PART
I
ITEM
1. BUSINESS
Company
Overview
Lixte
Biotechnology Holdings, Inc., a Delaware corporation, including its wholly-owned Delaware subsidiary, Lixte Biotechnology, Inc.
(collectively, the “Company”), is a drug discovery company that uses biomarker technology to identify enzyme targets
associated with serious common diseases and then designs novel compounds to attack those targets. The Company’s product
pipeline encompasses two major categories of compounds at various stages of pre-clinical and clinical development that the Company
believes have broad therapeutic potential not only for cancer but also for other debilitating and life-threatening 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 positive cash flows from operations,
and is dependent on periodic infusions of equity capital to fund its operating requirements.
Description
of Business
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, genetic diseases, such as Gaucher’s disease), and recently to depression
and potentially post-traumatic stress syndrome. 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.
The
Company has demonstrated that lead compounds of both the LB-100 series and the LB-200 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 these compounds was initiated
in 2006 under a Cooperative Research and Development Agreement (“CRADA”) with the National Institute of Neurologic
Disorders and Stroke (“NINDS”) of the National Institutes of Health (“NIH”) dated March 22, 2006 that
was subsequently extended through a series of amendments until it terminated on April 1, 2013.
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, the LB-200 series, 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 have
broad activity against many cancer types, have neuroprotective activity, and have 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. Potentially, this type of protective
activity may have 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 Investigation 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 this clinical trial was 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 began in April 2013 with the entry of patients into the clinical trial 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.
Patient
entry into the Phase 1 clinical trial was completed in May 2016. The cost of the clinical trial was higher than originally estimated,
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 maximum tolerable dose (“MTD”) of LB-100 given alone. In addition, patients achieved 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
costs of the Phase 1 clinical trial of LB-100 were paid to or through Theradex, the CRO responsible for the clinical development
of LB-100. Total costs charged to operations from 2013 through December 31, 2017 for services paid to or through Theradex pursuant
to this arrangement aggregated $2,233,248, of which $105,698 and $427,429 were incurred during the years ended December 31, 2017
and 2016, respectively, or approximately 23% and 49% of research and development costs for the years ended December 31, 2017 and
2016, respectively.
The
Company’s immediate goals are to demonstrate significant therapeutic benefit of LB-100 against one or more specific human
cancers in Phase 2 clinical trials. The Company has several attractive targets for new therapies incorporating LB-100. Resources
permitting, the Company’s current plans are to conduct the following clinical studies:
(1)
A Phase 1b/2 clinical trial of LB-100 as a single agent in the treatment of patients with del(5q) myelodysplastic syndrome (del5qMDS)
failing first line therapy.
(2)
A Phase 1b/2 randomized trial in previously untreated patients with small cell lung cancer (SCLC) comparing the standard regimen,
carboplatin/etoposide, with and without LB-100.
(3)
A Phase 1b/2 randomized trial in patients with hepatocellular cancer (HCC) failing their initial treatment with the current standard
drug sorafinib, comparing a standard second line drug for this disease, doxorubicin, with and without LB-100, or, depending
on the results of ongoing trials of others, in which a PD-1 immune checkpoint blocker may prove minimally more active than sorafinib,
an alternative trial by the Company of a PD-1 inhibitor with and without LB-100.
The
Phase 1b/2 studies described above will require additional capital or partnering opportunities with other pharmaceutical companies
to undertake and complete. There is no assurance that the Company will be able to obtain one or more financing or partnering relationships,
or what the terms may be. The Company’s longer-term objective is to secure one or more strategic partnerships with pharmaceutical
companies with major programs in cancer.
Publications
The
following publications have included articles discussing the Company’s compounds:
An
article in the December 12, 2011 edition of the Proceedings of the National Academy of Sciences in the United States reported
that the Company’s investigational drug, LB-205 was shown to have therapeutic potential in a laboratory model of the genetic
illness Gaucher’s disease. The Company has patent applications pending on the use of LB-205 for this purpose.
On
June 18, 2013, an article was published in Clinical Cancer Research showing that LB-100 is a radiotherapy sensitizing agent that
increases the effectiveness of x-ray treatment against human pancreatic cancer cells in an animal model, as the Company has shown
for two other types of human cancers. These results are in keeping with the ability of LB-100 to enhance the effectiveness of
existing cytotoxic treatments, both chemotherapy and radiotherapy, against different types of cancers. Because LB-100 itself does
not readily enter the brain in animal models, the Company has developed new related compounds which have been shown to penetrate
the blood brain barrier (entering the brain after systemic injection) in mice, and is evaluating the effectiveness of these compounds
in the treatment of brain tumors in animal models.
The
June 25, 2013 issue of the Proceedings of the National Academy of Sciences reported that scientists at the National Institutes
of Health had determined that one of the Company’s 200 series compounds significantly reduced the extent of structural damage
in the brain and lessened neurological functional impairment in a rat model of traumatic brain injury (TBI). Given the need for
methods to reduce injury to the brain after acute injuries caused by explosive devices, sports injuries and accidental falls,
the Company is seeking partners in the private and governmental sectors to assist in developing these compounds for clinical evaluation.
In
May 2014 an article was published in Molecular Cancer Therapeutics reporting that LB-100 enhanced the therapeutic effectiveness
of chemotherapeutic drugs (doxorubicin and cisplatin) without significantly enhancing toxicity against HCC in animal models. HCC
is the most common cancer in Asia and one of the leading causes of death from cancer worldwide.
In
October 2014, investigators reported in Cancer Letters that LB-100 enhanced the therapeutic effectiveness of chemotherapy in animal
models of pancreatic cancer can without significantly enhancing toxicity.
In
November 2014, investigators from the National Institutes of Health reported in Molecular Cancer Therapeutics that LB-100 overcomes
the resistance of cisplatin-resistant human ovarian cancer cells in the peritoneal cavity of animals. This finding is of particular
interest as platinum-based chemotherapy drugs are the first-line treatment for women with unresectable ovarian cancer and patients
so treated eventually relapse because of development of platinum-resistant disease.
In
December 2014, scientists from the Terry Fox Cancer Center, Vancouver, British Columbia, reported at the Annual Society of Hematology
Meeting that LB-100 is active alone and potentiates the activity of Imatinib (Gleevec) against human cell lines of chronic myelogenous
leukemia (CML), both imatinib-naïve CML cells and Imatinib-resistant CML cells. Although virtually all patients with CML
worldwide receive Imatinib as initial therapy and most patients have an excellent response, almost every patient relapses because
of development of Imatinib–resistance.
On
November 6, 2015, it was reported at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics,
Boston, Massachusetts, that in an ongoing Phase 1 clinical trial, LB-100 was associated with stabilization of a variety of advanced
cancers that had been progressing despite extensive prior treatment without dose-limiting toxicity. The authors reporting this
development were Vincent Chung, City of Hope, Duarte, California; Donald Richard, Texas Oncology, Tyler, Texas; Fadi Braiteh,
Comprehensive Cancer Centers of Nevada, Las Vegas, Nevada; John S. Kovach, Lixte Biotechnology Holdings, Inc. East Setauket, New
York; and Aaron Scott Mansfield, May Clinic, Rochester, Minnesota
On
January 25, 2016, in the journal Nature Medicine, neuroscientists at the French Institute of Health and Medical Research (Inserm)
using a mouse model of depression identified protein phosphatase 2A (PP2A) as a potential pharmacological target for therapy.
Administration of LB-100, the Company’s proprietary inhibitor of PP2A, rapidly reduced depressive-like symptoms in these
conditioned animals.
On
January 4, 2017, the Company issued a news release to announce the publication online of Phase 1 results of the Company’s
novel anti-cancer compound in Clinical Cancer Research, entitled “Safety, tolerability, and preliminary activity of LB-100,
an inhibitor of protein phosphatase 2A, in patients with relapsed solid tumors”. Ten (46.7%) of twenty-one patients receiving
at least 2 cycles of LB-100, a small molecule inhibitor of protein phosphatase (PP2A), achieved stable disease without limiting
toxicity for up to 15 cycles of therapy, including one patient with pancreatic cancer who had a partial regression. PP2A has long
been recognized as a potentially important cancer treatment target, but its inhibition was thought to be too toxic for clinical
use. This Phase 1 clinical trial demonstrated the safety and tolerability of PP2A inhibition in patients with refractory solid
tumors. In numerous animal models of cancer, inhibition of PP2A by LB-100 enhanced the anti-tumor activity of standard chemotherapy
drugs and radiation without significantly enhancing their toxicity by altering cell cycle regulation and the DNA-damage repair
response pathways. The mechanism by which LB-100 used alone apparently inhibited the growth of a variety of cancers in patients
in the recently completed Phase 1 clinical trial is not clear, but PP2A activity is reduced by mutation directly or indirectly
in many cancer types, rendering them vulnerable to pharmacologic inhibition of PP2A. The Company believes that the results reported
in Clinical Cancer Research support further development of LB-100 alone and in combination with standard cytotoxic regimens for
a broad spectrum of tumors.
On
April 17, 2017, the Company issued a news release to announce the presentation of a late-breaking abstract entitled “Protein
phosphatase 2A inhibition with a novel small molecule inhibitor, LB-100, achieves durable immune-mediated antitumor activity when
combined with PD-1 blockage in a preclinical model” as a poster (abstract number LB-193) at the American Association for
Cancer Research (AACR) Annual Meeting 2017 in Washington, D.C. on April 4, 2017. This research was done in collaboration with
scientists at the National Institute of Neurological Disorders and Stroke (NINDS) of the National Institutes of Health (NIH).The
study showed that in an animal model, the Company lead clinical compound, LB-100, has a synergistic potential in conjunction with
immune checkpoint blockade supporting investigation of its ability to enhance immunotherapy in the clinic. Based on a number of
published pre-clinical studies, the Company had expected that LB-100 would be therapeutically useful primarily as a potentiator
of cytotoxic anti-cancer drugs and x-ray. However, this study raises the possibility that LB-100 may also have a role in enhancing
the efficacy of so-called ‘immune checkpoint blockers’ –agents that allow the patients’ own immune system
to attack their own cancers.
On
February 9, 2018, the Company issued a news release to announce that investigators at the Terry Fox Laboratory, British Columbia
Cancer Agency, Vancouver, British Columbia, Canada, reported on February 7,2018 (Lai et al., Sci. Transl. Med. 10, eaan8735 (2018))
that in animal models the Company’s protein phosphatase 2A (PP2A) inhibitors overcome resistance of chronic myelogenous
leukemia (CML) cells to standard treatment. The vast majority of CML cells are killed by drugs called tyrosine kinase inhibitors
(TKI), the prototype of which is imatinib (Gleevec), considered the first truly targeted form of chemotherapy. Imatinib and subsequent
variants were a great advance in turning CML from a fatal to a controllable illness. However, almost without exception, from the
onset of the disease some CML cells are resistant to TKI treatment so that continuous therapy is required and in some patients
the number of TKI resistant cells accelerates out of control. The persistence and progression of CML despite TKI treatment is
believed to arise from a niche of intrinsically resistant leukemia stem cells. The Terry Fox Laboratory investigators found inhibition
of PP2A with LB-100 or LB-102 preferentially sensitizes these resistant CML cells to killing by TKI compared to normal bone marrow
stem cells. If these results can be replicated in the clinic, LB-100 and analogs may further improve the effectiveness of CML
therapy.
Intellectual
Property
The
Company’s products will ultimately derive directly from its intellectual property and are expected to include the property
covered by its patents. These patents now cover sole rights to the composition and synthesis of the LB-100 and LB-200 series of
drugs. Joint patent applications with the NIH have been filed for the treatment of glioblastoma multiforme, medulloblastoma, and
neuroblastoma. The Company has also filed claims for the use of certain homologs of both series of drugs for the potential treatment
of neurodegenerative diseases such as Alzheimer’s Disease and Parkinson’s Disease, Amyotrophic Lateral Sclerosis (ALS,
or Lou Gehrig’s Disease), stroke, and traumatic brain injury, and of homologs of the LB-200 series for treatment of serious
systemic fungal infections and for the treatment of common fungal infections of the skin and nails.
Patents
for the LB-100 series (oxabicycloheptanes and heptenes) and the LB-200 series (histone deacetylase inhibitors; HDACi) have been
filed in the United States and internationally under the Patent Cooperation Treaty. Patents for composition of matter and for
several uses of both the LB-100 series and the LB-200 series have been issued in the United States, Mexico, Australia Japan, China,
the European Patent Office and Eurasian Patent Office.
The
Company’s portfolio of 40 domestic and international patents issued is summarized below. The Company has additional domestic
and international patents pending.
LB-100
Series of Compounds - Phosphatase Inhibitors – Composition and Use in Cancer Treatment
Oxabicycloheptanes
and Oxabicycloheptenes, Their Preparation and Use
Patent
|
|
Priority
Date or International
Filing
Date (non-U.S.
applications)
|
|
Issue/Grant
Date
|
|
Expiration
Date
|
AM 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
AU 2008214299
|
|
2/6/2008
|
|
4/24/2014
|
|
2/6/2028
|
AZ 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
BY 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
CN 101662939
|
|
2/6/2008
|
|
11/25/2015
|
|
2/6/2028
|
CN 103788108
|
|
2/6/2008
|
|
4/12/2017
|
|
2/6/2028
|
EP 2124550
|
|
2/6/2008
|
|
4/19/2017
|
|
2/6/2028
|
EA 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
JP 5693850
|
|
2/6/2008
|
|
2/13/2015
|
|
2/6/2028
|
KG 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
KZ 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
MD 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
MX 309985
|
|
2/6/2008
|
|
5/28/2013
|
|
2/6/2028
|
RU 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
TJ 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
TM 023804
|
|
2/6/2008
|
|
7/29/2016
|
|
2/6/2028
|
US 7,998,957
|
|
2/6/2007
|
|
8/16/2011
|
|
2/20/2030
|
US 8,822,461
|
|
6/30/2011
|
|
9/2/2014
|
|
6/30/2031
|
US 8,426,444
|
|
2/6/2008
|
|
4/23/2013
|
|
2/6/2028
|
US 9,079,917
|
|
4/19/2013
|
|
7/14/2015
|
|
4/19/2033
|
US 8,227,473
|
|
8/1/2008
|
|
7/24/2012
|
|
3/11/2030
|
US 8,541,458
|
|
7/17/2009
|
|
9/24/2013
|
|
7/17/2029
|
LB-100
Series of Compounds – LB-100 in Combination with Anti-Cancer Agents
Methods
for Regulating Cell Mitosis by Inhibiting Serine/Threonine Phosphatase
Patent
|
|
Priority
Date or
International
Filing Date
(non-U.S.
applications)
|
|
Issue/Grant
Date
|
|
Expiration
Date
|
US 9,526,915
|
|
2/17/2012
|
|
12/27/2016
|
|
3/31/2032
|
LB-100
and LB-200 Series of Compounds – Use in Treatment of Multiple CNS Diseases
Neuroprotective
Agents for the Prevention and Treatment of Neurodegenerative Diseases
Patent
|
|
Priority
Date or
International
Filing Date
(non-U.S.
applications)
|
|
Issue/Grant
Date
|
|
Expiration
Date
|
AU 2009277086
|
|
7/29/2009
|
|
3/23/2016
|
|
7/29/2029
|
EP 2318005
|
|
7/29/2009
|
|
11/1/2017
|
|
7/29/2029
|
US 8,058,268
|
|
8/1/2008
|
|
11/15/2011
|
|
12/31/2029
|
US 8,329,719
|
|
7/29/2009
|
|
12/11/2012
|
|
7/29/2029
|
Oxabicycloheptanes
and Oxabicycloheptenes for the Treatment of Reperfusion Injury
Patent
|
|
Priority
Date or
International
Filing Date (non-U.S. applications)
|
|
Issue/Grant
Date
|
|
Expiration
Date
|
CN
ZL 201380035527.1
|
|
6/28/2013
|
|
9/22/2017
|
|
6/28/2033
|
Oxabicycloheptanes
and Oxabicycloheptenes for the Treatment of Depressive and Stress Disorders
Patent
|
|
Priority
Date or
International
Filing Date
(non-U.S.
applications)
|
|
Issue/Grant
Date
|
|
Expiration
Date
|
US 9,833,450
|
|
2/19/2015
|
|
12/5/2017
|
|
2/19/2036
|
The
Market
Anti-Cancer
Drugs
The
Company has developed two series of pharmacologically active drugs, the LB-100 series and the LB-200 series. The Company believes
that the mechanism by which compounds of the LB-100 series affect cancer cell growth is different from cancer agents currently
approved for clinical use. Lead compounds from each series have activity against a broad spectrum of common and rarer human cancers
in cell culture systems. In addition, compounds from both series have anti-cancer activity in animal models of glioblastoma multiforme,
neuroblastoma, and medulloblastoma, all cancers of neural tissue. Lead compounds of the LB-100 series also have activity against
melanoma, breast cancer and sarcoma in animal models and enhance the effectiveness of commonly used anti-cancer drugs in these
model systems. The enhancement of anti-cancer activity of these anti-cancer drugs occurs at doses of LB-100 that do not significantly
increase toxicity in animals. It is therefore hoped that when combined with standard anti-cancer regimens against many tumor types,
the Company’s compounds will improve therapeutic benefit without enhancing toxicity in humans.
