consultants of $75,857 during the three months
ended September 30, 2014 consisted of the fair value of stock options to acquire 4,000,000 shares of the Company’s common
stock that were issued to Gil Schwartzberg on January 28, 2014 for his continuing contributions to the Company’s financial
strategy.
Research
and Development. For the three months ended September 30, 2015, research and development costs were $624,405, which consisted
of the vested portion of the fair value of common stock and stock options and warrants of $261,101, patent costs of $139,485,
and contractor costs of $223,819, including $159,042 to Theradex in connection with the Phase 1 clinical trial of LB-100.
The
charge to operations for the fair value of common stock and stock options and warrants of $261,101 for the three months ended
September 30, 2015 consisted primarily of the fair value of (i) 1,000,000 shares of fully-vested common stock and (ii) stock options
and warrants to acquire 1,000,000 shares of the Company’s common stock, vesting over the next two years, which were issued
to BioPharmaWorks on September 14, 2015.
For
the three months ended September 30, 2014, research and development costs were $309,103, which consisted of the vested portion
of the fair value of stock options of $44,357, patent costs of $83,869, and contractor costs of $180,877, including $83,483 to
Theradex in connection with the Phase 1 clinical trial of LB-100.
A
significant component of the fair value of stock options issued to consultants of $44,357 for the three months ended September
30, 2014 was $43,500 charged to operations for the fair value of stock options to acquire 1,000,000 shares of the Company’s
common stock that were assigned to Daniel Von Hoff, a member of the Company’s Scientific Advisory Board, by Gil Schwartzberg,
a significant stockholder of and consultant to the Company. As Mr. Schwartzberg is considered an affiliate of the Company for
accounting and securities purposes, the fair value of the stock options assigned by Mr. Schwartzberg to Mr. Von Hoff for the benefit
of the Company were recorded as a contribution to capital and a charge to operations.
Research
and development costs increased by $315,302 or 102.0% in 2015 as compared to 2014, which consisted of an increase in the vested
portion of the fair value of common stock and stock options of $216,744, an increase in patent costs of $55,616, and an increase
in contractor costs of $42,942, including an increase of $75,559 to Theradex in connection with the Phase 1 clinical trial of
LB-100, offset by a decrease of $32,617 in other contract costs.
Net
Loss. For the three months ended September 30, 2015, the Company incurred a net loss of $779,687, as compared to a net loss
of $501,393 for the three months ended September 30, 2014.
Nine
Months Ended September 30, 2015 and 2014
General
and Administrative. For the nine months ended September 30, 2015, general and administrative costs were $615,615, which consisted
of the vested portion of the fair value of stock options issued to directors and consultants of $161,426 (including $76,750 of
such costs as described at Note 7), consulting and professional fees of $320,642, insurance expense of $43,295, officer’s
salary and related costs of $50,613, stock transfer fees of $8,153, travel and entertainment costs of $9,800, and other operating
costs of $21,686.
For
the nine months ended September 30, 2014, general and administrative costs were $926,882, which consisted of the fair value of
stock options issued to directors and consultants of $513,044, consulting and professional fees of $249,309, insurance expense
of $29,313, officer’s salary and related costs of $50,409, stock transfer fees of $10,465, travel and entertainment costs
of $13,992, licensing fees of $30,000, and other operating costs of $30,350.
General
and administrative costs decreased by $311,267 or 33.6% in 2015 as compared to 2014, primarily as a result of a decrease of $351,618
in stock-based compensation.
A
significant component of the fair value of stock options issued to directors and consultants of $513,044 for the nine months ended
September 30, 2014 was $486,145 charged to operations for the fair value of stock options to acquire 4,000,000 shares of the Company’s
common stock that were issued to Gil Schwartzberg on January 28, 2014 for his continuing contributions to the Company’s
financial strategy.
Research
and Development. For the nine months ended September 30, 2015, research and development costs were $1,416,940, which consisted
of the vested portion of the fair value of common stock, and stock options and warrants, of $264,971, patent costs of $351,711,
and contractor costs of $800,258, including $659,750 to Theradex in connection with the Phase 1 clinical trial of LB-100.
A
significant component of the fair value of common stock, and stock options and warrants, of $264,971 for the nine months ended
September 30, 2015 consisted primarily of the fair value of (i) 1,000,000 shares of fully-vested common stock and (ii) stock options
and warrants to acquire 1,000,000 shares of the Company’s common stock, vesting over the next two years, which were issued
to BioPharmaWorks on September 14, 2015.
For
the nine months ended September 30, 2014, research and development costs were $807,597, which consisted of the vested portion
of the fair value of stock options of $166,464, patent costs of $239,668, and contractor costs of $401,465, including $256,716
to Theradex in connection with the Phase 1 clinical trial of LB-100.
A
significant component of the fair value of stock options issued to consultants of $166,464 for the nine months ended September
30, 2014 was $118,650 charged to operations for the fair value of stock options to acquire 500,000 shares of the Company’s
common stock that were issued to Francis Johnson on June 26, 2014 for his contributions to the Company’s compound development
activities and $43,500 charged to operations for the fair value of stock options to acquire 1,000,000 shares of the Company’s
common stock that were assigned to Daniel Von Hoff, a member of the Company’s Scientific Advisory Board, by Gil Schwartzberg,
a significant stockholder of and consultant to the Company. As Mr. Schwartzberg is considered an affiliate of the Company for
accounting and securities purposes, the fair value of the stock options assigned by Mr. Schwartzberg to Mr. Von Hoff for the benefit
of the Company were recorded as a contribution to capital and a charge to operations.