Marketing
Plan
The
primary goal of the Company to date has been to take LB-100 through Phase 1 clinical trials. Because of the novelty and spectrum
of activity of LB-100, the Company believes it is reasonably likely it will find a partner in the pharmaceutical industry with
interest in this compound at some stage of its clinical development. However, the Company would prefer to delay the partnering/licensing
decision until the potential value of its products is augmented by demonstrating there is no impediment to clinical evaluation
and a therapeutic dose level is determined in clinical trials. Demonstration of clinical usefulness would be expected to substantially
increase the value of the Company’s product.
Research
and Development
Further
development of lead compounds from each of the LB-100 and LB-200 series requires pharmacokinetic/pharmacodynamic characterization
(i.e., how long a drug persists in the blood and how long the drug is active at the intended target) and large animal toxicologic
evaluation under conditions meeting FDA requirements. Most anti-cancer drugs fail in development because of unacceptable toxicity.
However, by analogy with mechanistically related compounds, there is good reason to believe that lead compounds of both series
of drugs will be able to be given to humans safely by routes and at doses resulting in concentration of drug producing anti-cancer
activity in animal model systems. The Company has demonstrated that lead compounds of both types affect their intended targets
at doses that produce anti-cancer activity without discernable toxicity in animal models.
One
of the Company’s most valuable resources is its scientific team, a coalition of various experts brought together through
contracts and other collaborative arrangements. The team has expertise in cancer biology, proteomics (cancer biomarkers), medicinal
and synthetic chemistry, pharmacology, clinical oncology and drug evaluation. In a relatively short period of time and at low
cost, this group has developed lead compounds of two different classes of drugs that are positioned for development as new treatments
for several types of cancer.
Product
Development
The
Company is subject to FDA regulations as it conducts clinical trials. Additionally, any product for which the Company obtains
marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product,
will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Even if regulatory approval
of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed
or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later
discovery of previously unknown problems with the Company’s products, including unanticipated adverse events or adverse
events of unanticipated severity or frequency, manufacturer or manufacturing processes, or failure to comply with regulatory requirements,
may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary
or mandatory recall, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal
penalties.
Competition
The
life sciences industry is highly competitive and subject to rapid and profound technological change. The Company’s present
and potential competitors include major pharmaceutical companies, as well as specialized biotechnology and life sciences firms
in the United States and in other countries. Most of these companies have considerably greater financial, technical and marketing
resources than the Company does. Additionally, mergers and acquisitions in the pharmaceutical and biotechnology industries may
result in even more resources being concentrated in the Company’s competitors. The Company’s existing or prospective
competitors may develop processes or products that are more effective than the Company’s or be more effective at implementing
their technologies to develop commercial products faster. The Company’s competitors may succeed in obtaining patent protection
and/or receiving regulatory approval for commercializing products before the Company does. Developments by the Company’s
competitors may render the Company’s product candidates obsolete or non-competitive.
The
Company also experiences competition from universities and other research institutions, and the Company is likely to compete with
others in acquiring technology from those sources. There can be no assurance that other organizations will not develop technologies
with significant advantages over those that the Company is seeking to develop. Any such development could harm the Company’s
business.
The
Company competes with universities and other research institutions engaged in research in these areas. Many of the Company’s
competitors have greater technical and financial resources than the Company does.
The
Company’s ability to compete successfully is based on numerous factors, including:
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the
cost-effectiveness of any product that the Company ultimately commercializes relative to competing products;
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the
ease of use and ready availability of any product that the Company brings to market; and
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the
relative speed with which the Company is able to bring any product resulting from its research to market in its target markets.
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If
the Company is unable to distinguish its products from competing products, or if competing products reach the market first, the
Company may be unable to compete successfully with current or future competitors.
Employees
As
of December 31, 2017, the Company had no full-time employees. During the year ended December 31, 2016, Dr. Kovach was a Professor
(part-time) in the Department of Preventive Medicine at the State University of New York at Stony Brook (“SUNY – Stony
Brook”) in Stony Brook, New York. Dr. Kovach devoted approximately 50% of his efforts to the Company, including research
planning and management functions. Dr. Kovach’s contributions to the Company were made outside of his academic responsibilities
at SUNY – Stony Brook. He directs, coordinates and manages the scientific and business development of the Company with the
advice of the Company’s Board of Directors, the Scientific Advisory Committee, and, from time to time, various consultants
with specific expertise.
Effective
February 23, 2017, Dr. Kovach retired from his part-time (50%) academic position at SUNY – Stony Brook, as a result of which
he is now devoting 100% of his time to the Company’s business activities from that date forward.
Government
Regulation
Studies
done under the CRADA were carried out in compliance with applicable Statutes, Executive Capital Orders, HHS regulations and all
FDA, CDC, and NIH policies as specified in Article 13, 13.1 and 13.2, of the PHS CRADA.
The
Company’s business is subject to the regulations of the FDA as it conducts clinical trials. Clinical trials are research
studies to answer specific questions about new therapies or new ways of using known treatments. Clinical trials determine whether
new drugs or treatments are both safe and effective and the FDA has determined that carefully conducted clinical trials are the
fastest and safest way to find treatments that work in people.
The
FDA also requires that an independent review body consider the benefits and risks of a clinical trial and grant approval for the
proposed study including selecting of initial doses, plans for escalation of dose, plans for modification of dose if toxicity
is encountered, plans for monitoring the wellbeing of individuals participating in the study, and for defining and measuring,
to the extent possible, any untoward effects related to drug administration. Serious adverse effects, such as life-threatening
toxicities and death, are immediately reportable to the review body and to the FDA. To minimize risk when studying a new drug,
the initial dose is well below that expected to cause any toxicity. No more than three patients are entered at a given dose. In
general, a dose is not escalated within an individual patient. Once safety is established by the absence of toxicity or low toxicity
in a group of three patients, a planned higher dose is then evaluated in a subsequent group of three individuals and so on until
dose-limiting toxicity is encountered. The dose level producing definite but acceptable toxicity is then selected as the dose
level to be evaluated in Phase 2 trials. Thus, the goal of Phase 1 studies is to determine the appropriate dose level for evaluation
of drug efficacy in patients with the same type of tumor at comparable stages of progression for which no beneficial treatment
is established.
In
addition to regulations imposed by the FDA, depending on the Company’s future activities, the Company may become subject
to regulation under various federal and state statutes and regulations, such as the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Research Conservation and Recovery Act, national restrictions on technology
transfer, and import, export and customs regulations. From time to time, other federal agencies and congressional committees have
indicated an interest in implementing further regulation of biotechnology applications. The Company is not able to predict whether
any such regulations will be adopted or whether, if adopted, such regulations will apply to the Company’s business, or whether
the Company or its collaborators would be able to comply with any applicable regulations.
In
addition, as the Company intends to market its products in international markets, the Company may be required to obtain separate
regulatory approvals from the European Union and many other foreign jurisdictions. Approval by the FDA does not ensure approval
by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory
authorities in other foreign countries or by the FDA. The Company may not be able to file for regulatory approvals and may not
receive necessary approvals to commercialize its products in any market.
ITEM
1A. RISK FACTORS
The
following risk factors, together with the other information presented in this Report, including the financial statements and the
notes thereto, should be considered by investors.
Risks
Related to Business
We
are engaged in early stage research and as such may not be successful in our efforts to develop a portfolio of commercially viable
products.
A
key element of our strategy is to discover, develop and commercialize a portfolio of new drugs. We are seeking to do so through
our internal research programs. A significant portion of the research that we are conducting involves new and unproven technologies.
Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources
whether or not any candidates or technologies are ultimately identified. Our research programs may initially show promise in identifying
potential product candidates, yet fail to yield product candidates for clinical development for the following reasons:
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the
research methodology used may not be successful in identifying potential product candidates; however, the Company has identified
two promising lead candidate compounds which have activity in animal models, one of which, LB-100, has completed a Phase 1
clinical trial; or
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product
candidates for drugs may on further study be shown to have harmful side effects or other characteristics that indicate they
are unlikely to be effective drugs.
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If
we are unable to discover suitable potential product candidates, develop additional delivery technologies through internal research
programs or in-license suitable products or delivery technologies on acceptable business terms, our business prospects will suffer.
Our
auditors have included a going concern modification in their opinion; we do not expect to obtain any significant revenues for
several years and there is no assurance that we will ever generate any revenues or be profitable.
The
Company’s 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
losses and negative operating cash flows since inception, and has financed its working capital requirements during this period
through the recurring sale of its equity securities and the exercise of outstanding common stock purchase warrants.
As
a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern
within one year of the date that the consolidated financial statements were issued. In addition, the Company’s independent
registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended
December 31, 2017, has also expressed substantial doubt about the Company’s ability to continue as a going concern.
Because
the Company is currently engaged in research at a relatively early stage, it will likely take a significant amount of time to
develop any product or intellectual property capable of generating sustainable revenues. Accordingly, the Company’s business
is unlikely to generate any sustainable operating revenues in the next several years and may never do so. In addition, to the
extent that the Company is able to generate revenues through licensing its technologies or through product sales, there can be
no assurance that the Company will be able to achieve positive earnings and operating cash flows.
The
amount and timing of future cash requirements in 2018 and thereafter will depend on the pace and design of the Company’s
clinical trial program. As 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 compounds, or to discontinue its operations entirely.
If
we were to materially breach any existing or future license or collaboration agreements, we could lose our ability to commercialize
the related technologies, and our business could be materially and adversely affected.
We
intend to enter into intellectual property licenses and agreements, all of which we expect would be integral to our business.
These licenses and agreements would impose various research, development, commercialization, sublicensing, royalty, indemnification,
insurance and other obligations on us. If we or our collaborators fail to perform under these agreements or otherwise breach obligations
imposed by them, we could lose intellectual property rights that are important to our business.
We
may not be successful in establishing additional strategic collaborations, which could adversely affect our ability to develop
and commercialize products.
In
the future, we may seek opportunities to establish new collaborations, joint ventures and strategic collaborations for the development
and commercialization of products we discover. We face significant competition in seeking appropriate collaborators and the negotiation
process is time-consuming and complex. We may not be successful in our efforts to establish additional strategic collaborations
or other alternative arrangements. Even if we are successful in our efforts to establish a collaboration or agreement, the terms
that we establish may not be favorable to us. Finally, such strategic alliances or other arrangements may not result in successful
products and associated revenue.
The
life sciences industry is highly competitive and subject to rapid technological change.
The
life sciences industry is highly competitive and subject to rapid and profound technological change. Our present and potential
competitors include major pharmaceutical companies, as well as specialized biotechnology and life sciences firms in the United
States and in other countries. Most of these companies have considerably greater financial, technical and marketing resources
than we do. Additional mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources
being concentrated in our competitors. Our existing or prospective competitors may develop processes or products that are more
effective than ours or be more effective at implementing their technologies to develop commercial products faster. Our competitors
may succeed in obtaining patent protection and/or receiving regulatory approval for commercializing products before us. Developments
by our competitors may render our product candidates obsolete or non-competitive.
We
also experience competition from universities and other research institutions, and we are likely to compete with others in acquiring
technology from those sources. There can be no assurance that others will not develop technologies with significant advantages
over those that we are seeking to develop. Any such development could harm our business.
We
may be unable to compete successfully with our competitors.
We
compete with universities and other research institutions engaged in research in these areas. Many of our competitors have greater
technical and financial resources than we do.
Our
ability to compete successfully is based on numerous factors, including:
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the
cost-effectiveness of any product we ultimately commercialize relative to competing products;
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the
ease of use and ready availability of any product we bring to market; and
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the
relative speed with which we are able to bring any product resulting from our research to market in our target markets.
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If
we are unable to distinguish our products from competing products, or if competing products reach the market first, we may be
unable to compete successfully with current or future competitors. This could affect our ability to achieve revenues and profitability.
We
depend on certain key scientific personnel for our success who do not work full time for us. The loss of any such personnel could
adversely affect our business, financial condition and results of operations.
Our
success depends on the continued availability and contributions of our founder and Chief Executive Officer, Dr. John S. Kovach.
Dr. Kovach is 81 years old. The loss of services of Dr. Kovach could delay or reduce our product development and commercialization
efforts, and would require that we hire a qualified replacement to fill the position of the Chief Executive Officer. Furthermore,
recruiting and retaining qualified scientific personnel to perform future research and development work will be critical to our
success. The loss of members of our scientific personnel, or our inability to attract or retain other qualified personnel or advisors,
could significantly weaken our management, harm our ability to compete effectively and harm our business.
During
September 2015, we entered into a Collaboration Agreement with BioPharmaWorks, pursuant to which we engaged BioPharmaWorks to
perform certain services for us. Those services include, among other things: (a) assisting us to (i) commercialize our products
and strengthen our patent portfolio, (ii) identify large pharmaceutical companies with potential interest in our product pipeline,
and (iii) prepare and deliver presentations concerning our products; (b) at the request of the Board of Directors, serving as
backup management for up to three months should our 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. BioPharmaWorks was founded in 2015 by former Pfizer scientists
with extensive multi-disciplinary research and development and drug development experience. 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. We believe that this Collaboration Agreement mitigates, to a certain
extent, our reliance on the services of Dr. Kovach, and would allow us the time to replace Dr. Kovach in the event that such a
need arose.
We
expect to rely heavily on third parties for the conduct of clinical trials of our product candidates. If these clinical trials
are not successful, or if we or our collaborators are not able to obtain the necessary regulatory approvals, we will not be able
to commercialize our product candidates.
In
order to obtain regulatory approval for the commercial sale of our product candidates, we and our collaborators will be required
to complete extensive preclinical studies as well as clinical trials in humans to demonstrate to the FDA and foreign regulatory
authorities that our product candidates are safe and effective.
Dr.
Kovach is experienced in the design and conduct of early clinical cancer trials, having been the lead investigator for a National
Cancer Institute Phase 1 clinical trial contract for ten years at the Mayo Clinic, Rochester, Minnesota. However, the Company
has no experience in conducting clinical trials and expects to rely heavily on collaborative partners and contract research organizations
for their performance and management of clinical trials of our product candidates.
Our
products under development may not be effective in treating any of our targeted disorders or may prove to have undesirable or
unintended side effects, toxicities or other characteristics that may prevent or limit their commercial use. Institutional review
boards or regulators, including the FDA, may hold, suspend or terminate our clinical research or the clinical trials of our product
candidates for various reasons, including non-compliance with regulatory requirements or if, in their opinion, the participating
subjects are being exposed to unacceptable health risks. Additionally, the failure of third parties conducting or overseeing the
operation of the clinical trials to perform their contractual or regulatory obligations in a timely fashion could delay the clinical
trials. Failure of clinical trials can occur at any stage of testing. Any of these events would adversely affect our ability to
market a product candidate.
The
development process necessary to obtain regulatory approval is lengthy, complex and costly. If we and our collaborative partners
do not obtain necessary regulatory approvals at each stage of development, then our business would not be successful and the market
price of our common stock could decline substantially.
To
the extent that we, or our collaborative partners, are able to successfully advance a product candidate through the clinic, we,
or such partner, will be required to obtain regulatory approval prior to marketing and selling such product. The process of obtaining
FDA and other required regulatory approvals is costly and lengthy. The time required for FDA and other approvals is uncertain
and can typically take a number of years, depending on the complexity and novelty of the product.
Any
regulatory approval to market a product may be subject to limitations on the indicated uses for which we, or our collaborative
partners, may market the product. These limitations may restrict the size of the market for the product and affect reimbursement
by third-party payors. In addition, regulatory agencies may not grant approvals on a timely basis or may revoke or significantly
modify previously granted approvals.
We,
or our collaborative partners, also are subject to numerous foreign regulatory requirements governing the manufacturing and marketing
of our potential future products outside of the United States. The approval procedure varies among countries, additional testing
may be required in some jurisdictions, and the time required to obtain foreign approvals often differs from that required to obtain
FDA approvals. Moreover, approval by the FDA does not ensure approval by regulatory authorities in other countries, and vice versa.
As
a result of these factors, we, or our collaborative partners, may not successfully complete clinical trials in the time periods
estimated, if at all. Moreover, if we, or our collaborative partners, incur unanticipated costs and/or delays in development programs
or fail to successfully develop and commercialize products based upon our technologies, we may not become profitable and our stock
price could decline substantially.
Even
if our products are approved by regulatory authorities, if we fail to comply with ongoing regulatory requirements, or if we experience
unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any
product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional
activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies.
Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which
the product may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor the safety or
efficacy of the product. Later discovery of previously unknown problems with our products, including unanticipated adverse events
or adverse events of unanticipated severity or frequency, manufacturer or manufacturing processes, or failure to comply with regulatory
requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market,
voluntary or mandatory recall, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil
or criminal penalties.
Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
We
intend to market our products in international markets. In order to market our products in the European Union and many other foreign
jurisdictions, we must obtain separate regulatory approvals. The approval procedure varies among countries and can involve additional
testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory
approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals
on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval
by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA.
We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any
market.
We
are subject to uncertainty relating to health care reform measures and reimbursement policies which, if not favorable to our product
candidates, could hinder or prevent commercial success of our product candidates.
The
continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to
contain or reduce costs of health care may adversely affect:
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our
ability to generate revenues and achieve profitability;
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the
future revenues and profitability of our potential customers, suppliers and collaborators; and
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the
availability of capital.
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In
certain foreign markets, the pricing of prescription pharmaceuticals is subject to government control. In the United States, given
recent federal and state government initiatives directed at lowering the total cost of health care, the United States Congress
and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the
reform of the Medicare and Medicaid systems. While we cannot predict the effects of the implementation of any new legislation
or whether any current legislative or regulatory proposals affecting our business will be adopted, the implementation of new legislation
or the announcement or adoption of current proposals could have a material and adverse effect on our business, financial condition
and results of operations.
Our
ability to commercialize our product candidates successfully will depend in part on the extent to which governmental authorities,
private health insurers and other organizations establish appropriate reimbursement levels for the cost of our products and related
treatments. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend
toward managed health care in the United States, which could significantly influence the purchase of health care services and
products, as well as legislative efforts to implement health care reforms through the Patient Protection and Affordable Care Act
(the “ACA”), which became law in 2010, and other measures, may result in lower prices for our product candidates or
exclusion of our product candidates from reimbursement programs. The cost containment measures that health care payors and providers
are instituting and the effect of the ACA and other health care reform could materially and adversely affect our results of operations.
If
physicians and patients do not accept the products that we may develop, our ability to generate product revenue in the future
will be adversely affected.
The
product candidates that we may develop may not gain market acceptance among physicians, healthcare payors, patients and the medical
community. This will adversely affect our ability to generate revenue. Market acceptance of and demand for any product that we
may develop will depend on many factors, including:
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our
ability to provide acceptable evidence of safety and efficacy;
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convenience
and ease of administration;
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prevalence
and severity of adverse side effects;
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availability
of alternative treatments;
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cost
effectiveness;
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effectiveness
of our marketing strategy and the pricing of any product that we may develop;
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publicity
concerning our products or competitive products; and
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our
ability to obtain third-party coverage or reimbursement.
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We
face the risk of product liability claims and may not be able to obtain insurance.
Our
business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing, and marketing of drugs.
Although we will obtain product liability and clinical trial liability insurance when appropriate, this insurance is subject to
deductibles and coverage limitations. We may not be able to obtain or maintain adequate protection against potential liabilities.
In addition, if any of our product candidates are approved for marketing, we may seek additional insurance coverage at that time.
If we are unable to obtain insurance at acceptable cost or on acceptable terms with adequate coverage or otherwise protect against
potential product liability claims, we will be exposed to significant liabilities, which may harm our business. These liabilities
could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly,
could divert management attention, and might result in adverse publicity or reduced acceptance of our products in the market.
We
cannot be certain we will be able to obtain patent protection to protect our product candidates and technology.
We
cannot be certain that all patents applied for will be issued. If a third party has also filed a patent application relating to
an invention claimed by us or our licensors, we may be required to participate in an interference proceeding declared by the United
States Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and cost
for us, even if the eventual outcome is favorable to us. The degree of future protection for our proprietary rights is uncertain.
For example:
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we
or our licensors might not have been the first to make the inventions covered by our pending or future patent applications;
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we
or our licensors might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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it
is possible that our patent applications will not result in an issued patent or patents, or that the scope of protection granted
by any patents arising from our patent applications will be significantly narrower than expected;
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any
patents under which we hold ultimate rights may not provide us with a basis for commercially-viable products, may not provide
us with any competitive advantages or may be challenged by third parties as not infringed, invalid, or unenforceable under
United States or foreign laws;
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any
patent issued to us in the future or under which we hold rights may not be valid or enforceable; or
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we
may develop additional proprietary technologies that are not patentable and which may not be adequately protected through
trade secrets; for example if a competitor independently develops duplicative, similar, or alternative technologies.
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If
we are not able to protect and control our unpatented trade secrets, know-how and other technological innovation, we may suffer
competitive harm.
We
also rely on proprietary trade secrets and unpatented know-how to protect our research and development activities, particularly
when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect. We
will attempt to protect our trade secrets and unpatented know-how by requiring our employees, consultants and advisors to execute
a confidentiality and non-use agreement. We cannot guarantee that these agreements will provide meaningful protection, that these
agreements will not be breached, that we will have an adequate remedy for any such breach, or that our trade secrets will not
otherwise become known or independently developed by a third party. Our trade secrets, and those of our present or future collaborators
that we utilize by agreement, may become known or may be independently discovered by others, which could adversely affect the
competitive position of our product candidates.
We
may incur substantial costs enforcing our patents, defending against third-party patents, invalidating third-party patents or
licensing third-party intellectual property, as a result of litigation or other proceedings relating to patent and other intellectual
property rights.
We
may not have rights under some patents or patent applications that may cover technologies that we use in our research, drug targets
that we select, or product candidates that we seek to develop and commercialize. Third parties may own or control these patents
and patent applications in the United States and elsewhere. These third parties could bring claims against us or our collaborators
that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further,
if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research,
development, manufacturing or sales of the product or product candidate that is the subject of the suit. We or our collaborators
therefore may choose to seek, or be required to seek, a license from the third-party and would most likely be required to pay
license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators
were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual
property. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations,
as a result of patent infringement claims, which could harm our business.
There
has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical
and biotechnology industries. Although we are not currently a party to any patent litigation or any other adversarial proceeding,
including any interference proceeding declared before the United States Patent and Trademark Office, regarding intellectual property
rights with respect to our products and technology, it is possible that we may become so in the future. We are not currently aware
of any actual or potential third party infringement claim involving our products. The cost to us of any patent litigation or other
proceeding, even if resolved in our favor, could be substantial. The outcome of patent litigation is subject to uncertainties
that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of the adverse
party, especially in biotechnology related patent cases that may turn on the testimony of experts as to technical facts upon which
experts may reasonably disagree. Some of our competitors may be able to sustain the costs of such litigation or proceedings more
effectively than we can because of their substantially greater financial resources. If a patent or other proceeding is resolved
against us, we may be enjoined from researching, developing, manufacturing or commercializing our products without a license from
the other party and we may be held liable for significant damages. We may not be able to obtain any required license on commercially
acceptable terms or at all.
Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings could harm our ability to compete in
the marketplace. Patent litigation and other proceedings may also absorb significant management time.
If
we are unable to protect our intellectual property rights, our competitors may develop and market products with similar features
that may reduce demand for our potential products.
The
following factors are important to our success:
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receiving
patent protection for our product candidates;
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preventing
others from infringing our intellectual property rights; and
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maintaining
our patent rights and trade secrets.
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We
will be able to protect our intellectual property rights in patents and trade secrets from unauthorized use by third parties only
to the extent that such intellectual property rights are covered by valid and enforceable patents or are effectively maintained
as trade secrets.
Because
issues of patentability involve complex legal and factual questions, the issuance, scope and enforceability of patents cannot
be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. United States patents and patent
applications may also be subject to interference proceedings, and United States patents may be subject to reexamination proceedings
in the United States Patent and Trademark Office and foreign patents may be subject to opposition or comparable proceedings in
corresponding foreign patent offices, which proceedings could result in either loss of the patent or denial of the patent application
or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference,
reexamination and opposition proceedings may be costly. Thus, any patents that we own or license from others may not provide any
protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third-party receiving
the patent rights sought by us, which in turn could affect our ability to market a potential product to which that patent filing
was directed. Our pending patent applications, those that we may file in the future, or those that we may license from third parties
may not result in patents being issued. If issued, they may not provide us with proprietary protection or competitive advantages
against competitors with similar technology. Furthermore, others may independently develop similar technologies or duplicate any
technology that we have developed. Many countries, including certain countries in Europe, have compulsory licensing laws under
which a patent owner may be compelled to grant licenses to third parties. For example, compulsory licenses may be required in
cases where the patent owner has failed to “work” the invention in that country, or the third-party has patented improvements.
In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these
countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Moreover, the
legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent
and other intellectual property protection, which makes it difficult to stop infringement.
In
addition, our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers
who do not advertise the compounds that are used in their products. Any litigation to enforce or defend our patent rights, even
if we prevail, could be costly and time-consuming and would divert the attention of management and key personnel from business
operations.
We
will also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position.
We will seek to protect this information by entering into confidentiality agreements with parties that have access to it, such
as strategic partners, collaborators, employees and consultants. Any of these parties may breach these agreements and disclose
our confidential information or our competitors might learn of the information in some other way. If any trade secret, know-how
or other technology not protected by a patent were disclosed to, or independently developed by, a competitor, our business, financial
condition and results of operations could be materially adversely affected.
If
our third-party manufacturers’ facilities do not follow current good manufacturing practices, our product development and
commercialization efforts may be harmed.
There
are a limited number of manufacturers that operate under the FDA’s and European Union’s good manufacturing practices
regulations and are capable of manufacturing products. Third-party manufacturers may encounter difficulties in achieving quality
control and quality assurance and may experience shortages of qualified personnel. A failure of third-party manufacturers to follow
current good manufacturing practices or other regulatory requirements and to document their adherence to such practices may lead
to significant delays in the availability of products for commercial use or clinical study, the termination of, or hold on, a
clinical study, or may delay or prevent filing or approval of marketing applications for our products. In addition, we could be
subject to sanctions being imposed on us, including fines, injunctions and civil penalties. Changing manufacturers may require
additional clinical trials and the revalidation of the manufacturing process and procedures in accordance with FDA mandated current
good manufacturing practices and would require FDA approval. This revalidation may be costly and time consuming. If we are unable
to arrange for third-party manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to
complete development or marketing of our products.
If
we fail to obtain an adequate level of reimbursement for our products by third-party payors, there may be no commercially viable
markets for our products or the markets may be much smaller than expected.
The
availability and levels of reimbursement by governmental and other third-party payors affect the market for our products. The
efficacy, safety and cost-effectiveness of our products, as well as the efficacy, safety and cost-effectiveness of any competing
products, will determine the availability and level of reimbursement. These third-party payors continually attempt to contain
or reduce the costs of healthcare by challenging the prices charged for healthcare products and services. In certain countries,
particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt
of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required
to conduct clinical trials that compare the cost-effectiveness of our products to other available therapies. If reimbursement
for our products is unavailable, limited in scope or amount, or if pricing is set at unsatisfactory levels, our potential revenues
would be reduced and our results of operations would be negatively impacted.
Another
development that may affect the pricing of drugs is regulatory action regarding drug re-importation into the United States. The
Medicare Prescription Drug, Improvement and Modernization Act of 2003, which became law in December 2003, requires the Secretary
of the United States Department of Health and Human Services to promulgate regulations allowing drug re-importation from Canada
into the United States under certain circumstances. These provisions will become effective only if the Secretary certifies that
such imports will pose no additional risk to the public’s health and safety and result in significant cost savings to consumers.
To date, the Secretary has made no such finding, but he could do so in the future. Proponents of drug re-importation may also
attempt to pass legislation that would remove the requirement for the Secretary’s certification or allow re-importation
under circumstances beyond those anticipated under current law. If legislation is enacted, or regulations issued, allowing the
re-importation of drugs, it could decrease the reimbursement we would receive for any products that we may commercialize, negatively
affecting our anticipated revenues and prospects for profitability.
Risks
Related to Capital Structure
There
is no assurance that an established public trading marketfor our common stock will develop, and if it does develop, that it is
sustainable, which would adversely affect the ability of our investors to sell their shares of common stock in the public market.
Although
our common stock is registered under the Exchange Act and our stock is traded on the OTCQB operated by the OTC Markets, an active
trading market for the securities does not yet exist and may not exist or be sustained in the future. The OTCQB is an over-the-counter
market that provides significantly less liquidity than the NASDAQ Stock Market. Quotes for stocks included on the OTCQB are not
listed in the financial sections of newspapers as are those for the NASDAQ Stock Market. Therefore, prices for securities traded
solely on the OTCQB may be difficult to obtain and holders of common stock may be unable to resell their securities at or near
their original offering price or at any price. Market prices for our common stock will be influenced by a number of factors, including:
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the
issuance of new equity securities pursuant to a future offering or acquisition;
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●
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changes
in interest rates;
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●
|
competitive
developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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variations
in quarterly operating results;
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●
|
changes
in financial estimates by securities analysts;
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●
|
the
depth and liquidity of the market for our common stock;
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●
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investor
perceptions of our company and the medical device industry generally; and
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general
economic and other national conditions.
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Shares
eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount
of outstanding stock in the public marketplace could reduce the price of our common stock.
Dr.
John Kovach, our founder and Chief Executive Officer, is currently eligible to sell his shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”),
subject to certain limitations. Rule 144 also permits the sale of securities, without any limitations, by a non-affiliate that
has satisfied a six-month holding period. Any substantial sale of common stock pursuant to Rule 144 may have an adverse effect
on the market price of our common stock by creating an excessive supply.
Our
common stock is considered a “penny stock” and may be difficult to sell.
Our
common stock is considered to be a “penny stock” since it meets one or more of the definitions in Rules 15g-2 through
15g-6 promulgated under Section 15(g) of the Exchange Act. These include but are not limited to the following: (i) the stock trades
at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is NOT quoted
on the NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) it is issued by a company with net tangible
assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million
for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers
cannot recommend the stock but must trade in it on an unsolicited basis.
Additionally,
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by the Securities and Exchange Commission require broker-dealers
dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.
Potential
investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed
to be “penny stock”. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to:
(i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;
(ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that
the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination
in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects
the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements
may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
Our
principal stockholder has significant influence over our company.
Dr.
John Kovach, our principal stockholder and our Chief Executive Officer, beneficially owns 15.7% of our outstanding common stock
(the Company’s only voting security currently issued and outstanding). As a result, Dr. Kovach possesses significant influence,
giving him substantial influence over the election of the members of the Board of Directors and the approval of significant corporate
transactions. Such stock ownership and control may also have the effect of delaying or preventing a future change in control transaction,
impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
The
Company conducts the pre-clinical research required for bringing a compound to clinical trial at contract research organizations.
The Company maintains a single office in a designated area of Dr. Kovach’s residence and receives mail at the post office
depot, 248 Route 25A, No. 2, East Setauket, New York 11733. Management does not believe that any additional facilities are needed
at this time.
ITEM
3. LEGAL PROCEEDINGS
The
Company is not a party to any threatened or pending legal proceedings.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s common stock trades on the OTCQB under the symbol “LIXT”. There is very limited trading of the Company’s
common stock on the OTCQB. The stock market in general has experienced extreme stock price fluctuations in the past few years.
In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have
experienced dramatic volatility in the market prices of their common stock. The Company believes that a number of factors, both
within and outside its control, could cause the price of the Company’s common stock to fluctuate, perhaps substantially.
Factors such as the following could have a significant adverse impact on the market price of the Company’s common stock:
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The
Company’s ability to obtain additional financing and, if available, the terms and conditions of the financing;
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The
Company’s financial position and results of operations;
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Concern
as to, or other evidence of, the safety or efficacy of any future proposed products and services or products and services
of the Company’s competitors;
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Announcements
of technological innovations or new products or services by the Company or its competitors;
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United
States and foreign governmental regulatory actions;
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The
development of litigation against the Company;
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●
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Period-to-period
fluctuations in the Company’s operating results;
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●
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Changes
in estimates of the Company’s performance by securities analysts;
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●
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Possible
regulatory requirements with respect to the Company’s business;
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●
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The
issuance of new equity securities pursuant to a future offering;
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|
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●
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Changes
in interest rates;
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|
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●
|
Competitive
developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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●
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Variations
in quarterly operating results;
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●
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The
depth and liquidity of the market for the Company’s common stock;
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●
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Investor
perceptions of the Company; and
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●
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General
economic and other national conditions.
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The
following table sets forth the range of reported closing prices of the Company’s common stock during the periods presented.
Such quotations reflect prices between dealers in securities and do not include any retail mark-up, markdown or commissions, and
may not necessarily represent actual transactions.