Research
and development costs increased by $609,343 or 75.5% in 2015 as compared to 2014, as a result of an increase of $98,507 in costs
relating to the vested portion of the fair value of stock options, $112,043 in patent costs, and $398,793 in contractor costs,
including an increase of $403,034 to Theradex in connection with the Phase 1 clinical trial of LB-100, offset by a decrease of
$4,241 in other contract costs.
Fair
Value of Warrant Extensions. During the nine months ended September 30, 2015, the Company incurred an expense of $34,016 for
the fair value of extending the expiration dates of warrants to acquire 2,928,800 shares of common stock from March 31, 2015 to
April 15, 2015.
During
the nine months ended September 30, 2014, the Company incurred an expense of $302,691 for the fair value of extending the expiration
dates of warrants, including $224,074 for the extension of warrants to acquire 2,928,800 shares of common stock that were purchased
by investors as part of private placements that closed in 2009 and 2010 to March 31, 2014, and $78,617 for the extension of warrants
to acquire 1,748,800 shares of common stock scheduled to expire between February and April 2014 to June 30, 2014.
Fair
Value of Warrant Discount. During the nine months ended September 30, 2015, the Company incurred an expense of $171,757 for
the fair value of discounts offered to warrant holders as an inducement for the early exercise of warrants to acquire 2,928,800
shares of common stock. The discounts ranged from $0.25 to $0.375 per share. The subsequent exercise of warrants resulted in the
issuance of 1,050,000 shares of common stock and generated net proceeds to the Company of $315,000 in April 2015.
During
the nine months ended September 30, 2014, the Company incurred an expense of $134,420 for the fair value of discounts offered
to warrant holders as an inducement for the early exercise of warrants to acquire 6,828,800 shares of common stock. The discounts
ranged from $0.25 to $0.375 per share. The subsequent exercise of warrants resulted in the issuance of 3,900,000 shares of common
stock and generated net proceeds to the Company of $1,412,500 in April 2014.
Net
Loss. For the nine months ended September 30, 2015, the Company incurred a net loss of $2,238,257, as compared to a net loss
of $2,171,534 for the nine months ended September 30, 2014.
Liquidity
and Capital Resources – September 30, 2015
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in the
development stage and has not generated any revenues from operations to date, and does not expect to do so in the foreseeable
future. The Company has experienced recurring operating losses and negative operating cash flows since inception, and has financed
its working capital requirements through the recurring sale of its equity securities. As a result, management believes that there
is substantial doubt about the Company’s ability to continue as a going concern (see “Going Concern” above”).
At
September 30, 2015, the Company had working capital of $804,884 (including advances on research and development contract services
of $217,284), as compared to working capital of $265,862 at December 31, 2014, an increase in working capital of $539,022 for
the nine months ended September 30, 2015, primarily as a result of the sale on March 17, 2015 of 175,000 shares of the Company’s
non-voting Series A Convertible Preferred Stock at a price per share of $10.00, for an aggregate purchase price of $1,750,000,
and $315,000 from the exercise of warrants in April 2015, which resulted in the issuance of 1,050,000 shares of the Company’s
common stock. At September 30, 2015, the Company had cash and money market funds aggregating $741,644, as compared to $258,110
at December 31, 2014, an increase of $483,534 for the nine months ended September 30, 2015. The Company expects to receive a refund
of approximately $182,000 with respect to advances on research and development contract services subsequent to the completion
of Part 1 of its Phase 1 clinical trial of LB-100 (which is expected to be completed by December 31, 2015).
At
September 30, 2015, the Company estimates that it has sufficient funds to complete Part 1 of its Phase 1 clinical trial of its
lead anti-cancer compound LB-100 and to fund its ongoing operating expenses through approximately January 31, 2016. Accordingly,
based on the Company’s current clinical trial plans, the Company expects that it will need to raise approximately $2,000,000
of additional capital in the first quarter of 2016, likely in the form of equity, to fund operations, including the continuing
costs of its clinical trial program and the support of its patent portfolio. The availability of such capital would allow the
Company to conduct a Phase 2 clinical trial of LB-100 as a single agent in 2016.
Market
conditions present uncertainty as to the Company’s ability to secure additional funds. There can be no assurances that the
Company will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct
operations. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be
required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds,
if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights
to certain of its products, or to discontinue its operations entirely.
Operating
Activities. For the nine months ended September 30, 2015, operating activities utilized cash of $1,568,858, as compared to
utilizing cash of $991,101 for the nine months ended September 30, 2014, to support the Company’s ongoing research and development
activities.
Investing
Activities. For the nine months ended September 30, 2015, investing activities consisted of an increase in money market funds
of $310,388, primarily as a result of proceeds from the sale of 175,000 shares of the Company’s non-voting Series A Convertible
Preferred Stock on March 17, 2015, and proceeds received from the exercise of warrants in April 2015, which resulted in the issuance
of 1,050,000 shares of the Company’s common stock. For the nine months ended September 30, 2014, investing activities consisted
of an increase in money market funds of $887,554 due primarily as a result of proceeds received from the exercise of warrants
in April 2014.
Financing
Activities. For the nine months ended September 30, 2015, financing activities consisted of $1,750,000 in proceeds received
from the sale of 175,000 shares of the Company’s non-voting Series A Convertible Preferred Stock at an aggregate purchase
price of $1,750,000 on March 17, 2015, less costs of $12,608 associated with the sale, and $315,000 in proceeds received from
the exercise of warrants, which resulted in the issuance of 1,050,000 shares of the Company’s common stock in April 2015.
For the nine months ended September 30, 2014, financing activities consisted of $1,412,500 in proceeds received from the exercise
of warrants for the purchase of 3,900,000 shares of the Company’s common stock in April 2014.
Principal
Commitments
On
September 21, 2012, the Company entered into a work order agreement with Theradex, the CRO responsible for the clinical development
of the Company’s lead compound, LB-100, to manage and administer the Phase 1 clinical trial of LB-100. The Phase 1 clinical
trial of LB-100, which began during April 2013 with the entry of patients into the clinical trial, is being carried out by nationally
recognized comprehensive cancer centers, and is estimated to be completed by September 30, 2015. The Phase 1 clinical trial is
currently estimated to cost approximately $1,800,000, with such payments expected to be allocated approximately 60% for services
provided by Theradex and approximately 40% for pass-through costs for clinical center laboratory costs and investigator costs
over the life of the clinical trial. Total costs charged to operations through September 30, 2015 for services paid to or through
Theradex pursuant to this arrangement, which were first incurred in 2013, totaled $1,361,578, of which $159,042 and $83,483 were
incurred during the three months ended September 30 and 2014, respectively, and $659,750 and $256,716 were incurred during the
nine months ended September 30, 2015 and 2014, respectively. Costs pursuant to this agreement are included in research and development
costs in the Company’s condensed consolidated statements of operations.
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice
in the field of oncology research and drug development. As part of the agreement, NDA agreed to cause its president, Dr. Daniel
D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. The term of the agreement is for one
year and provides for a quarterly cash fee of $4,000. The agreement was automatically renewed on its anniversary date for an additional
one-year term. Consulting and advisory fees charged to operations pursuant to this agreement were $4,000 during the three months
ended September 30, 2015 and 2014, and $12,000 during the nine months ended September 30, 2015 and 2014.
Effective
January 1, 2014, the Company entered into an Advisory Agreement with Dr. Kathleen P. Mullinix, a member of the Board of Directors
of the Company, effective for an initial term of one year through December 31, 2014 to advise on business development matters.
The Advisory Agreement provides for annual cash compensation of $25,000. The term of the Advisory Agreement is automatically extended
for a term of one year annually unless a notice of intent to terminate is given by either party at least 90 days before the end
of the applicable term. Accordingly, the Advisory Agreement was extended for an additional term of one year effective January
1, 2015. Consulting and advisory fees charged to operations pursuant to this agreement were $6,250 during the three months ended
September 30, 2015 and 2014, and $18,750 during the nine months ended September 30, 2015 and 2014.
On
October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC for strategic advisory, investor
relations and public relations services through October 6, 2015. Among other things, the agreement provides for compensation in
the form of a monthly fee of $1,500 in cash. Fees charged to operations pursuant to this agreement were $4,500 and $3,000 during
the three months ended September 30, 2015 and 2014, respectively, and $13,500 and $9,000 during the nine months ended September
30, 2015 and 2014, respectively.
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks LLC (“BioPharmaWorks”),
pursuant to which the Company engaged BioPharmaWorks to perform certain services for the Company. Those services include, among
other things: (a) assisting the Company to (i) commercialize its products and strengthen its patent portfolio, (ii) identify large
pharmaceutical companies with potential interest in the Company’s product pipeline, and (iii) prepare and deliver presentations
concerning the Company’s products; (b) at the request of the Board of Directors, serving as backup management for up to
three months should the Company’s chief executive officer and scientific leader be temporarily unable to carry out his duties;
(c) being available for consultation in drug discovery and development; and (d) identifying providers and overseeing tasks relating
to clinical use and commercialization of new compounds. The Collaboration Agreement is for an initial term of two years and automatically
renews for subsequent annual periods unless terminated by a party not less than 60 days prior to the expiration of the applicable
period. In connection with the Collaboration Agreement, the Company agreed to pay BioPharmaWorks a monthly fee of $10,000, subject
to the right of the Company to pay a negotiated hourly rate in lieu of the monthly payment, and agreed to issue to BioPharmaWorks
certain equity-based compensation. Fees charged to operations pursuant to this agreement were $5,000 during the three months and
nine months ended September 30, 2015.