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High
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Low
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|
Year Ended
December 31, 2016
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First
Quarter
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|
$
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0.45
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|
$
|
0.12
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|
Second
Quarter
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|
$
|
0.23
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|
|
$
|
0.11
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|
Third
Quarter
|
|
$
|
0.40
|
|
|
$
|
0.20
|
|
Fourth
Quarter
|
|
$
|
0.20
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|
|
$
|
0.12
|
|
|
|
High
|
|
|
Low
|
|
Year Ended
December 31, 2017
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|
|
|
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|
First
Quarter
|
|
$
|
0.45
|
|
|
$
|
0.12
|
|
Second
Quarter
|
|
$
|
0.23
|
|
|
$
|
0.11
|
|
Third
Quarter
|
|
$
|
0.40
|
|
|
$
|
0.20
|
|
Fourth
Quarter
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
Holders
As
of March 1, 2018, the Company had 69 stockholders of record holding 58,025,814 shares of the Company’s common stock outstanding,
including 6,120,848 shares of common stock held by an indeterminate number of beneficial owners of securities whose shares are
held in the names of various brokerage firms and clearing agencies.
Dividends
The
Company’s dividend policy will be determined by its Board of Directors and will depend upon a number of factors, including
the Company’s financial condition and performance, its cash needs and expansion plans, income tax consequences, and the
restrictions that applicable laws and any credit or other contractual arrangements may then impose. The Company has not paid any
cash dividends on its common stock to date and at the current time the Company does not anticipate paying a cash dividend on its
common stock in the foreseeable future.
Securities
Authorized For Issuance Under Equity Incentive Plans
Set
forth in the table below is information regarding awards made through compensation plans or arrangements through December 31,
2017, the most recently completed fiscal year.
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|
|
|
|
|
Number
of
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|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
remaining
|
|
|
|
Number
of
|
|
|
|
|
|
available
for
|
|
|
|
securities
to be
|
|
|
Weighted
|
|
|
future
issuance
|
|
|
|
issued
upon
|
|
|
average
|
|
|
compensation
|
|
|
|
exercise
of outstanding
|
|
|
price
of outstanding
|
|
|
plans
(excluding
|
|
|
|
options,
|
|
|
options,
|
|
|
securities
|
|
|
|
warrants
|
|
|
warrants
|
|
|
reflected
in
|
|
Plan
Category
|
|
and
rights
|
|
|
and
rights
|
|
|
column
2)
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
Equity
Compensation Plans Approved by Security Holders
|
|
|
N/A
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
|
|
7,470,000
|
|
|
$
|
0.42
|
|
|
|
N/A
(1)
|
|
(1)
|
The
Company’s 2007 Stock Option Plan terminated on June 19, 2017.
|
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The
Company is a drug discovery company that uses biomarker technology to identify enzyme targets associated with serious common diseases
and then designs novel compounds to attack those targets. The Company’s product pipeline encompasses two major categories
of compounds at various stages of pre-clinical and clinical development that the Company believes have broad therapeutic potential
not only for cancer but also for other debilitating and life-threatening 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 positive cash flows from operations,
and is dependent on periodic infusions of equity capital to fund its operating requirements.
The
Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.
Going
Concern
The
Company’s 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 common stock options and
purchase warrants.
As
a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern
within one year of the date that the consolidated financial statements were issued. In addition, the Company’s independent
registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended
December 31, 2017, has also 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 equity capital to fund
its research and development activities and to ultimately achieve sustainable operating revenues and profits. The Company’s
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Because
the Company is currently engaged in research at a relatively early stage, it will likely take a significant amount of time to
develop any product or intellectual property capable of generating sustainable revenues. Accordingly, the Company’s business
is unlikely to generate any sustainable operating revenues in the next several years and may never do so. In addition, to the
extent that the Company is able to generate revenues through licensing its technologies or through product sales, there can be
no assurance that the Company will be able to achieve positive earnings and operating cash flows.
At
December 31, 2017, the Company had cash of $1,305,748. The Company believes that it has sufficient working capital resources to
fund the Company’s ongoing business activities through approximately June 2018. The next steps in the development of the
Company’s lead anti-cancer compound LB-100 are to evaluate its anti-cancer effects in Phase 1b/2 clinical trials, which
will require additional financing. The Company’s longer-term objective is to secure one or more strategic partnerships with
pharmaceutical companies with major programs in cancer.
The
amount and timing of future cash requirements in 2018 and thereafter will depend on the pace and design of the Company’s
clinical trial program. As 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 compounds, 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, Revenue
from Contracts with Customers (“ASU 2014-09”). 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. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12,
and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for reporting
periods beginning after December 15, 2017. Entities will be able to transition to the standard either retrospectively or as a
cumulative-effect adjustment as of the date of adoption. The Company will adopt the provisions of ASU 2014-09 in the quarter beginning
January 1, 2018. The adoption of ASU 2014-09 is not expected to have any impact on the Company’s financial statement presentation
or disclosures.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02
requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value
of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key
information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost,
calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires
classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide
the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required
for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company
will adopt the provisions of ASU 2016-02 in the quarter beginning January 1, 2019. The adoption of ASU 2016-02 is not expected
to have any impact on the Company’s financial statement presentation or disclosures.
In
July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down
Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The adoption of ASU 2017-11 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, the CRO responsible for the clinical development
of the Company’s lead anti-cancer 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, was carried out
by nationally recognized comprehensive cancer centers. The patient accrual goal was reached in April 2016 and the clinical trial
was closed to further patient enrollment at that time. All patients completed treatment with LB-100 and were off study by the
end of May 2016. The Company has continued to incur costs to complete the analysis of the clinical data, reconcile and pay the
remaining costs owed to the participating clinical sites, and to prepare and submit the required Clinical Study Report to the
United States Food and Drug Administration (“FDA”) on the completed Phase 1 clinical trial of LB-100, which process
was substantially complete at December 31, 2017.
Total
costs charged to operations from 2013 through December 31, 2017 for services paid to or through Theradex for the Phase 1 clinical
trial of LB-100 aggregated $2,233,248, with approximately 60% of such costs allocated 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. During
the years ended December 31, 2017 and 2016, the Company incurred $105,698 and $427,429, respectively, of such clinical trial costs,
representing approximately 23% and 49% of research and development costs for such periods. Costs pursuant to this agreement are
included in research and development costs in the Company’s consolidated statements of operations.
Critical
Accounting Policies and Estimates
The
Company prepared its consolidated financial statements in accordance with United States generally accepted accounting principles
(“GAAP”).
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. Management bases its estimates on historical experience and on various assumptions that are believed to
be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information,
changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate,
those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those
related to assumptions used in accruals for potential liabilities, valuing equity instruments issued for services, and the realization
of deferred tax assets.
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, and other expenses relating
to the acquisition, design, development and testing of the Company’s compounds 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.
Obligations
incurred with respect to mandatory scheduled payments under research agreements without milestone provisions are recognized ratably
over the appropriate period, as specified in the agreement, and are recorded as liabilities in the Company’s consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s consolidated statement of
operations.
The
Company retained 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
managing and administering the Company’s Phase 1 clinical trial of LB-100. The costs of the Phase 1 clinical trial of LB-100
that were paid through Theradex were recorded and expensed based upon the documentation provided by the CRO.
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
and Licensing 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 related patent applications, all patent-related legal and filing fees and licensing-related
legal fees are expensed as incurred. Patent and licensing costs are included in general and administrative costs in the Company’s
consolidated statements of operations.
Stock-Based
Compensation
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Committee members 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 Scientific Advisory Committee members and 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.
Stock
grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the
vesting period.
Stock
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 stock 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 common stock issued as stock-based compensation is determined by reference to the closing price of the Company’s
common stock on the date of issuance. The fair value of stock options granted as 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 stock option 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. Estimated volatility is based on the historical
volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s
common stock.
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 consolidated statement of operations. The Company issues new shares of common stock
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. 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.
Plan
of Operation
Overview
of Plans
The
Company has two classes of drugs under development 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.
The
Company has completed a Phase 1 clinical of its lead anti-cancer compound, LB-100, that showed it is associated with
anti-tumor activity in humans at doses that are readily tolerable. Responses included objective regression (tumor shrinkage)
lasting for 11 months of a pancreatic cancer and cessation of growth (stabilization of disease) for 4 months or more of 9
other progressive solid tumors out of 20 patients who had measurable disease. As Phase 1 clinical trials are fundamentally
designed to determine safety of a new compound in humans, the Company is encouraged by these results. The next step is to
demonstrate in Phase 2 clinical trials the efficacy of LB-100 in one or more specific tumor types, against which the compound
has well documented activity in pre-clinical models.
Collaborations
with leading academic research centers in the United States, Europe and Asia have established the breadth of activity of LB-100
in preclinical models of several major cancers. There is considerable scientific interest in LB-100 because it exerts its activity
by a novel mechanism and is the first of its type to be evaluated so broadly in multiple animal models of cancer and now in human
beings. LB-100 is one a series of serine/threonine phosphatase (s/t ptase) inhibitors designed by the Company. The s/t ptases
are ubiquitous enzymes that regulate many cell signaling networks important to cell growth, division and death. The s/t ptases
have long been appreciated as potentially important targets for anti-cancer drugs. However, because of the multi- functionality
of these enzymes, it had been widely held that pharmacologic inhibitors of s/t ptases would be too toxic to allow their development
as anti-cancer treatments, but the Company has shown that this is not the case. LB-100 was well tolerated at doses associated
with objective regression (significant tumor shrinkage) and/or the arresting of tumor progression in patients with progressive
cancers.
Pre-clinical
studies showed that LB-100 itself inhibits a spectrum of human cancers and that combined with standard cytotoxic drugs and/or
radiation, LB-100 potentiates their effectiveness against hematologic and solid tumor cancers without enhancing toxicity. Recently,
LB-100, given at very low doses in animal models of cancer, markedly increased the effectiveness of a PD-1 blocker, one of the
widely used new immunotherapy drugs. This finding raises the possibility that LB-100 may further expand the value of the expanding
field of cancer immunotherapy.
Although
the Company’s focus has been on developing drugs for cancer treatment, several academic centers studying LB-100 under material
transfer agreements with the Company have generated pre-clinical data indicating that LB-100 may be therapeutically effective
in important non-neoplastic diseases. This development stems from the fact that dysregulation of the PP2A function is not only
a feature of many cancers but is also a component of the basic inflammatory response elicited by diverse types of injury in animal
models. These include lipid buildup in the blood vessels (type 2 diabetes), acute oxygen deprivation (myocardial infarction and
stroke (MI/S)), and aversive physical and/or psychological trauma (depression and post traumatic shock-like syndromes.). The Company’s
patent portfolio covers composition of matter for structurally distinct but comparably effective PP2A inhibitors and their use
in the therapy of a broad spectrum of human diseases. However, the focus of the Company at this time is on demonstrating the value
of LB-100 against specific cancers in humans.
At
this time, the Company is not aware of any compound in clinical study that is a potent inhibitor of PP2A. Revlimid (Celgene) has
recently been recognized to have weak PP2A activity, which presumably underlies its effects in MDS. Over 30 articles have been
published reporting the anti-cancer activity of LB-100 against many different types of human cancers in model systems. As a result,
the Company believes that some pharmaceutical companies are evaluating LB-100 and/or designing their own inhibitors of PP2A. The
Company’s patent portfolio includes composition of matter and multiple uses of LB-100 and analogs and PP2A inhibition in
general for multiple cancers and non-neoplastic diseases.
The
LB-200 series consists of 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). LB-200 has not yet advanced to the clinical stage, and
will require additional capital to fund further development.
Operating
Plans
LB-100
Anti-Cancer Targets
LB-100
used alone has modest inhibitory activity against many cancers in model systems, but certain human cancers possessing unique genetic
changes, in addition to those reducing DNA damage repair, are particularly susceptible to inhibition of PP2A by LB-100.
Among
these cancers is myelodysplastic syndrome (MDS), an increasingly common neoplastic disease, especially in persons aged 65 and
older, characterized by failure of the bone marrow. In particular, a variant of MDS termed del(5q)MDS is missing 50% of its PP2A
activity, rendering this tumor potentially more sensitive to further pharmacologic inhibition of PP2A. There is only one drug,
Revlimid (Celgene), currently approved for the treatment of del(5q)MDS and none for MDS in general.
Other
cancers, in particular small cell lung cancer (SCLC) and hepatocellular cancer occurring in the liver (HCC), have acquired genetic
abnormalities, which render them sensitive to inhibition of PP2A by a process termed synthetic lethality Pre-clinical studies
have shown that both SCLC and HCC are sensitive to PP2A inhibition by LB-100 alone and especially so when LB-100 is combined with
drugs used as standard treatment for these diseases. SCLC is the lung cancer variant associated with cigarette smoke and comprises
about 15% of all lung cancers. HCC is the 5th most common cancer in the world and the 3rd leading cause of death from cancer,
with the majority of cases being in Asia. There is no satisfactory treatment available for either of these devastating tumors.
Scientists
at the National Institute of Neurological Disorders and Stroke (NINDS) have conducted pre-clinical studies of LB-100 that showed
anti-cancer activity in models of a variety of human brain tumors, including glioblastomamultiforme (GBM), medulloblastoma and
malignant meningioma. Studies of LB-100 and analogs in models of human brain tumors of adults and children are continuing under
a Material-Cooperative Research and Development Agreement (M-CRADA) with the National Cancer Institute (NCI). The NCI has
an FDA-approved clinical pharmacokinetic (non-therapeutic) study of LB-100 (Phase 0 Trial, NCT03027388) in patients with recurrent
GBM to assess penetration of the compound into these highly malignant tumors. The rationale for this clinical study is that LB-100
potentiates the anti-tumor activity of both x-ray and the drug temozolomide, which are the mainstays of treatment for GBM.
Near-Term
Objectives
The
Company’s immediate goals are to demonstrate significant therapeutic benefit of LB-100 against one or more specific human
cancers in Phase 2 clinical trials. The Company has several attractive targets for new therapies incorporating LB-100. Resources
permitting, the Company’s current plans are to conduct the following clinical studies:
(1)
A Phase 1b/2 clinical trial of LB-100 as a single agent in the treatment of patients with del(5q) myelodysplastic syndrome (del5qMDS)
failing first line therapy.
(2)
A Phase 1b/2 randomized trial in previously untreated patients with small cell lung cancer (SCLC) comparing the standard regimen,
carboplatin/etoposide, with and without LB-100.
(3)
A Phase 1b/2 randomized trial in patients with HCC failing their initial treatment with the current standard drug sorafinib,
comparing a standard second line drug for this disease, doxorubicin, with and without LB-100, or, depending on the
results of ongoing trials of others, in which a PD-1 immune checkpoint blocker may prove minimally more active than
sorafinib, an alternative trial by the Company of a PD-1 inhibitor with and without LB-100.
The
Phase 1b/2 studies described above will require additional capital or partnering opportunities with other pharmaceutical companies
to undertake and complete. There is no assurance that the Company will be able to obtain one or more financing or partnering relationships,
or what the terms may be. The Company’s longer-term objective is to secure one or more strategic partnerships with pharmaceutical
companies with major programs in cancer.
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 breadth and depth 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
At
December 31, 2017, the Company had not yet commenced any revenue-generating operations, does not have any positive cash flows
from operations, and is dependent on its ability to raise equity capital to fund its operating requirements.
Certain
comparative amounts in 2016 have been reclassified to conform to the current year’s presentation. For the year ended December
31, 2016, patent-related legal costs of $431,127 were reclassified from research and development costs to general and administrative
costs. For the year ended December 31, 2017, patent-related legal costs of $846,169 were charged directly to general and administrative
costs.
The
Company’s consolidated statements of operations as discussed herein are presented below.
|
|
Years
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
General
and administrative costs
|
|
|
1,342,531
|
|
|
|
1,264,909
|
|
Research
and development costs
|
|
|
467,258
|
|
|
|
870,006
|
|
Total
costs and expenses
|
|
|
1,809,789
|
|
|
|
2,134,915
|
|
Loss
from operations
|
|
|
(1,809,789
|
)
|
|
|
(2,134,915
|
)
|
Interest
income
|
|
|
1.375
|
|
|
|
183
|
|
Net
loss
|
|
$
|
(1,808,414
|
)
|
|
$
|
(2,134,732
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic and diluted
|
|
|
55,817,458
|
|
|
|
47,875,814
|
|
Years
Ended December 31, 2017 and 2016
Revenues
.
The Company did not have any revenues for the years ended December 31, 2017 and 2016.
General
and Administrative
. For the year ended December 31, 2017, general and administrative costs were $1,342,531, which consisted
of patent and licensing legal fees and costs of $846,169, the fair value of stock options issued to directors and consultants
of $38,675, other consulting and professional fees of $273,260, insurance expense of $53,045, officer’s salary and related
costs of $67,489, stock transfer fees of $9,944, conference fees of $9,946, filing fees of $6,593, travel and entertainment costs
of $14,840, listing fees of $10,000, and other operating costs of $12,570.
For
the year ended December 31, 2016, general and administrative costs were $1,264,909, which consisted of patent and licensing legal
fees and costs of $621,734, the fair value of stock options issued to directors and consultants of $109,264, consulting and professional
fees of $349,903, insurance expense of $58,195, officer’s salary and related costs of $67,375, stock transfer fees of $12,250,
filing fees of $6,892, travel and entertainment costs of $14,247, listing fees of $7,500, and other operating costs of $17,549.
General
and administrative costs increased by $77,622 or 6.1% in 2017 as compared to 2016, primarily as a result of an increase of
$224,435 in patent and licensing legal fees and costs, offset by a decrease of $76,643 in other consulting and professional
fees and a decrease of $70,589 in the fair value of stock options issued to directors and consultants. The decrease in
consulting and professional fees was principally due to a decrease in corporate legal fees of $41,933, and a decrease of
$32,200 in consulting fees due primarily to the termination of the Company’s consulting arrangement with Dr. Kathleen
P. Mullinix, a former director, in November 2017.
The
decrease in the fair value of stock options issued to directors and consultants of $70,589 for the year ended December 31, 2017
was due primarily to a charge to operations of $52,604 for the fair value of an immediately and fully-vested stock option granted
to a continuing director during the year ended December 31, 2016, which did not occur during the year ended December 31, 2017.
Research
and Development
. For the year ended December 31, 2017, research and development costs were $467,258, which consisted of the
vested portion of the fair value of common stock options and warrants of $32,020 and contractor costs of $435,238, including $105,698
to Theradex in connection with the Phase 1 clinical trial of LB-100. Contractor costs during the year ended December 31, 2017
also included $329,540 incurred with other vendors, primarily in connection with the Company’s pre-clinical research focused
on the development of additional novel anti-cancer compounds to add to its clinical pipeline, including $75,000 to the National
Cancer Institute in connection with Amendment No. 1 to the M-CRADA.
As
the patient accrual goal of the Phase 1 clinical trial of LB-100 being conducted with Theradex was reached in April 2016, the
Phase 1 clinical trial of LB-100 was closed to further patient enrollment at that time. All patients completed treatment with
LB-100 and were off study by the end of May 2016. The Company has continued to incur costs with Theradex to complete the analysis
of the clinical data and to prepare and submit the required Clinical Study Report to the FDA on the completed Phase 1 clinical
trial of LB-100, which process was substantially complete at December 31, 2017. During the year ended December 31, 2017, additional
costs of $105,698 were incurred with Theradex in connection with the Phase 1 clinical trial of LB-100.
For
the year ended December 31, 2016, research and development costs were $870,006, which consisted of the vested portion of the fair
value of stock options of $177,895, and contractor costs of $692,111, including $427,429 to Theradex in connection with the Phase
1 clinical trial of LB-100.
Research
and development costs decreased by $402,748 or 46.3% in 2017 as compared to 2016, primarily as a result of a decrease of $256,873
in contractor costs, attributable primarily to Theradex, reflecting the wind down of the Phase 1 clinical trial of LB-100, and
a decrease in the vested portion of the fair value of common stock options and warrants of $145,875.
The
decrease in the fair value of stock options issued to directors and consultants of $145,875 for the year ended December 31,
2017 was due primarily to a charge to operations of $98,901 for the fair value of an immediately and fully-vested stock
option granted to a consultant for his on-going contributions to the Company during the year ended December 31, 2016, which
did not occur during the year ended December 31, 2017.
Interest
Income
. For the year ended December 31, 2017, the Company had interest income of $1,375, as compared to interest income of
$183 for the year ended December 31, 2016.
Net
Loss
. For the year ended December 31, 2017, the Company incurred a net loss of $1,808,414, as compared to a net loss of $2,134,732
for the year ended December 31, 2016.
Liquidity
and Capital Resources – December 31, 2017
The
Company’s 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 within one year
of the date that the consolidated financial statements were issued. In addition, the Company’s independent registered public
accounting firm, in their report on the Company’s consolidated financial statements for the year ended December 31, 2017,
has also expressed substantial doubt about the Company’s ability to continue as a going concern (see “Going Concern”
above).
At
December 31, 2017, the Company had working capital of $995,041, as compared to working capital of $214,760 at December 31, 2016
(including advances on research and development contract services of $183,490), an increase in working capital of $780,281 for
the year ended December 31, 2017. The increase in working capital during the year ended December 31, 2017 was the result of proceeds
from the sale of shares of the Company’s common stock aggregating $2,500,000 and the exercise of stock options to acquire
150,000 shares of the Company’s common stock for a total purchase price of $18,000, offset by amounts being utilized to
fund the Company’s research and development activities and its ongoing operating expenses, including maintaining and developing
its patent portfolio.
At
December 31, 2017, the Company had cash of $1,305,748. The Company believes that it has sufficient working capital resources to
fund the Company’s ongoing business activities through approximately June 30, 2018. The next steps in the development of
the Company’s lead anti-cancer compound LB-100 are to evaluate its anti-cancer effects in Phase 1b/2 clinical trials, which
will require additional financing. The Company’s longer-term objective is to secure one or more strategic partnerships with
pharmaceutical companies with major programs in cancer.
The
amount and timing of future cash requirements in 2018 and thereafter will depend on the pace and design of the Company’s
clinical trial program. As 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 compounds, or to discontinue its operations entirely.
Operating
Activities
. For the year ended December 31, 2017, operating activities utilized cash of $1,412,181, as compared to utilizing
cash of $1,677,447 for the year ended December 31, 2016, to fund the Company’s Phase 1 clinical trial of LB-100, to support
its other ongoing research and development activities, and to fund its other ongoing operating expenses, including maintaining
and developing its patent portfolio.
Investing
Activities
. For the year ended December 31, 2017, the Company had no investing activities. For the year ended December 31,
2016, investing activities consisted of a decrease in money market funds of $104,095, due to the liquidation of such funds and
the transfer of such amounts to cash.
Financing
Activities
. For the year ended December 31, 2017, financing activities consisted of the receipt of $1,000,000 and $1,500,000
of proceeds from the sale of 4,000,000 shares and 6,000,000 shares of the Company’s common stock at $0.25 per share in closings
occurring in January 2017 and April 2017, respectively. In addition, on July 6, 2017, the Company received $18,000 from a former
director for the exercise of stock options to acquire 150,000 shares of the Company’s common stock at $0.12 per share. For
the year ended December 31, 2016, financing activities consisted of the receipt of subscription payments totaling $1,750,000 relating
to the sale on January 20, 2016 of 175,000 shares of the Company’s Series A Convertible Preferred Stock for an aggregate
purchase price of $1,750,000, less a dividend paid on the Company’s Series A Convertible Preferred Stock of $2,000.
Principal
Commitments
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 (NINDS) of the National Institutes of Health (NIH) for a term of four years. The
Surgical Neurology Branch of NINDS is conducting research characterizing a variety of compounds proprietary to the Company, and
is examining the potential of the compounds 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 does not imply any 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.
On
June 14, 2017, the Company executed Amendment No. 1 to the M-CRADA, pursuant to which the Company agreed to provide funding
in the amount of $100,000 to the National Cancer Institute for use in acquiring technical, statistical and administrative
support for research activities. The $100,000 amount is scheduled to be paid in two equal installments of $50,000, the first
of which was paid, as scheduled, on July 9, 2017, and was charged to operations on such date. The second installment of
$50,000 is scheduled to be paid on the June 14, 2018 anniversary date of the amendment and is being accreted ratably through
such date. During the year ended December 31, 2017, $75,000 was charged to operations with respect to Amendment No. 1 to the
M-CRADA and is included in research and development costs.
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 also 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 was
for one year and provided for a quarterly cash fee of $4,000. In 2014, 2015, 2016 and 2017, the agreement has been automatically
renewed on its anniversary date for an additional one-year term. Consulting and advisory fees charged to operations pursuant to
this agreement were $16,000 during the years ended December 31, 2017 and 2016.
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.
BioPharmaWorks
was founded in 2015 by former Pfizer scientists with extensive multi-disciplinary research and development and drug development
experience. The Collaboration Agreement was 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. In November
2016, it was mutually agreed to suspend services and payments pursuant to this agreement, without extending the term of the agreement,
for the period from November 1, 2016 through March 31, 2017. The agreement resumed as scheduled on April 1, 2017 and was automatically
renewed for an additional one-year period on September 13, 2017. The Company recorded charges to operations pursuant to this Collaboration
Agreement of $90,000 and $100,000 during the years ended December 31, 2017 and 2016, respectively.
Summary
of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
December 31, 2017 aggregating $197,040, of which $60,740 is included in current liabilities in the Company’s consolidated
balance sheet at December 31, 2017.
|
|
|
|
|
Payments
Due by Year
|
|
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development contracts
|
|
$
|
81,040
|
|
|
$
|
81,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Consulting
agreements
|
|
|
116,000
|
|
|
|
116,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
197,040
|
|
|
$
|
197,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Off-Balance
Sheet Arrangements
At
December 31, 2017, the Company did not have any transactions, obligations or relationships that could be considered off-balance
sheet arrangements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
Company’s consolidated financial statements and notes thereto and the related report of its independent registered public
accounting firm are attached to this Annual Report beginning on page F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not
applicable.
ITEM
9A. CONTROLS AND PROCEDURES
The
Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in
the reports that the Company files with the Securities and Exchange Commission (the “SEC”) under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that
such information is accumulated and communicated to the Company’s management, consisting of the Company’s principal
executive and financial officer (who is the same person), to allow for timely decisions regarding required disclosure. As required
by SEC Rule 15d-15(b), the Company carried out an evaluation, under the supervision and with the participation of its management,
consisting of the Company’s principal executive and financial officer, of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures as of the end of the most recent fiscal year covered by this report.
Based on the foregoing, the Company’s principal executive and financial officer concluded that our disclosure controls and
procedures are effective to ensure the information required to be disclosed in the Company’s reports filed or submitted
under the Exchange Act is timely recorded, processed and reported within the time periods specified in the SEC’s rules and
forms.
Management’s
Annual Report on Internal Controls Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed
to ensure that material information regarding the Company’s operations is made available to management and the board of
directors to provide them reasonable assurance that the published financial statements are fairly presented. There are limitations
inherent in any internal control, such as the possibility of human error and the circumvention or overriding of controls. As a
result, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation.
As conditions change over time so too may the effectiveness of internal controls.
The
Company’s management, consisting of its chief executive officer and chief financial officer, has evaluated the Company’s
internal control over financial reporting as of December 31, 2016 based on the 2013 Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, the Company’s
management has concluded that its internal control over financial reporting was effective as of December 31, 2017.
This
annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide
only management’s report in this annual report.
Changes
In Internal Controls Over Financial Reporting
There
were no changes in our internal controls over financial reporting during or subsequent to the fourth quarter of the year ended
December 31, 2017 that materially affected or are reasonably likely to materially affect the Company’s internal controls
over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table and text set forth the names of all directors and executive officer of the Company as of December 31, 2017. The
Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders
and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There
are no family relationships between or among the directors, executive officer or persons nominated or charged by the Company to
become directors or executive officers. The executive officer serves at the discretion of the Board of Directors, and is appointed
to serve until the first Board of Directors meeting following the annual meeting of stockholders. The brief descriptions of the
business experience of each director and executive officer and an indication of directorships held by each director in other companies
subject to the reporting requirements under the Federal securities laws are provided herein below. Also provided are the biographies
of the members of the Scientific Advisory Committee.
The
Company’s directors and executive officer are as follows:
Name
|
|
Age
|
|
Position(s)
Held with the Registrant
|
Dr.
John S. Kovach
|
|
81
|
|
President,
Chief Executive Officer, Chief Financial Officer and Director
|
Dr.
Philip F. Palmedo
|
|
83
|
|
Director
|
Dr.
Stephen J. Forman
|
|
69
|
|
Director
|
Biographies
of Directors and Executive Officer
Dr.
John S. Kovach
Dr.
John S. Kovach founded the Company in August 2005 and is its President, Chief Executive Officer, Chief Financial Officer and a
member of its Board of Directors. He received a B.A. (cum laude) from Princeton University and an M.D. (AOA) from the College
of Physicians & Surgeons, Columbia University. Dr. Kovach trained in Internal Medicine and Hematology at Presbyterian Hospital,
Columbia University and spent six years in the laboratory of Chemical Biology at the National Institute of Arthritis and Metabolic
diseases studying control of gene expression in bacterial systems.
Dr.
Kovach was recruited to the State University of New York at Stony Brook (“SUNY – Stony Brook”) in Stony Brook,
New York in 2000 to found the Long Island Cancer Center (now named the Stony Brook University Cancer Center). From 1994 to 2000,
Dr. Kovach was Executive Vice President for Medical and Scientific Affairs at the City of Hope National Medical Center in Los
Angeles, California. His responsibilities included oversight of all basic and clinical research initiatives at the City of Hope.
During that time, Dr. Kovach was also Director of the Beckman Research Center at City of Hope and a member of the Arnold and Mabel
Beckman Scientific Advisory Board in Newport Beach, California.
From
1976 to 1994, Dr. Kovach was a consultant in oncology and director of the Cancer Pharmacology Division at the Mayo Clinic in Rochester,
Minnesota. During this time, he directed the early clinical trials program for evaluation of new anti-cancer drugs as principal
investigator of contracts from the National Cancer Institute. From 1986 to 1994, he was also Chair of the Department of Oncology
and Director of the NCI-designated Mayo Comprehensive Cancer Center. During that time, Dr. Kovach, working with a molecular geneticist,
Steve Sommer, M.D., Ph.D., published extensively on patterns of acquired mutations in human cancer cells as markers of environmental
mutagens and as potential indicators of breast cancer patient prognosis. Dr. Kovach has published over 100 articles on the pharmacology,
toxicity and effectiveness of anti-cancer treatments and on the molecular epidemiology of breast cancer.
Effective
February 23, 2017, Dr. Kovach retired from his part-time (50%) academic position at SUNY – Stony Brook, as a result of which
he has been devoting 100% of his time to the Company’s business activities since that date.
Dr.
Philip F. Palmedo
Philip
F. Palmedo, Ph.D., is a physicist, entrepreneur and corporate manager. Dr. Palmedo joined the Company’s Board of Directors
on June 30, 2006. He founded and served as Chairman of the International Resources Group (IRG), an international consultancy in
energy, natural resources and economic development. IRG was bought by L3 Communications in 2008. Dr. Palmedo designed and was
the first President of the Long Island Research Institute formed by Brookhaven National Laboratory, Cold Spring Harbor Laboratory,
and SUNY – Stony Brook to facilitate the commercialization of technologies. In 1988, Dr. Palmedo joined in the formation
of Kepler Financial Management, Ltd., a quantitative financial research and trading company. He was President and Managing Director
until 1991, when Renaissance Technologies Corporation acquired the company.
Dr.
Palmedo served on the boards of Asset Management Advisors, the Teton Trust Company, EHR Investments and C-Quest Capital, and is
currently a member of the Board of Directors of Gyrodyne LLC. He also served on the Board of Trustees of Williams College and
of the Stony Brook (University) Foundation, where he chaired the Foundation’s Investment Committee.
Dr.
Stephen J. Forman
Stephen
J. Forman, M.D., is an internationally recognized expert in hematologic malignancies and bone marrow transplantation and is a
leader in preclinical and clinical cancer research. He is co-editor of Thomas’ Hematopoietic Cell Transplantation, a definitive
textbook for clinicians, scientists and health care professionals. Dr. Forman is the Francis and Kathleen McNamara Distinguished
Chair in Hematology and Hematopoietic Cell Transplantation at the City of Hope Comprehensive Cancer Center, a position he has
held since 1987.
In
nearly 40 years at City of Hope, Dr. Forman has been instrumental in advancing the survival rates for patients suffering from
cancers of the blood and immune system such as leukemia, lymphoma and myeloma.
As
Director of the T Cell Immunotherapy Research Laboratory, his current research is focused on cancer immunotherapy, using the body’s
own immune system to attack cancer. Pharmacological enhancement of patients’ immune responses to their cancers is of special
interest to the Company as the enzyme target of its lead clinical compound, LB-100, has been reported recently to be critical
to immune function. Much of Dr. Forman’s current work centers on T cells and their cancer-fighting potential.
SCIENTIFIC
ADVISORY COMMITTEE
The
Scientific Advisory Committee (the “Committee”) was established effective June 30, 2006 to advise management of the
Company in three areas: human molecular pathology; the clinical management of human brain tumors; and medicinal chemistry. The
Company’s objective is to meet with the Committee as a group annually, with some members participating via telephone conference.
The Committee members have been apprised of the Company’s general objectives and several of the specific challenges and
leads for developing improved therapies for human brain tumors. The Committee members have not provided specific advice thus far
that has modified strategy, nor do such Committee members serve in any management capacity with the Company. The members of the
Company’s Committee currently are:
Iwao
Ojima, B.S., M.S., Ph.D.
Professor
Ojima is Distinguished Professor of Chemistry and Director, Institute of Chemical Biology and Drug Discovery, SUNY – Stony
Brook. He is an internationally recognized expert in medicinal chemistry, including anticancer agents and enzyme inhibitors, development
of efficient synthetic methods for organic synthesis by means of organometallic reagents, homogeneous catalysis and organometallic
chemistry, peptide and peptide mimetics, beta-lactam chemistry, and organoflourine chemistry at the biomedical interface.