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
September 30, 2015 aggregating $575,223, of which $96,657 is included in current liabilities in the Company’s condensed
consolidated balance sheet at September 30, 2015. Amounts included in the 2015 column represent amounts due at September 30, 2015
for the remainder of the 2015 fiscal year ending December 31, 2015.
| |
| | |
Payments
Due By Year | |
| |
Total
| | |
2015
| | |
2016
| | |
2017
| | |
2018
| | |
2019
| |
| |
| | |
| | |
| | |
| | |
| | |
| |
Research and development contracts | |
$ | 71,121 | | |
$ | 71,121 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Clinical trial agreements | |
| 258,602 | | |
| 258,602 | | |
| — | | |
| — | | |
| — | | |
| — | |
Consulting agreements | |
| 245,500 | | |
| 35,500 | | |
| 120,000 | | |
| 90,000 | | |
| — | | |
| — | |
Total | |
$ | 575,223 | | |
$ | 365,223 | | |
$ | 120,000 | | |
$ | 90,000 | | |
$ | — | | |
$ | — | |
Off-Balance
Sheet Arrangements
At
September 30, 2015, the Company did not have any transactions, obligations or relationships that could be considered off-balance
sheet arrangements.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
The
Company carried out an evaluation, under the supervision and with the participation of its management, consisting of its principal
executive officer and principal financial officer (who is the same person), of the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)). Based upon that evaluation,
the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered
in this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s
management, consisting of the Company’s principal executive officer and principal financial officer, to allow timely decisions
regarding required disclosure.
The
Company inadvertently neglected to timely account for securities authorized to be issued effective October 7, 2014, as described
at Note 7 to the condensed consolidated financial statements included elsewhere in this document. The securities were issued on
or about July 31, 2015. The Company believes that such a failure of internal controls was an anomalous one-time event, as the
Company has not had any internal control failures of a similar nature since becoming a public company under its current management
in June 2006. The Company has instituted additional internal control procedures to prevent a recurrence of such an event.
The Company’s management, consisting of its principal executive officer
and principal financial officer, does not expect that its disclosure controls and procedures or its internal controls will prevent
all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there
are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. In addition, as conditions change over time, so too may the effectiveness of internal controls. However,
management believes that the financial statements included in this report fairly present, in all material respects, the Company’s
financial condition, results of operations and cash flows for the periods presented.
(b)
Changes in Internal Controls Over Financial Reporting
The
Company’s management, consisting of its principal executive officer and principal financial officer, has determined that
no change in the Company’s internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f)
of the Securities Exchange Act of 1934) occurred during or subsequent to the end of the period covered in this report that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The
Company is currently not a party to any pending or threatened legal proceedings.
ITEM
1A. RISK FACTORS
As
of the date of this filing, there have been no material changes to the Risk Factors included in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC on March 27, 2015 (the “2014 Form 10-K”).
The Risk Factors set forth in the 2014 Form 10-K should be read carefully in connection with evaluating the Company’s business
and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described
in the 2014 Form 10-K could materially adversely affect the Company’s business, financial condition or future results and
the actual outcome of matters as to which forward-looking statements are made. These are not the only risks that the Company faces.
Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also
may materially adversely affect the Company’s business, financial condition and/or operating results.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks LLC (“BioPharmaWorks”),
pursuant to which the Company engaged BioPharmaWorks to perform certain services for the Company. Those services include, among
other things: (a) assisting the Company to (i) commercialize its products and strengthen its patent portfolio, (ii) identify large
pharmaceutical companies with potential interest in the Company’s product pipeline, and (iii) prepare and deliver presentations
concerning the Company’s products; (b) at the request of the Board of Directors, serving as backup management for up to
three months should the Company’s chief executive officer and scientific leader be temporarily unable to carry out his duties;
(c) being available for consultation in drug discovery and development; and (d) identifying providers and overseeing tasks relating
to clinical use and commercialization of new compounds. In connection with the Collaboration Agreement, the Company agreed to
issue to BioPharmaWorks 1,000,000 fully-vested shares of the Company’s common stock, valued at $260,000, based upon the
closing price of the Company’s common stock of $0.26 per share, on September 14, 2015. Additionally, the Company issued
to BioPharmaWorks two options in the form of warrants, to purchase 1,000,000 shares (500,000 shares per warrant) of the Company’s
common stock. The first warrant vests on September 14, 2016, and is exercisable for a period of five years from the date of grant
at $1.00 per share. The second warrant vests on September 14, 2017, and is exercisable for a period of five years from the date
of grant at $2.00 per share. The fair value of the first and second warrants, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $128,400 ($0.2568 per share) and $127,850 ($0.2557 per share), respectively.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
Not
applicable.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
5. OTHER INFORMATION
Not
applicable.
ITEM
6. EXHIBITS
A
list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which is presented elsewhere
in this document, and is incorporated herein by reference.