Dr.
Ojima is a recipient of the Arthur C. Cope Scholar Award (1994) and the E. B. Hershberg Award (for important discovery of medicinally
active substances) (2001) from the American Chemical Society; The Chemical Society of Japan Award (for distinguished achievements)
(1999); Outstanding Inventor Award from the Research Foundation of the State University of New York (2002). He is a Fellow of
the J.S. Guggenheim Memorial Foundation (1995 –), the American Association for the Advancement of Science (1997 –),
and The New York Academy of Sciences (2000 –).
Dr.
Ojima is a member of the American Chemical Society, American Association for the Advancement of Science, American Association
for Cancer Research, American Peptide Society, the Chemical Society of Japan, the Society of Synthetic Organic Chemistry, Japan,
New York Academy of Sciences, and Signa Xi. He has served as a consultant for E. I. du Pont, Eli Lilly, Air Products & Chemicals,
Mitsubishi Chem. Inc., Nippon Steel Corp., Life Science Division, Rhone-Poulenc Rorer, ImmunoGen, Inc., Taiho Pharmaceutical Co.,
Milliken & Co., Aventis Pharma, OSI Pharmaceuticals, Inc. and Mitsubishi Chem. Corp. (current).
Daniel
D. Von Hoff, M.D.
Dr.
Von Hoff is currently Physician in Chief, Distinguished Professor and Director of the Clinical Translational Research Division
at the Translational Genomics Research Institute in Phoenix, Arizona. He is also Chief Scientific Officer for US Oncology and
for Scottsdale Healthcare’s Clinical Research Institute. He holds an appointment as Professor of Medicine, Mayo Clinic,
Scottsdale, Arizona. Dr. Von Hoff is a Fellow of the American College of Physicians.
Dr.
Von Hoff’s major interest is in the development of new anticancer agents, both in the clinic and in the laboratory. He and
his colleagues were involved in the beginning of the development of many of the agents that are now used routinely, including
mitoxantrone, fludarabine, paclitaxel, docetaxel, gemcitabine, irinotecan, nelarabine, capecitabine and lapatinib. At present,
he and his colleagues are concentrating on the development of molecularly targeted therapies, particularly for patients with advanced
pancreatic cancer.
Dr.
Von Hoff has published more than 620 papers, 137 book chapters and over 1,050 abstracts. Dr. Von Hoff received the 2010 David
A. Karnofsky Memorial Award from the American Society of Clinical Oncology for his outstanding contributions to cancer research
leading to significant improvement in patient care.
Dr.
Von Hoff was appointed to President Bush’s National Cancer Advisory Board from 2004 to 2010. Dr. Von Hoff is the past President
of the American Association for Cancer Research (the world’s largest cancer research organization), a Fellow of the American
College of Physicians, and a member and past board member of the American Society of Clinical Oncology. He is a founder of ILEX™
Oncology, Inc. (acquired by Genzyme in 2004 after Ilex had two agents, alemtuzumab and clofarabine, approved by the FDA for patients
with leukemia). Dr. Von Hoff is founder and the Editor Emeritus of Investigational New Drugs – The Journal of New Anticancer
Agents; and, Editor-in-Chief of Molecular Cancer Therapeutics. He is a co-founder of the AACR/ASCO Methods in Clinical Cancer
Research Workshop.
Audit
Committee
The
Company does not presently have an audit committee. The Board of Directors acts in that capacity and has determined that it does
not currently have a person qualifying as an audit committee financial expert serving on the Company’s Board of Directors.
Code
of Ethics
The
Company’s Board of Directors adopted a code of ethics covering all of the Company’s executive officers and key employees.
A copy of the Company’s code of ethics will be furnished without charge to any person upon written request. Requests should
be sent to: Secretary, Lixte Biotechnology Holdings, Inc., 248 Route 25A, No. 2, East Setauket, New York 11733.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934, as Amended:
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers and persons
who own more than 10% of a registered class of the Company’s equity securities to file various reports with the Securities
and Exchange Commission concerning their holdings of, and transactions in, securities of the Company. Copies of these filings
must be furnished to the Company.
To
the Company’s knowledge based solely on its review of the copies of the Section 16(a) reports furnished to the Company and
written representations to the Company that no other reports were required, the Company believes that all individual filing requirements
applicable to the Company’s directors and executive officers were complied with under Section 16(a) during 2016, except
as follows: Dr. Stephen J. Forman and Dr. Philip F. Palmedo did not file the required Statement of Changes in Beneficial Ownership
reports on Form 4 with the Securities and Exchange Commission with respect to the grant of stock options to purchase 50,000 shares
of common stock effective October 16, 2017 to each such director.
ITEM
11. EXECUTIVE COMPENSATION
Option
Grants in 2016 and 2017 - Named Executive Officer
None.
Aggregated
Option Exercises in 2016 and 2017 Option Values at December 31, 2016 and at 2017 - Named Executive Officer
None.
Employment
Agreements; Compensation
The
Company has not entered into any employment agreements with management. Any future compensation arrangements are subject to the
approval of the Board of Directors.
During
the years ended December 31, 2016 and 2017, the Company did not have any full-time employees.
During
the years ended December 31, 2016 and 2017, the Company paid Dr. John S. Kovach, the Company’s Chief Executive Officer and
Chief Financial Officer, an annual salary of $60,000. During the year ended December 31, 2016, Dr. Kovach devoted approximately
50% of his time to his academic commitments at SUNY – Stony Brook and approximately 50% of his time to the Company’s
business activities.
Effective
February 23, 2017, Dr. Kovach retired from his part-time (50%) academic position at SUNY – Stony Brook, as a result of which
he has been devoting 100% of his time to the Company’s business activities since that date.
Dr.
Kovach is not compensated separately for his service on the Company’s Board of Directors. Dr. Kovach is reimbursed for out-of-pocket
expenses.
Consulting
Agreements
See
“ITEM 16. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE – Related Party Transactions”
for disclosures with respect to consulting agreements involving directors and related parties.
Board
of Director Compensation
Effective
April 25, 2016, in connection with her continuing role as a member of the Company’s Board of Directors, Dr. Kathleen P.
Mullinix was granted fully-vested stock options under the 2007 Plan to purchase 150,000 shares of the Company’s common stock.
The stock options were exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $17,535 ($0.1169 per share), which was charged to operations on the date of grant.
Effective November 22, 2016, Dr. Mullinix resigned as a member of the Board of Directors of the Company. Consequently, pursuant
to the stock option agreement, Dr. Mullinix had twelve months from November 22, 2016 to exercise her stock options to acquire
150,000 shares of the Company’s common stock. On July 6, 2017, Dr. Mullinix exercised such stock options in full by making
a cash payment of $18,000 to the Company.
Effective
April 25, 2016, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Philip F. Palmedo
was granted fully-vested stock options under the 2007 Plan to purchase 450,000 shares of the Company’s common stock. The
stock options are exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $52,604 ($0.1169 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Philip F.
Palmedo was granted fully-vested stock options to purchase 50,000 shares of the Company’s common stock. The stock options
are exercisable for a period of five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s
common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $7,499 ($0.1500 per share), which was charged to operations on the date of grant.
Effective
May 13, 2016, in conjunction with his appointment as a director of the Company, the Company granted to Dr. Stephen J. Forman stock
options to purchase an aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for a period of five years
from vesting date at $0.16 per share, which was the fair market value of the Company’s common stock on such date. One-half
of such stock option (100,000 shares) vested on May 13, 2016 and the remaining one-half of such stock option (100,000 shares)
vested on May 13, 2017. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $31,180 ($0.1559 per share), of which $15,590 was attributable to the stock options fully-vested on May 13,
2016 and was therefore was charged to operations on that date. The remaining unvested portion of the fair value of the stock options
was charged to operations ratably from May 13, 2016 through May 13, 2017. During the years ended December 31, 2017 and 2016, the
Company recorded a total charge to operations of $5,681 and $25,500, respectively, with respect to these stock options.
Effective
October 16, 2017, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Stephen J.
Forman was granted fully-vested stock options to purchase 50,000 shares of the Company’s common stock. The stock options
are exercisable for a period of five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s
common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $7,499 ($0.1500 per share), which was charged to operations on the date of grant.
DIRECTOR
COMPENSATION TABLE
Name
and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)(1)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Non-Qualified
Deferred Compensation Earnings ($)
|
|
|
All
Other Compensation ($)(2)
|
|
|
Total
($)
|
|
John
S. Kovach
|
|
2017
|
|
$
|
60,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Director (3)
|
|
2016
|
|
$
|
60,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2015
|
|
$
|
60,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip
F. Palmedo
|
|
2017
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
7,499
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Director
|
|
2016
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
52,604
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2015
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathleen
P. Mullinix
|
|
2017
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Director (4)
|
|
2016
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
17,535
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2015
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
J. Forman
|
|
2017
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
7,499
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Director
|
|
2016
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
31,180
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
(1)
|
Consists
of grant date fair value of option award calculated pursuant to the Black-Scholes option-pricing model.
|
|
|
(2)
|
All
other compensation was paid in the form of cash.
|
|
|
(3)
|
Dr.
Kovach is also the Company’s President, Chief Executive officer and Chief Financial Officer.
|
|
|
(4)
|
Dr.
Mullinix resigned from the Company’s Board of Directors for personal reasons on November 22, 2016.
|
Scientific
Advisory Committee Compensation
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 also 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, which vested 25,000 shares on June
24, 2014, 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 stock options, as calculated
pursuant to the Black-Scholes option-pricing model, was initially determined to be $12,960 ($0.13 per share). The Company re-measures
the non-vested options to fair value at the end of each reporting period. During the years ended December 31, 2017 and 2016, the
Company recorded a charge (credit) to operations of $2,492 and $(7,485), respectively, with respect to these stock options.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth, as of March 1, 2018, certain information regarding beneficial ownership of the Company’s common
stock (the only class of the Company’s voting equity securities issued and outstanding) by (i) each person or entity who
is known by the Company to own beneficially more than 5% of the Company’s outstanding shares of common stock, (ii) each
of the Company’s directors, and (iii) all directors and executive officers of the Company as a group. As of March 1, 2018,
there were 58,025,814 shares of the Company’s common stock issued and outstanding. In computing the number and percentage
of shares beneficially owned by a person, shares of common stock that a person has a right to acquire within sixty (60) days of
March 1, 2018 pursuant to stock options, warrants, convertible preferred stock or other rights are counted as outstanding, while
these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated,
the address for each stockholder listed in the following table is c/o Lixte Biotechnology Holdings, Inc., 248 Route 25A, No. 2,
East Setauket, New York 11733. This table is based upon information supplied by the Company’s directors, officers and principal
stockholders and reports filed with the Securities and Exchange Commission.
Name
and Address of Beneficial Owner
|
|
Amount
and Nature
of Beneficial
Ownership
|
|
|
Percent
of
Class
|
|
Officers,
Directors and 5% stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
John S. Kovach
|
|
|
|
|
|
|
|
|
248
Route 25A, No. 2
|
|
|
|
|
|
|
|
|
East
Setauket, New York 11733
|
|
|
9,114,503
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
Dr.
Philip F. Palmedo
|
|
|
|
|
|
|
|
|
248
Route 25A, No. 2
|
|
|
|
|
|
|
|
|
East
Setauket, New York 11733
|
|
|
1,566,020
|
(1)
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
Dr.
Stephen J. Forman
|
|
|
|
|
|
|
|
|
248
Route 25A, No. 2
|
|
|
|
|
|
|
|
|
East
Setauket, New York 11733
|
|
|
272,500
|
(2)
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a group (three persons)
|
|
|
10,953,023
|
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
John
and Barbara Kovach 2015 Trust
|
|
|
|
|
|
|
|
|
Eric
J. Forman, Trustee
|
|
|
|
|
|
|
|
|
401
Park Avenue South, 10
th
Floor
|
|
|
|
|
|
|
|
|
New
York, New York 10016
|
|
|
8,000,000
|
(3)
|
|
|
13.8
|
%
|
Eric
J. Forman
|
|
|
|
|
|
|
|
|
401
Park Avenue South, 10
th
Floor
|
|
|
|
|
|
|
|
|
New
York, New York 10016
|
|
|
8,300,000
|
(4)
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
Gil
Schwartzberg
|
|
|
|
|
|
|
|
|
5500
Military Trail, Suite 22, Box 356
|
|
|
|
|
|
|
|
|
Jupiter,
Florida 33458
|
|
|
10,575,095
|
(5)
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
Dr.
Debbie Schwartzberg
|
|
|
|
|
|
|
|
|
5500
Military Trail, Suite 22, Box 356
|
|
|
|
|
|
|
|
|
Jupiter,
Florida 33458
|
|
|
8,274,845
|
(6)
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
Dr.
Arthur and Jane Riggs
|
|
|
|
|
|
|
|
|
4852
Saint Andres Avenue
|
|
|
|
|
|
|
|
|
La
Verne, California 91750
|
|
|
9,225,000
|
(7)
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
Robert
and Susan Greenberg
|
|
|
|
|
|
|
|
|
228
Manhattan Beach Boulevard
|
|
|
|
|
|
|
|
|
Manhattan
Beach, California 90266
|
|
|
3,650,000
|
(8)
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
Lalit
R. Bahl and Kavit K. Kinra
|
|
|
|
|
|
|
|
|
3
Pheasant Run
|
|
|
|
|
|
|
|
|
Setauket,
New York 11733
|
|
|
4,000,000
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
Hung
Tak Ho
|
|
|
|
|
|
|
|
|
Mayfair
by the Sea II
|
|
|
|
|
|
|
|
|
Tower
T8, 1/F, Unit A
|
|
|
|
|
|
|
|
|
21
Fo Chun Road
Pak ShekKok
|
|
|
|
|
|
|
|
|
Taipo
NT, Hong Kong SAR
|
|
|
6,000,000
|
|
|
|
10.3
|
%
|
(1)
Consists of 1,000,000 shares of common stock owned by the Philip Palmedo Partnership,
and 66,020 shares of common stock and stock options to purchase 500,000 shares of common
stock owned by Dr. Philip Palmedo. Dr. Palmedo, as the general partner of the Philip
Palmedo Partnership, has voting, dispositive and investment control with respect to the
1,000,000 shares of common stock owned by the partnership. All stock options are immediately
exercisable or within 60 days.
(2)
Consists of 22.500 shares of common stock owned by Dr. Stephen Forman and stock options to purchase 250,000 shares of common stock
which are immediately exercisable or within 60 days.
(3)
Includes 8,000,000 shares of common stock transferred by John Kovach and his wife, Barbara C.H. Kovach, as grantors, to the John
and Barbara Kovach 2015 Trust, an irrevocable trust dated July 6, 2015. The primary beneficiaries of the trust are the two adult
daughters of John and Barbara Kovach. Eric J. Forman is the trustee of the John and Barbara Kovach 2015 Trust.
(4)
Includes 100,000 shares of common stock owned by Eric J. Forman and stock options to purchase 200,000 shares of common stock.
Eric Forman is the husband of Julie (Schwartzberg) Forman, the son-in-law of Gil and Debbie Schwartzberg, and the trustee of the
John and Barbara Kovach 2015 Trust. Also includes 8,000,000 shares of common stock owned by the John and Barbara Kovach 2015 Trust,
as to which Eric Forman, as trustee, has voting, dispositive and investment control. Excludes 1,120,000 shares of common stock
and stock options to purchase 1,750,000 shares of common stock owned by the Julie Schwartzberg Trust, as to which Julie (Schwartzberg)
Forman is the beneficiary, and as to which Eric Forman disclaims beneficial ownership or control. Also excludes 30,000 shares
of common stock owned by the Julie Forman 2015 Trust, the beneficiary of which is Cole Forman, the son of Eric and Julie Forman,
as to which David Sterling, as trustee, has voting, dispositive and investment control. All stock options are immediately exercisable
or within 60 days.
(5)
Includes 2,811,912 shares of common stock owned by the Gil & Debbie Schwartzberg Family Trust dated November 19, 2003, Gil
Schwartzberg Separate Property, as to which Gil Schwartzberg, as trustee, has voting, dispositive and investment control, and
stock options to purchase 500,000 shares of common stock owned by Gil Schwartzberg. Also includes 855,068 shares of common stock
owned by the Gil Schwartzberg IRA; 638,115 shares of common stock owned by Continuum Capital Partners, LP, as to which Gil Schwartzberg
has sole voting, dispositive and investment control; 1,120,000 shares of common stock and stock options to purchase 1,750,000
shares of common stock owned by the Julie Schwartzberg Trust, as to which Gil Schwartzberg is the co-trustee; and 1,150,000 shares
of common stock and stock options to purchase 1,750,000 shares of common stock owned by the David N. Sterling Trust, as to which
Gil Schwartzberg is the co-trustee. Excludes 2,504,845 shares of common stock owned by the Gil & Debbie Schwartzberg Family
Trust dated November 19, 2003, Debbie Schwartzberg Separate Property, the wife of Gil Schwartzberg, as to which Gil Schwartzberg
disclaims beneficial ownership or control. All stock options are immediately exercisable or within 60 days.