SIGNATURES
In
accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
LIXTE
BIOTECHNOLOGY HOLDINGS, INC. |
|
(Registrant) |
|
|
Date:
November 10, 2015 |
By:
|
/s/
JOHN S. KOVACH |
|
|
John S. Kovach |
|
|
Chief Executive
Officer and Chief Financial Officer |
|
|
(Principal financial
and accounting officer) |
INDEX
TO EXHIBITS
The following
documents are filed as part of this report:
Exhibit
Number |
|
Description
of Document |
|
|
|
4.1 |
|
Form
of First Warrant to purchase common stock issued to BioPharmaWorks dated September 14, 2015, incorporated by reference to
Exhibit 4.01 to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on September
18, 2015. |
|
|
|
4.2 |
|
Form
of Second Warrant to purchase common stock issued to BioPharmaWorks dated September 14, 2015, incorporated by reference to
Exhibit 4.02 to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on September
18, 2015. |
|
|
|
4.3* |
|
Stock
Option Agreement to purchase common stock issued to Dr. Fritz Henn dated October 28, 2015. |
|
|
|
10.1 |
|
Collaboration
Agreement between Lixte Biotechnology Holdings, Inc. and BioPharmaWorks LLC effective September 14, 2015, incorporated by
reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission
on September 18, 2015. |
|
|
|
10.2* |
|
Advisory
Agreement between Lixte Biotechnology Holdings, Inc. and Dr. Fritz Henn effective as of October 28, 2015. |
|
|
|
31.1* |
|
Officer’s
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1* |
|
Officer’s
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS** |
|
XBRL
Instance Document |
|
|
|
101.SCH** |
|
XBRL
Taxonomy Extension Schema Document |
|
|
|
101.CAL** |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB** |
|
XBRL
Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE** |
|
XBRL
Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF** |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
*
Filed herewith.
**
In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall
be deemed “furnished” herewith but not “filed”.
STOCK
OPTION AGREEMENT
THIS
STOCK OPTION AGREEMENT (“Agreement”) is made as of October 28, 2015 (the “Grant Date”) by
and between LIXTE BIOTECHNOLOGY HOLDINGS, INC., a Delaware corporation (the “Company”), and FRITZ HENN, M.D.,
Ph.D. (the “Optionee”).
WHEREAS,
Optionee has entered into an Advisory Agreement with the Company (the “Advisory Agreement”) which provides,
inter alia, that the Company will grant Optionee stock options.
NOW,
THEREFORE, in consideration of the mutual benefit to be derived herefrom and pursuant to the Consulting Agreement, the Company
and Optionee agree as follows:
1.
Grant of Option. The Company hereby grants to Optionee the right, privilege and option (the “Option”)
to purchase 200,000 shares of its common stock (“Option Shares”) at an exercise price of $0.50 per share (the
“Exercise Price”), in the manner and subject to the conditions provided hereinafter.
2.
Vesting and Exercise of Option. The Option shall vest as follows: options to purchase 100,000 Option Shares vesting as
of the Grant Date with the remainder vesting on the first anniversary of the Grant Date. Any exercise may be with respect to any
part or all of the Option Shares then vested and exercisable pursuant to the Option.
3.
Termination of Option. Except as otherwise provided in this Agreement, to the extent not previously exercised, the Option
shall terminate upon the first to occur of any of the following events:
(a)
Five years from the date hereof;
(b)
the date that Optionee is no longer acting under the Advisory Agreement because (i) a Notice of Intent to Terminate is issued
by Optionee; or (ii) the Company terminates the Advisory Agreement “for cause”; or
(c)
the breach by Optionee of any provision of this Agreement.
4.
Method of Exercise. The Option shall be exercised by written notice to the Company by the Optionee (or assignee). Such
written notice shall state the number of shares with respect to which the Option is being exercised and designate a time, during
normal business hours of the Company, for the delivery thereof (“Exercise Date”), which time shall be at least
ten days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in
the written notice, the Company shall deliver to the Optionee a certificate or certificates for such shares. Notwithstanding the
foregoing, the Company may postpone delivery of any certificate or certificates after notice of exercise for such reasonable period
as may be required to comply with any applicable listing requirements of any securities exchange. In the event an Option shall
be exercisable by any person other than the Optionee, the required notice under this Section shall be accompanied by appropriate
proof of the right of such person to exercise the option. The Exercise Price shall be payable in full on or before the option
Exercise Date by full payment in cash or certified bank or cashier’s check or pursuant to a net share exercise wherein Optionee
shall receive Option Shares as follows:
where
|
X
= the number of Option Shares |
|
|
|
Y
= the number of Option Shares with respect to which this Option is being exercised |
|
|
|
A
= Fair Market Value of one share of the Company’s Common Stock (at the date of calculation) |
|
|
|
B
= the Exercise Price. |
As
used herein, Fair Market Value means the last sales price reported by Bloomberg Financial Markets for the trading day immediately
preceding the Exercise Date.
5.
Restrictions on Exercise and Delivery. The exercise of the Option shall be subject to the condition that, if at any time
the Company shall determine, in its sole and absolute discretion,
(a)
the satisfaction of any withholding tax or other withholding liabilities, is necessary or desirable as a condition of, or in connection
with, such exercise or the delivery or purchase of Stock pursuant thereto,
(b)
the listing, registration, or qualification of any shares deliverable upon such exercise is desirable or necessary, under any
state or federal law, as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto,
(c)
the consent or approval of any regulatory body is necessary or desirable as a condition of, or in connection with, such exercise
or the delivery or purchase of shares pursuant thereto, or
(d)
in the case of any assignee, appropriate investment representations.
then
in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Optionee shall execute
such documents and take such other actions as are required by the Company to enable him to effect or obtain such withholding,
listing, registration, qualification, consent or approval. Neither the Company nor any officer or member of the Company’s
Board of Directors, shall have any liability with respect to the non-issuance or failure to sell shares as the result of any suspensions
of exercisability imposed pursuant to this Section.