(6)
Includes 2,504,845 shares of common stock owned by the Gil & Debbie Schwartzberg Family Trust dated November 19, 2003, Debbie
Schwartzberg Separate Property, as to which Debbie Schwartzberg, as trustee, has voting, dispositive and investment control. Also
includes 1,120,000 shares of common stock and stock options to purchase 1,750,000 shares of common stock owned by the Julie Schwartzberg
Trust, as to which Debbie Schwartzberg is the co-trustee; and 1,150,000 shares of common stock and stock options to purchase 1,750,000
shares of common stock owned by the David N. Sterling Trust, as to which Debbie Schwartzberg is the co-trustee. Excludes 2,811,912
shares of common stock and stock options to purchase 500,000 shares of common stock owned by the Gil & Debbie Schwartzberg
Family Trust dated November 19, 2003, Gil Schwartzberg Separate Property, as to which Debbie Schwartzberg, the wife of Gil Schwartzberg,
disclaims beneficial ownership or control. Also excludes 855,068 shares of common stock owned by the Gil Schwartzberg IRA, and
638,115 shares of common stock owned by Continuum Capital Partners, LP, as to which Gil Schwartzberg has sole voting, dispositive
and investment control. All stock options are immediately exercisable or within 60 days.
(7)
Includes 4,850,000 shares of common stock and 4,375,000 shares of common stock issuable upon conversion of 350,000 shares of Series
A Convertible Preferred Stock owned by the Arthur and Jane Riggs 1990 Revocable Trust. Arthur Riggs and his wife, Jane Riggs,
are co-trustees of the trust and share voting and dispositive power over the shares of preferred stock. The shares of Series A
Convertible Preferred Stock were acquired on March 17, 2015 and January 15, 2016, are non-voting, and are immediately convertible
into common stock.
(8)
Consists of 3,650,000 shares of common stock owned by the Greenberg Family Trust dated May 3, 1988. The trust is a revocable trust,
and Arthur Greenberg and his wife, Susan Greenberg, are co-trustees of the trust and share voting and dispositive power over the
shares of common stock.
Information
with respect to securities authorized for issuance under equity compensation plans is provided at “ITEM 5. MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS”.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
(a)
Related Party Transactions
The
Company’s principal office facilities are being provided without charge by Dr. John S. Kovach, the Company’s President,
Chief Executive Officer and Chief Financial Officer. Such costs were not material to the Company’s consolidated financial
statements and accordingly, have not been reflected therein.
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 at that time, effective for an initial term of one year through December 31, 2014 to advise on business development
matters. The Advisory Agreement provided for annual cash compensation of $25,000, to be paid in full at the beginning of each
year. The term of the Advisory Agreement was automatically extended for a term of one year annually unless a notice of intent
to terminate was given by either party at least 90 days before the end of the applicable term. Accordingly, the Advisory Agreement
was extended for additional terms of one year effective January 1, 2015 and 2016. Effective November 22, 2016, Dr. Mullinix resigned
from the Company’s Board of Directors.For the year ended December 31, 2016, the Company recognized a charge to operations
of $25,000 as consulting and advisory fees pursuant to this Advisory Agreement, which were included in general and administrative
costs in the Company’s consolidated statements of operations.
Legal
and consulting fees charged to operations for services rendered by the Eric Forman Law Office were $48,000 for the years ended
December 31, 2017 and 2016. Eric J. Forman is the son-in-law of Gil Schwartzberg, a significant stockholder of and consultant
to the Company, and is the son of Dr. Stephen J. Forman, who was elected to the Company’s Board of Directors on May 13,
2016. Julie Forman, the wife of Eric Forman and the daughter of Gil Schwartzberg (a significant stockholder of and consultant
to the Company), is Vice President of Morgan Stanley Wealth Management and has been involved with the Company’s investment
in money market funds.
Effective
June 7, 2016, in connection with his continuing role as a consultant to the Company, Eric Forman was granted fully-vested stock
options under the 2007 Plan to purchase 100,000 shares of the Company’s common stock. The stock options are exercisable
for a period of five years from the date of grant at $0.15 per share. The fair market value of the Company’s common stock
on the date of grant was $0.14 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $13,625 ($0.1363 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with his continuing role as a consultant to the Company, Eric Forman was granted fully-vested
stock options to purchase 100,000 shares of the Company’s common stock. The stock options are exercisable for a period of
five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s common stock on such
date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined
to be $14,997 ($0.1500 per share), which was charged to operations on the date of grant.
See
“ITEM 11. EXECUTIVE COMPENSATION - Directors Compensation” for disclosures with respect to compensation (both cash
and equity-based) to certain of the Company’s directors for services.
(b)
Director Independence
The
Company considers Dr. Palmedo and Dr. Forman to be “independent directors”, as such term is defined by the NASDAQ
Rules or Rule 10A-3 of the Exchange Act.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Weinberg
& Company, P.C. acted as the Company’s independent registered public accounting firm for the years ended December 31,
2016 and 2017 and for the interim periods in such fiscal years. The following table shows the fees that were incurred by the Company
for audit and other services provided by Weinberg & Company, P.C. for the years ended December 31, 2016 and 2017.
|
|
Years
Ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
Audit
Fees
(1)
|
|
$
|
62,422
|
|
|
$
|
61,960
|
|
Audit-Related
Fees
(2)
|
|
|
—
|
|
|
|
—
|
|
Tax
Fees
(3)
|
|
|
10,507
|
|
|
|
14,352
|
|
All
Other Fees
(4)
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
72,929
|
|
|
$
|
76,312
|
|
(1)
|
Audit
fees represent fees for professional services provided in connection with the audit of the Company’s annual financial
statements and the review of its financial statements included in the Company’s Quarterly Reports on Form 10-Q and services
that are normally provided in connection with statutory or regulatory filings.
|
|
|
(2)
|
Audit-related
fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review
of the Company’s financial statements and not reported above under “Audit Fees”.
|
|
|
(3)
|
Tax
fees represent fees for professional services related to tax compliance, tax advice and tax planning.
|
|
|
(4)
|
All
other fees represent fees related to Sarbanes-Oxley compliance work.
|
All
audit related services, tax services and other services rendered by Weinberg & Company, P.C. were pre-approved by the Company’s
Board of Directors. The Board of Directors has adopted a pre-approval policy that provides for the pre-approval of all services
performed for the Company by its independent registered public accounting firm.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended December 31, 2017 and 2016
1.
Organization and Basis of Presentation
Lixte
Biotechnology Holdings, Inc., a Delaware corporation (“Holdings”), including its wholly-owned Delaware subsidiary,
Lixte Biotechnology, Inc. (“Lixte”) (collectively, the “Company”), is a drug discovery company that uses
biomarker technology to identify enzyme targets associated with serious common diseases and then designs novel compounds to attack
those targets. The Company’s product pipeline encompasses two major categories of compounds at various stages of pre-clinical
and clinical development that the Company believes have broad therapeutic potential not only for cancer but also for other debilitating
and life-threatening 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 positive cash flows from operations,
and is dependent on periodic infusions of equity capital to fund its operating requirements.
The
Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.
Going
Concern
The
Company’s 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 through the recurring sale of its equity securities and the exercise of outstanding common stock options and purchase warrants.
As
a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern
within one year of the date that the consolidated financial statements were issued. In addition, the Company’s independent
registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended
December 31, 2017, has also 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 equity capital to fund
its research and development activities and to ultimately achieve sustainable operating revenues and profits. The Company’s
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Because
the Company is currently engaged in research at a relatively early stage, it will likely take a significant amount of time to
develop any product or intellectual property capable of generating sustainable revenues. Accordingly, the Company’s business
is unlikely to generate any sustainable operating revenues in the next several years and may never do so. In addition, to the
extent that the Company is able to generate revenues through licensing its technologies or through product sales, there can be
no assurance that the Company will be able to achieve positive earnings and operating cash flows.
At
December 31, 2017, the Company had cash of $1,305,748. The Company believes that it has sufficient working capital resources to
fund the Company’s ongoing business activities through approximately June 30, 2018. The next steps in the development of
the Company’s lead anti-cancer compound LB-100 are to evaluate its anti-cancer effects in Phase 1b/2 clinical trials, which
will require additional financing. The Company’s longer-term objective is to secure one or more strategic partnerships with
pharmaceutical companies with major programs in cancer.
The
amount and timing of future cash requirements in 2018 and thereafter will depend on the pace and design of the Company’s
clinical trial program. As 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 compounds, or to discontinue its operations entirely.
Reclassifications
Certain
comparative amounts in 2016 have been reclassified to conform to the current year’s presentation. For the year ended December
31, 2016, patent-related legal costs of $431,127 were reclassified from research and development costs to general and administrative
costs. For the year ended December 31, 2017, patent-related legal costs of $846,169 were charged directly to general and administrative
costs.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements of the Company have been 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. Management bases its estimates on historical experience and on various assumptions that are believed to
be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information,
changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate,
those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those
related to assumptions used in accruals for potential liabilities, valuing equity instruments issued for services, and the realization
of deferred tax assets.
Cash
Concentrations
The
Company maintains cash balances with financial institutions in federally-insured accounts. The Company may periodically have cash
balances in banks in excess of FDIC insurance limits. The Company maintains its accounts with financial institutions with high
credit ratings. The Company has not experienced any losses to date resulting from this practice.
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating
to the acquisition, design, development and testing of the Company’s compounds 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.
Obligations
incurred with respect to mandatory scheduled payments under research agreements without milestone provisions are recognized ratably
over the appropriate period, as specified in the agreement, and are recorded as liabilities in the Company’s consolidated
balance sheet, with a corresponding charge to research and development costs in the Company’s consolidated statement of
operations.
The
Company retained 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
managing and administering the Company’s Phase 1 clinical trial of LB-100. The costs of the Phase 1 clinical trial of LB-100
that were paid through Theradex were recorded and expensed based upon the documentation provided by the CRO.
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
and Licensing 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 related patent applications, all patent-related legal and filing fees and licensing-related
legal fees are expensed as incurred. Patent and licensing costs were $846,169 and $621,734 for the years ended December 31, 2017
and 2016, respectively. Patent and licensing costs are included in general and administrative costs in the Company’s consolidated
statements of operations.
Accounting
for Preferred Stock
The
Company accounts for preferred stock as either equity or debt, depending on the specific characteristics of the security issued.
The Series A Convertible Preferred Stock issued by the Company in January 2016 and March 2015 has been classified in stockholders’
equity, as described at Note 3.
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 anti-cancer 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, was carried out
by nationally recognized comprehensive cancer centers. The patient accrual goal was reached in April 2016 and the clinical trial
was closed to further patient enrollment at that time. All patients completed treatment with LB-100 and were off study by the
end of May 2016. The Company has continued to incur costs to complete the analysis of the clinical data, reconcile and pay the
remaining costs owed to the participating clinical sites, and to prepare and submit the required Clinical Study Report to the
United States Food and Drug Administration (“FDA”) on the completed Phase 1 clinical trial of LB-100, which process
was substantially complete at December 31, 2017.
Total
costs charged to operations from 2013 through December 31, 2017 for services paid to or through Theradex for the Phase 1 clinical
trial of LB-100 aggregated $2,233,248, with approximately 60% of such costs allocated 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. During
the years ended December 31, 2017 and 2016, the Company incurred $105,698 and $427,429, respectively, of such clinical trial costs,
representing approximately 23% and 49% of research and development costs for such periods. Costs pursuant to this agreement are
included in research and development costs in the Company’s 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 December
31, 2017 and 2016 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 December 31, 2017, 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.
On
December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The
Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform
Law reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018. The Company will continue to analyze the
provisions of the Tax Reform Law to assess the impact on the Company’s consolidated financial statements.
Stock-Based
Compensation
The
Company periodically issues common stock and stock options to officers, directors, Scientific Advisory Committee members 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 Scientific Advisory Committee members and 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.
Stock
grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the
vesting period.
Stock
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 stock 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 common stock issued as stock-based compensation is determined by reference to the closing price of the Company’s
common stock on the date of issuance. The fair value of stock options granted as 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 stock option 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. Estimated volatility is based on the historical
volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of the Company’s
common stock.
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 consolidated statement of operations. The Company issues new shares of common stock
to satisfy stock option exercises.
Revenue
Recognition
The
Company recognizes revenue, if any, when all four of the following criteria are met: (i) persuasive evidence that an arrangement
exists; (ii) delivery of the products and/or services has occurred; (iii) the fees earned can be readily determined; and (iv)
collectability of the fees is reasonably assured. The Company did not have any operating revenue through December 31, 2017, and
does not expect to recognize any revenue during the year ending December 31, 2018.
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 years ended December 31, 2017 and 2016.
Earnings
(Loss) Per Share
The
Company’s computation of earnings (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured
as the income (loss) attributable 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
December 31, 2017 and 2016, 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.
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred Stock
|
|
|
4,375,000
|
|
|
|
4,375,000
|
|
Common
stock options
|
|
|
7,470,000
|
|
|
|
8,600,000
|
|
Total
|
|
|
11,845,000
|
|
|
|
12,975,000
|
|
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.
The
carrying value of financial instruments (consisting of cash and accounts payable and accrued expenses) is considered to be representative
of their respective fair values due to the short-term nature of those instruments.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers (“ASU 2014-09”). 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. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12,
and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for reporting
periods beginning after December 15, 2017. Entities will be able to transition to the standard either retrospectively or as a
cumulative-effect adjustment as of the date of adoption. The Company will adopt the provisions of ASU 2014-09 in the quarter beginning
January 1, 2018. The adoption of ASU 2014-09 is not expected to have any impact on the Company’s financial statement presentation
or disclosures.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02
requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value
of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key
information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost,
calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires
classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide
the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required
for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company
will adopt the provisions of ASU 2016-02 in the quarter beginning January 1, 2019. The adoption of ASU 2016-02 is not expected
to have any impact on the Company’s financial statement presentation or disclosures.
In
July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down
Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The adoption of ASU 2017-11 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.
3.
Stockholders’ Equity
Preferred
Stock
The
Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.0001 per share. On March 17, 2015, the Company
filed a Certificate of Designations, Preferences, Rights and Limitations (the “Certificate of Designations”) of its
Series A Convertible Preferred Stock with the Delaware Secretary of State to amend the Company’s certificate of incorporation.
The Company designated 175,000 shares as Series A Convertible Preferred Stock, which are non-voting and are not 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 Designations. The holders of each 175,000 share tranche of the Series A Convertible Preferred Stock are
entitled to receive a per share dividend equal to 1% of the annual net revenue of the Company divided by 175,000, until converted
or redeemed.
Effective
January 28, 2016, the Series A Convertible Preferred Stock Certificate of Designations was amended to increase the authorized
shares of Series A Convertible Preferred Stock from 175,000 shares to 350,000 shares. Accordingly, as of December 31, 2017, 9,650,000
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 stockholder of the Company who owned 10.6% of
the Company’s issued and outstanding shares of common stock immediately prior to this transaction, pursuant to which such
stockholder purchased 175,000 shares of the Company’s Series A Convertible Preferred Stock at $10.00 per share for an aggregate
purchase price of $1,750,000. As the closing price of the Company’s common stock was $0.25 per share on March 17, 2015,
which was less than the $0.80 effective price per share of the shares of common stock underlying the Series A Convertible Preferred
Stock, there was no beneficial conversion feature associated with this transaction.
Effective
January 21, 2016, the Company entered into a Securities Purchase Agreement with the holder of the Series A Convertible Preferred
Stock previously sold on March 17, 2015, pursuant to which the Company sold an additional 175,000 shares of Series A Convertible
Preferred Stock at $10.00 per share for an aggregate purchase price of $1,750,000. As the closing price of the Company’s
common stock was $0.22 per share on January 21, 2016, which was less than the $0.80 effective price per share of the shares of
common stock underlying the Series A Convertible Preferred Stock, there was no beneficial conversion feature associated with this
transaction.
Each
share of Series A Convertible Preferred Stock may be converted, at the option of the holder, into 12.5 shares of common stock
(subject to customary anti-dilution provisions) and the Series A Convertible Preferred Stock is 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 Series A Convertible Preferred Stock has a liquidation preference based on its assumed conversion into shares of common stock.
If
fully converted, the 350,000 outstanding shares of Series A Convertible Preferred Stock would convert into 4,375,000 shares of
common stock at December 31, 2017. The Company has the right to redeem the Series A Convertible Preferred Stock up to the fifth
anniversary of the respective closing dates at a price per share equal to $50.00. The Series A Convertible Preferred Stock has
no right to cash, except for the payment of the aforementioned dividend based on the generation of revenues by the Company, and
does not have any registration rights.