6.
Assignability. This Option may not be sold, pledged, assigned or transferred in any manner other than by will or by the
laws of intestate succession, and may be exercised during the lifetime of Optionee only by Optionee. Any transfer by Optionee
of any Option granted under this Agreement shall void such Option and the Company shall have no further obligation with respect
to such Option. No Option shall be pledged or hypothecated in any way, nor shall any Option be subject to execution, attachment
or similar process.
7.
Restrictive Legends. To the extent required under the securities laws, each certificate evidencing the Option Shares acquired
upon exercise of the Option hereunder, including any certificate issued to any transferee thereof, shall be imprinted with appropriate
legends.
8.
Rights as Stockholder. Neither Optionee nor any assignee, executor, administrator, heirs or legatees, shall be, or have
any rights or privileges of a stockholder of the Company in respect of the Option Shares unless and until certificates representing
such Stock shall have been issued in Optionee’s name.
9.
Adjustments. In the event of any stock dividend or split, or recapitalization, combination, exchange or similar change
affecting the Stock, there shall be an appropriate adjustment of the number of Option Shares and the Exercise Price. In the event
that the Company is sold, merged, consolidated, reorganized or liquidated, the Board of Directors may take any one or more of
the following actions as to outstanding Options (i) provide that the Options shall be assumed, or substantially equivalent Options
shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) on such terms as the Board of Directors
determines to be appropriate, (ii) in the event of a sale or similar transaction under the terms of which holders of the Common
Stock of the Company receive a payment for each share surrendered in the transaction (the “Sales Price”), make or
provide for a payment to each Option equal to the amount by which (A) the Sales Price times the number of shares of Common Stock
subject to outstanding Options exceeds (B) the aggregate exercise price of all such outstanding Options, in exchange for the termination
of such Options, or (iii) make such other adjustments, if any, as the Board of Directors determines to be necessary or advisable
to provide Optionee with a benefit substantially similar to that to which the Optionee would have been entitled had such event
not occurred.
10.
Notices. Any notice to be given under the terms of this Agreement shall be addressed to the Company at its principal office,
and any notice to be given to Optionee shall be addressed to such Optionee at the address maintained by the Company for such person
or at such other address as the Optionee may specify in writing to the Company.
11.
Binding Effect. This Agreement shall be binding upon and inure to the benefit of Optionee, his heirs and successors, and
of the Company, its successors and assigns.
12.
Governing Law. This Agreement shall be governed by the laws of the State of Delaware.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Agreement is effective as of, and the date of grant shall be October 28, 2015.
|
LIXTE
BIOTECHNOLOGY HOLDINGS, INC. |
|
|
|
By:
|
/s/
John S. Kovach |
|
Name:
|
John
S. Kovach |
|
Title:
|
President |
|
|
|
|
OPTIONEE:
|
|
|
|
/s/ Fritz
Henn, M.D., Ph.D. |
|
Fritz
Henn, M.D., Ph.D.
|
ADVISORY
AGREEMENT
This
ADVISORY AGREEMENT (this “Agreement”), is entered into effective as of October 28, 2015, by and between Lixte
Biotechnology Holdings, Inc., a Delaware corporation (the “Company”), and Fritz Henn, M.D., Ph.D. (“Advisor”).
RECITALS
WHEREAS,
Advisor has certain knowledge, expertise, experience and reputation with respect to which the Company desires to avail itself;
and
WHEREAS,
upon the terms and subject to the conditions of this Agreement, the Company desires to retain Advisor to provide certain advisory
services to the Company, and Advisor wishes to render such services.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises and agreements herein contained, Advisor and the
Company by this Agreement agree as follows:
1. Engagement.
The Company hereby agrees that, commencing on October 28, 2015 (the “Effective Date”), the Company shall engage
Advisor and Advisor hereby accepts such engagement with the Company, upon the terms and subject to the conditions hereinafter
set forth.
2. Term.
The initial term of Advisor’s engagement under this Agreement (the “Initial Term”) shall commence on
the Effective Date and, subject to the provisions of Section 6, shall continue until October 28, 2017. The Initial Term and any
subsequent one year term (each a “Term”) shall automatically be extended on an annual basis unless a Notice
of Intent to Terminate is given by either party at least 90 days before the end of the applicable Term.
3. Services.
Advisor shall advise on the development of certain of the Company’s products for clinical neurological and neuropsychiatric
applications. Advisor shall not be required to devote any specific amount of time hereunder but will be generally available as
and when reasonably needed.
4. No
Authority to Bind. Except as directed and authorized by the Chief Executive Officer of the Company in writing, Advisor shall
not execute or agree to any contract, agreement or instrument on behalf of the Company.
5. Compensation.
As sole compensation for the services to be rendered hereunder, the Company shall grant to Advisor five-year options (the “Options”)
to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.50 per share vesting one-half upon
the Effective Date and the remainder on the first anniversary of the Effective Date.
6. Termination.
The Company may terminate this Agreement at any time “for cause” upon delivery of written notice to Advisor, in which
case such termination shall be effective immediately upon Advisor’s receipt of the written notice.
“Cause”
shall mean:
(a) Advisor
is convicted of, or pleas nolo contendere (no contest) to, any crime (whether
or not involving the Company) constituting a felony in the jurisdiction involved; or
(b) Advisor
is in material breach of any provision of this Agreement or any other agreement with the Company, or willfully fails to or refuses
to comply with the lawful directives of the Chief Executive Officer or the Board of Directors of the Company in the performance
of his duties under this Agreement (other than a failure caused by temporary disability).
7. Proprietary
Rights and Nondisclosure and Nonuse of Confidential Information.
7.1 It
is understood that during the term of this Agreement, Advisor may be exposed to information that is confidential and proprietary
to the Company. All such information (hereinafter “Lixte Confidential Information”), whether written or oral,
tangible or intangible, that is made available, disclosed, or otherwise made known to Advisor by the Company or its employees
under this Agreement shall be considered confidential and shall be considered the sole property of the Company. Lixte Confidential
Information shall be (a) marked as confidential, or (b) otherwise represented by the disclosing party as confidential either before
or within a reasonable time after its disclosure to the receiving party. This obligation of confidentiality shall remain in effect
for a period of five (5) years after the expiration or termination of this Agreement.
7.2 The
obligations of confidentiality set forth in Paragraph 7.1 shall not apply to any information that:
(a) is
or hereafter becomes generally available to the public other than by reason of any default with respect to a confidentiality obligation
under this Agreement; or
(b) was
already known to the recipient as evidenced by prior written documents in its possession; or
(c) is
disclosed to the recipient by a third party who is not in default of any confidentiality obligation to the disclosing party hereunder;
or
(d) is
developed by or on behalf of the receiving party, without reliance on confidential information received hereunder as evidenced
by written documents in his possession; or
(e) has
been approved in writing by one party for publication by the other party; or
(f) is
required to be disclosed in compliance with applicable laws or regulations.
8. Nonsolicitation;
Nondisparagement. Advisor acknowledges that during the course of Advisor’s engagement by the Company, Advisor has and
will continue to have the opportunity to develop relationships with existing employees, consultants, and other business associates
of the Company, which relationships constitute goodwill of the Company and that the Company would be irreparably damaged if Advisor
were to take actions that would damage or misappropriate such goodwill. Advisor accordingly agrees that during the period commencing
on the Effective Date and ending on the first anniversary of the conclusion of the Term, Advisor shall not, directly or indirectly,
either for the benefit of Advisor or any other person, do any of the following:
(a) Solicit
any employee of the Company to terminate such employee’s employment with the Company, or employ any such individual during
such employee’s employment with the Company and for a period of six months after such individual terminates employment with
the Company;
(b) Solicit
any advisor or consultant of the Company to terminate such person’s relationship with the Company; or
(c) Make
any public statement, comment or remark that disparages the integrity or competence of a Company officer, director, employee,
or shareholder, that disparages any product or service of the Company, or that is reasonably likely to cause injury to the relationships
between the Company and any existing or prospective contractual counterparty, supplier, customer, employee, consultant or other
business associate of the Company. Likewise, the Company agrees that it shall not make any public statement, comment or remark
that disparages the integrity or competence of Advisor.
9. Status
as Advisor.
9.1 Intention
of the Parties. It is mutually understood and agreed that Advisor, while performing all responsibilities under this Agreement,
is and shall at all times be, act, function, and perform all services and responsibilities in the legal capacity of an independent
contractor. It is mutually understood and agreed that no work, act, commission or omission of any act by Advisor or the Company
pursuant to the terms and conditions of this Agreement shall be construed to make or render Advisor an employee of the Company.
Furthermore, Advisor shall not, under any circumstances, hold himself out to be an employee of the Company.
9.2 Independent
Advisor to Control Performance. The Company shall have no right or authority to direct or control Advisor with respect to
the performance of Advisor’s duties under this Agreement, or with respect to any other matter, except as otherwise provided
by this Agreement. It is further understood that Advisor is free to contract with other companies to provide professional services,
as long as that service does not violate the provisions of Sections 7 or 8.
9.3 Expenses.
Except as provided in this Section 9.3, Advisor shall be fully responsible to pay any and all expenses and disbursements that
he incurs in the performance of any services or obligations covered by this Agreement. The Company shall, however, reimburse Advisor
for all actual and reasonable travel expenses incurred by Advisor when Advisor is traveling at the request of the Company in connection
with his duties; provided, that (i) Advisor shall not be entitled to reimbursement for any individual expenditure in excess
of $1,000, unless such expenditure shall have been pre-approved in writing by the Company’s Chief Executive Officer, and
(ii) Advisor shall not be entitled to reimbursement for a particular expenditure if Advisor does not submit to the Company sufficient
documentation evidencing such expenditure.
9.4
Taxes and Benefit Programs. Advisor shall be liable and responsible to pay any and all taxes relating to all amounts paid
to Advisor hereunder. It is understood and agreed that because Advisor is not an employee of the Company, the Company shall not
withhold any taxes from amounts paid to Advisor. Advisor shall be fully and solely responsible to report income and expenses.