Based
on the attributes of the Series A Convertible Preferred Stock described above, the Company determined to account for the Series
A Convertible Preferred Stock as a permanent component of stockholders’ equity.
Based
on the Company’s licensing revenues of $200,000 for the year ended December 31, 2015, the Company recorded a dividend of
$2,000 on the shares of Series A Convertible Preferred Stock issued and outstanding at December 31, 2015. The dividend was paid
in cash on May 1, 2016.
Common
Stock
Effective
February 24, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the
purchaser purchased 4,000,000 shares of the Company’s common stock at a price of $0.25 per share for an aggregate purchase
price of $1,000,000.
Effective
April 3, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the purchaser
purchased 6,000,000 shares of the Company’s common stock at a price of $0.25 per share for an aggregate purchase price of
$1,500,000.
Information
with respect to the issuance of common stock in connection with various stock-based compensation arrangements is provided at Note
5.
4.
Related Party Transactions
The
Company’s Chairman and major stockholder, Dr. John Kovach, was paid a salary of $60,000 for the years ended December 31,
2017 and 2016, which amounts are included in general and administrative costs in the Company’s consolidated statements of
operations. Beginning in late February 2017, Dr. Kovach began devoting 100% of his time to the Company’s business activities.
The
Company’s principal office facilities are being provided without charge by Dr. Kovach. Such costs were not material to the
Company’s consolidated financial statements and, accordingly, have not been reflected therein.
On
September 12, 2007, the Company entered into a consulting agreement with Gil Schwartzberg for Mr. Schwartzberg to provide financial
advisory and consulting services to the Company with respect to financing matters, capital structure and strategic development,
and to assist management in communications with investors and shareholders. Mr. Schwartzberg is currently a significant stockholder
of the Company and continues to be a consultant to the Company. Consideration under this consulting agreement, including subsequent
extensions, has been paid exclusively in the form of stock options. On January 28, 2014, the Company entered into a second amendment
to the consulting agreement to extend it to January 28, 2019. In conjunction with the second amendment to the consulting agreement,
the Company 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 stock options (2,000,000 shares) vesting immediately and one-half of the stock options (2,000,000
shares) vesting on January 28, 2015. Accordingly, all stock-based compensation expense with respect to the January 28, 2014 extension
of the consulting agreement was charged to operations during the years ended December 31, 2015 and 2014.
Legal
and consulting fees charged to operations for services rendered by the Eric Forman Law Office were $48,000 for the years ended
December 31, 2017 and 2016. Eric J. Forman is the son-in-law of Gil Schwartzberg, a significant stockholder of and consultant
to the Company, and is the son of Dr. Stephen J. Forman, who was elected to the Company’s Board of Directors on May 13,
2016. Julie Forman, the wife of Eric Forman and the daughter of Gil Schwartzberg, is Vice President of Morgan Stanley Wealth Management,
where the Company maintains a banking relationship.
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 at that time, effective for an initial term of one year through December 31, 2014 to advise on business development
matters. The Advisory Agreement provided for annual cash compensation of $25,000, to be paid in full at the beginning of each
year. The term of the Advisory Agreement was automatically extended for a term of one year annually unless a notice of intent
to terminate was given by either party at least 90 days before the end of the applicable term. Accordingly, the Advisory Agreement
was extended for additional terms of one year effective January 1, 2015 and 2016. Effective November 22, 2016, Dr. Mullinix resigned
from the Company’s Board of Directors. For the year ended December 31, 2016, the Company recognized a charge to operations
of $25,000 as consulting and advisory fees pursuant to this Advisory Agreement, which is included in general and administrative
costs in the Company’s consolidated statements of operations.
Stock-based
compensation arrangements involving members of the Company’s Board of Directors and affiliates are described at Note 5.
Total stock-based compensation expense relating to directors, officers, affiliates and related parties was $35,676 and $109,264
for the years ended December 31, 2017 and 2016, respectively.
5.
Stock-Based Compensation
The
Company issues common stock and 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 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 conditions as determined by the Company’s Board of Directors. The 2007 Plan terminated on June 19, 2017.
As of December 31, 2017, unexpired stock options for 1,350,000 shares were issued and outstanding under the 2007 Plan.
The
fair value of each stock option awarded is estimated on the date of grant and subsequent measurement dates using the Black-Scholes
option-pricing model. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts.
The 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. The expected life of the stock options is the average of the
vesting term and the full contractual term of the stock options.
For
stock options requiring an assessment of value during the year ended December 31, 2017, the fair value of each stock option award
was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free
interest rate
|
|
|
1.18%
to 2.47
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Expected
volatility
|
|
|
308.51
to 332.63
|
%
|
Expected
life
|
|
|
1.5
to 5.0 years
|
|
For
stock options requiring an assessment of value during the year ended December 31, 2016, the fair value of each stock option award
was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free
interest rate
|
|
|
0.60%
to 1.93
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Expected
volatility
|
|
|
196.75%
to 226.44
|
%
|
Expected
life
|
|
|
2.0
to 5.0 years
|
|
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 also 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 stock options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $12,960
($0.13 per share). The Company re-measures the non-vested options to fair value at the end of each reporting period. The unvested
portion of the fair value of the stock options was charged to operations ratably from December 24, 2013 through June 24, 2017.
During the years ended December 31, 2017 and 2016, the Company recorded a charge (credit) to operations of $2,492 and $(7,485),
respectively, with respect to these stock options.
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 7. 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 vested 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 vested 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. The Company re-measured the non-vested stock options to fair value at the end of each reporting period through
September 30, 2017. During the years ended December 31, 2017 and 2016, the Company recorded a charge to operations of $29,528
and $70,155, respectively, with respect to these common shares and warrants.
On
November 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.
Dr. Henn is an internationally recognized investigative neuroscientist and psychiatrist. In connection with the advisory agreement,
and as sole compensation, Dr. Henn was granted stock options to purchase 200,000 shares of the Company’s common stock, with
100,000 shares vesting on November 28, 2015, and 100,000 shares vesting on November 28, 2016. The stock options are exercisable
for a period of five years from the grant date at $0.50 per share. The fair value of these stock options, as calculated pursuant
to the Black-Scholes option-pricing model, was initially determined to be $103,360 ($0.5168 per share), of which $51,680 was attributable
to the stock options fully-vested on November 28, 2015 and was therefore charged to operations on that date. The remaining unvested
portion of the fair value of the stock options was charged to operations ratably from November 28, 2015 through November 28, 2016.
During the year ended December 31, 2016, the Company recorded a charge to operations of $16,324 with respect to these stock options.
Effective
April 25, 2016, in connection with her continuing role as a member of the Company’s Board of Directors, Dr. Kathleen P.
Mullinix was granted fully-vested stock options under the 2007 Plan to purchase 150,000 shares of the Company’s common stock.
The stock options were exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $17,535 ($0.1169 per share), which was charged to operations on the date of grant.
Effective November 22, 2016, Dr. Mullinix resigned as a member of the Board of Directors of the Company. Consequently, pursuant
to the stock option agreement, Dr. Mullinix had twelve months from November 22, 2016 to exercise her stock options to acquire
150,000 shares of the Company’s common stock. On July 6, 2017, Dr. Mullinix exercised such stock options in full by making
a cash payment of $18,000 to the Company.
Effective
April 25, 2016, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Philip F. Palmedo
was granted fully-vested stock options under the 2007 Plan to purchase 450,000 shares of the Company’s common stock. The
stock options are exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $52,604 ($0.1169 per share), which was charged to operations on the date of grant.
Effective
May 13, 2016, in conjunction with his appointment as a director of the Company, the Company granted to Dr. Stephen J. Forman stock
options to purchase an aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for a period of five years
from vesting date at $0.16 per share, which was the fair market value of the Company’s common stock on such date. One-half
of such stock option (100,000 shares) vested on May 13, 2016 and the remaining one-half of such stock option (100,000 shares)
vested on May 13, 2017. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $31,180 ($0.1559 per share), of which $15,590 was attributable to the stock options fully-vested on May 13,
2016 and was therefore was charged to operations on that date. The remaining unvested portion of the fair value of the stock options
was charged to operations ratably from May 13, 2016 through May 13, 2017. During the years ended December 31, 2017 and 2016, the
Company recorded a total charge to operations of $5,681 and $25,500, respectively, with respect to these stock options.
Effective
June 7, 2016, in connection with his continuing role as a consultant to the Company, Eric Forman was granted fully-vested stock
options under the 2007 Plan to purchase 100,000 shares of the Company’s common stock. The stock options are exercisable
for a period of five years from the date of grant at $0.15 per share. The fair market value of the Company’s common stock
on the date of grant was $0.14 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $13,625 ($0.1363 per share), which was charged to operations on the date of grant.
Effective
September 12, 2016, in connection with his continuing role as a consultant to the Company, Francis Johnson was granted fully-vested
stock options under the 2007 Plan to purchase 500,000 shares of the Company’s common stock. The stock options are exercisable
for a period of five years from the date of grant at $0.25 per share. The fair market value of the Company’s common stock
on the date of grant was $0.25 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $98,901 ($0.1978 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Philip F.
Palmedo was granted fully-vested stock options to purchase 50,000 shares of the Company’s common stock. The stock options
are exercisable for a period of five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s
common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $7,499 ($0.1500 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Stephen J.
Forman was granted fully-vested stock options to purchase 50,000 shares of the Company’s common stock. The stock options
are exercisable for a period of five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s
common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $7,499 ($0.1500 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with his continuing role as a consultant to the Company, Eric Forman was granted fully-vested
stock options to purchase 100,000 shares of the Company’s common stock. The stock options are exercisable for a period of
five years from the date of grant at $0.15 per share, which was the fair market value of the Company’s common stock on such
date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined
to be $14,997 ($0.1500 per share), which was charged to operations on the date of grant.
Effective
October 16, 2017, in connection with her continuing role as a consultant to the Company, Jane Trigg was granted fully-vested stock
options to purchase 20,000 shares of the Company’s common stock. The stock options are exercisable for a period of five
years from the date of grant at $0.15 per share, which was the fair market value of the Company’s common stock on such date.
The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be
$2,999 ($0.1500 per share), which was charged to operations on the date of grant.
Total
stock-based compensation expense was $70,695 and $287,159 for the years ended December 31, 2017 and 2016, respectively.
A
summary of stock option activity during the years ended December 31, 2017 and 2016 is presented in the tables below.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
|
of
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in
Years)
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding at December 31, 2015
|
|
|
7,950,000
|
|
|
$
|
0.697
|
|
|
|
|
|
Granted
|
|
|
1,400,000
|
|
|
|
0.156
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
(750,000
|
)
|
|
|
0.993
|
|
|
|
|
|
Stock
options outstanding at December 31, 2016
|
|
|
8,600,000
|
|
|
|
0.583
|
|
|
|
|
|
Granted
|
|
|
220,000
|
|
|
|
0.150
|
|
|
|
|
|
Exercised
|
|
|
(150,000
|
)
|
|
|
0.120
|
|
|
|
|
|
Expired
|
|
|
(1,200,000
|
)
|
|
|
0.796
|
|
|
|
|
|
Stock
options outstanding at December 31, 2017
|
|
|
7,470,000
|
|
|
$
|
0.545
|
|
|
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercisable at December 31, 2016
|
|
|
7,975,000
|
|
|
$
|
0.501
|
|
|
|
|
|
Stock
options exercisable at December 31, 2017
|
|
|
7,470,000
|
|
|
$
|
0.545
|
|
|
|
1.90
|
|
There
was no deferred compensation expense for the outstanding value of unvested stock options at December 31, 2017.
The
exercise prices of common stock options outstanding and exercisable are as follows at December 31, 2017:
|
|
|
Options
|
|
|
Options
|
|
Exercise
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Prices
|
|
|
(Shares)
|
|
|
(Shares)
|
|
|
|
|
|
|
|
|
|
$
|
0.120
|
|
|
|
450,000
|
|
|
|
450,000
|
|
$
|
0.130
|
|
|
|
100,000
|
|
|
|
100,000
|
|
$
|
0.150
|
|
|
|
320,000
|
|
|
|
320,000
|
|
$
|
0.160
|
|
|
|
200,000
|
|
|
|
200,000
|
|
$
|
0.200
|
|
|
|
500,000
|
|
|
|
500,000
|
|
$
|
0.250
|
|
|
|
500,000
|
|
|
|
500,000
|
|
$
|
0.500
|
|
|
|
4,400,000
|
|
|
|
4,400,000
|
|
$
|
1.000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
$
|
2.000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
7,470,000
|
|
|
|
7,470,000
|
|
The
intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2017 was approximately $28,600, based
on a fair market value of $0.1650 per share on December 31, 2017.
All
outstanding options to acquire shares of the Company’s common stock were vested at December 31, 2017.
The
Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.
6.
Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets
as of December 31, 2017 and 2016 are summarized below. The calculations presented below at December 31, 2017 reflect the new U.S.
federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note 2).
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Start-up
and organization costs
|
|
$
|
19,000
|
|
|
$
|
35,000
|
|
Research
credits
|
|
|
316,000
|
|
|
|
261,000
|
|
Stock-based
compensation
|
|
|
407,000
|
|
|
|
860,000
|
|
Net
operating loss carryforwards
|
|
|
4,020,000
|
|
|
|
5,138,000
|
|
Total
deferred tax assets
|
|
|
4,762,000
|
|
|
|
6,294,000
|
|
Valuation
allowance
|
|
|
(4,762,000
|
)
|
|
|
(6,294,000
|
)
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
In
assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon
the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December
31, 2017 and 2016, management was unable to determine if it is more likely than not that the Company’s deferred tax assets
will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No
federal tax provision has been provided for the years ended December 31, 2017 and 2016 due to the losses incurred during such
periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and
the effective tax rate for the years ended December 31, 2017 and 2016.
|
|
Years
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
U.
S. federal statutory tax rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
Expirations
related to stock-based compensation
|
|
|
13.4
|
%
|
|
|
7.6
|
%
|
Adjustment
to deferred tax asset
|
|
|
(1.0
|
)%
|
|
|
3.3
|
%
|
Change
in valuation allowance
|
|
|
22.6
|
%
|
|
|
24.1
|
%
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
At
December 31, 2017, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately
$14,060,000 and $14,223,000, respectively, which, if not utilized earlier, expire through 2037.
7.
Commitments and Contingencies
The
Company may be subject to legal proceedings from time to time as part of its business. As of December 31, 2017, the Company was
not subject to any pending or threatened legal actions or claims.
Significant
agreements and contracts are summarized as follows:
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 (NINDS) of the National Institutes of Health (NIH) for a term of four years. The
Surgical Neurology Branch of NINDS is conducting research characterizing a variety of compounds proprietary to the Company and
is examining the potential of the compounds 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 does not imply any 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.
On
June 14, 2017, the Company executed Amendment No. 1 to the M-CRADA, pursuant to which the Company agreed to provide funding in
the amount of $100,000 to the National Cancer Institute for use in acquiring technical, statistical and administrative support
for research activities. The $100,000 amount is scheduled to be paid in two equal installments of $50,000, the first of which
was paid, as scheduled, on July 9, 2017, and was charged to operations on such date. The second installment of $50,000 is scheduled
to be paid on the June 14, 2018 anniversary date of the amendment and is being accreted ratably through such date. During the
year ended December 31, 2017, $75,000 was charged to operations and is included in research and development costs with respect
to Amendment No. 1.
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 also 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 was
for one year and provided for a quarterly cash fee of $4,000. In 2014, 2015, 2016 and 2017, the agreement has been automatically
renewed on its anniversary date for an additional one-year term. Consulting and advisory fees charged to operations pursuant to
this agreement were $16,000 during the years ended December 31, 2017 and 2016.
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.
BioPharmaWorks
was founded in 2015 by former Pfizer scientists with extensive multi-disciplinary research and development and drug development
experience. The Collaboration Agreement was 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 as described
at Note 5. In November 2016, it was mutually agreed to suspend services and payments pursuant to this agreement, without extending
the term of the agreement, for the period from November 1, 2016 through March 31, 2017. The agreement resumed as scheduled on
April 1, 2017 and was automatically renewed for an additional one-year period on September 13, 2017. The Company recorded charges
to operations pursuant to this Collaboration Agreement of $90,000 and $100,000 during the years ended December 31, 2017 and 2016,
respectively.
Summary
of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
December 31, 2017 aggregating $197,040, of which $60,740 is included in current liabilities in the Company’s consolidated
balance sheet at December 31, 2017.
|
|
|
|
|
Payments
Due by Year
|
|
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development contracts
|
|
$
|
81,040
|
|
|
$
|
81,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Consulting
agreements
|
|
|
116,000
|
|
|
|
116,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
197,040
|
|
|
$
|
197,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
8.
Subsequent Events
The
Company performed an evaluation of subsequent events through the date of filing of these consolidated financial statements with
the Securities and Exchange Commission. There were no material subsequent events which affected, or could affect, the amounts
or disclosures in the consolidated financial statements.