Advisor acknowledges that he is solely responsible for his own tax planning and that the Company has not provided Advisor with
any tax advice regarding the tax implications of this Agreement. It is also understood and agreed that Advisor shall not be eligible
to participate in any benefits or programs sponsored or financed by the Company for its employees.
10.
Miscellaneous.
10.1 Notices.
All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall
be deemed to have been duly given upon receipt, if delivered personally, upon confirmation of receipt, if given by electronic
facsimile and on the third business day following mailing, if mailed first-class, postage prepaid, registered or certified mail
addressed as follows:
If
to the Company to:
Lixte Biotechnology Holdings,
Inc.
248
Route 25A, No. 2
East
Setauket, New York 11733
Attention:
John Kovach, M.D.
Phone:
(631) 751-2882
Fax:
(631) 982-5050
Email:
jkovach@lixte.com
If
to Advisor:
Fritz
Henn MD, PhD
Phone:
516-320-0898
e-mail:
fiitz.henn@mssm.edu
Any
party may by notice given in accordance with this Section 11.1 to the other parties designate another address or person for receipt
of notices hereunder.
10.2 Entire
Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement
may be amended, superceded, canceled, renewed or extended, and the terms hereof or thereof may be waived, only by a written instrument
signed by each of the parties hereto or thereto or, in the case of a waiver, by the party waiving compliance.
10.3 Attorneys’
Fees. If any legal action or arbitration arises under this Agreement, arises by reason of any asserted breach of it, or arises
between the parties and is related in any way to the subject matter of the Agreement, the prevailing party shall be entitled to
recover all costs and expenses, including reasonable attorneys’ fees, arbitration costs, investigative costs, reasonable
accounting fees and charges for experts.
10.4 Binding
Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted
successors and permitted assigns. Neither this Agreement nor any of the rights hereunder may be assigned by any party, nor may
any party delegate any obligations hereunder or thereunder, without the written consent of the other party hereto or thereto;
provided, however, that the Company may assign its rights hereunder to any subsidiary or to any person or entity that acquires,
directly or indirectly, all or substantially all of the Company’s business (whether through acquisition of assets, stock
or any other means). Any non-permitted assignment or attempted assignment shall be void,
ab initio. Nothing herein is intended or shall be construed to give any person any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained herein, except as otherwise provided herein.
10.5 Counterparts.
This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the same instrument. Delivery of any counterpart signature
page of this Agreement, written communication or notice hereunder by facsimile shall be equally as effective as delivery of a
manually executed original of such counterpart signature page, communication or notice.
10.6 Further
Assurances. Each party hereto shall execute such documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions of this Agreement and the transactions contemplated hereby.
10.7 Agreement
Authorized. Advisor hereby represents and warrants that he is free to enter into this Agreement and that he is free to render
its services pursuant to this Agreement, and that Advisor is not subject to any obligation or restriction that would prevent him
from discharging his duties under this Agreement, and agrees to indemnify and hold harmless the Company from and with respect
to any liability, damages or costs, including attorneys’ fees, arising out of any breach by Advisor of this representation
and warranty.
10.8 Governing
Law. The validity, interpretation and construction of this Agreement and each part thereof will be governed by the laws of
the State of New York.
10.9 Entire
Agreement. This Agreement, and any other agreement explicitly mentioned herein, by and between the Company and Advisor, set
forth the entire agreement between the Company and Advisor with respect to the subject matter hereof, and supersedes any and all
prior agreements between the Company and Advisor, whether written or oral, relating to any or all matters covered by and contained
or otherwise dealt with in this Agreement. This Agreement does not constitute a commitment of the Company with regard to Advisor’s
engagement, express or implied, other than to the extent expressly provided for herein.
10.10
Survival at Termination. The termination of this Agreement shall not affect the obligations to the parties hereunder which
by the nature thereof are intended to survive any such termination including, without limitation, the obligations of Advisor under
Sections 7 and 8.
IN
WITNESS WHEREOF, the parties hereto have duly executed this Advisory Agreement as of the day and year first above written.
|
LIXTE
BIOTECHNOLOGY HOLDINGS, INC. |
|
By: |
/s/
John Kovach |
|
Name: |
John
Kovach |
|
Its: |
President |
|
|
/s/
Fritz Henn, M.D., Ph.D. |
|
|
Fritz
Henn, M.D., Ph.D. |
CERTIFICATIONS
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John
S. Kovach, certify that:
1. |
I
have reviewed this Quarterly Report on Form 10-Q of Lixte Biotechnology Holdings, Inc.; |
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for
the registrant and have: |
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
(b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
(c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
(d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5. |
I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions): |
|
(a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
(b) |
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 10, 2015 |
By: |
/s/
JOHN S. KOVACH |
|
|
John S. Kovach |
|
|
Chief Executive
Officer and Chief Financial Officer |
CERTIFICATIONS
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
John S. Kovach, the Chief Executive Officer and Chief Financial Officer of Lixte Biotechnology Holdings, Inc. (the “Company”),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(i)
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2015 (the “Report”)
fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(ii)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
A
signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date:
November 10, 2015 |
By: |
/s/
JOHN S. KOVACH |
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John S. Kovach |
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Chief Executive
Officer and Chief Financial Officer |