NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months Ended March 31, 2021 and 2020
1.
Organization and Basis of Presentation
The
condensed consolidated financial statements of Lixte Biotechnology Holdings, Inc., a Delaware corporation (“Holdings”), including
its wholly-owned Delaware subsidiary, Lixte Biotechnology, Inc. (“Lixte”) (collectively, the “Company”), at March
31, 2021, and for the three months ended March 31, 2021 and 2020, are unaudited. In the opinion of management of the Company, all adjustments,
including normal recurring accruals, have been made that are necessary to present fairly the financial position of the Company as of
March 31, 2021, and the results of its operations for the three months ended March 31, 2021 and 2020, and its cash flows for the three
months ended March 31, 2021 and 2020. Operating results for the interim periods presented are not necessarily indicative of the results
to be expected for a full fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the Company’s
audited consolidated financial statements at such date.
The
condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction with the financial statements and other information included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC.
2.
Business
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 is primarily focused on inhibitors of
protein phosphatases, used alone and in combination with cytotoxic agents and/or x-ray and immune checkpoint blockers, and 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. 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.
Going
Concern
At
March 31, 2021, the Company had cash of $7,739,323 available to fund its operations. Because the Company is currently engaged in Phase
2 clinical trials, it is expected that it will take a significant amount of time and resources 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. Even if 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
Company’s consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. The Company has no recurring source of revenue
and has experienced negative operating cash flows since inception. The Company has financed its working capital requirements primarily
through the recurring sale of its equity securities.
As
a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern.
The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements
for the year ended December 31, 2020, has also expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 profitability. The amount and timing of future
cash requirements depends on the pace and design of the Company’s clinical trial program, which, in turn, depends on the availability
of operating capital to fund such activities.
Effective
November 30, 2020, the Company listed on The Nasdaq Capital Market in conjunction with the completion of its public offering of units
of common stock and warrants that generated net cash proceeds of $4,591,349. Subsequently, on January 18, 2021, the Company entered into
a clinical trial agreement to carry out a Phase 1b clinical trial of LB-100, combined with a standard regimen for untreated, extensive
stage-disease small cell lung cancer. This new clinical trial is being conducted through City of Hope and is estimated to cost from $2,500,000
to $2,900,000 and take approximately 18 to 24 months to conduct from its expected commencement during the quarter ending June 30, 2021.
Combined with the Company’s existing clinical trial commitments, this new clinical trial commitment represents an additional demand
on the Company’s working capital resources. Although the Company completed a sale of common stock under a registered direct equity
offering on March 2, 2021 that generated net proceeds of $3,689,761, the Company estimates that it will need to raise additional capital
to fund its operations, including its various clinical trial commitments, by mid-2022. In addition, the Company’s operating plan
may change as a result of many factors which are currently unknown to the Company, including possible additional clinical trials, and
the Company may need additional funds sooner than currently planned.
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, as and when necessary, to continue to conduct operations. There
is also significant uncertainty as to the effect that the coronavirus pandemic may have on the Company’s clinical trial schedule
and the amount and type of financing available to the Company in the future.
If
cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back
or discontinue its clinical trial program, as well as its licensing and patent prosecution efforts and its technology and product development
efforts, or obtain funds, if available, through strategic alliances or joint ventures that could require the Company to relinquish rights
to and/or control of LB-100, or to discontinue operations entirely.
Reverse
Stock Split
On
November 18, 2020, the Company effected a 1-for-6 reverse split of its outstanding shares of common stock. No fractional shares were
issued in connection with the reverse split, with any fractional shares resulting from the reverse split being rounded up to the nearest
whole share.
All
share and per share amounts and information presented herein has been retroactively adjusted to reflect the reverse stock split for all
periods presented.
3.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed 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.
Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under
different assumptions or conditions. 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
Cash,
including accrued interest, is primarily held in a cash bank deposit program maintained by a major financial institution. The Company’s
policy is to maintain its cash balances with financial institutions with high credit ratings and in accounts insured by the Federal Deposit
Insurance Corporation (the “FDIC”) and/or by the Securities Investor Protection Corporation (the “SIPC”). The
Company may periodically have cash balances in financial institutions in excess of FDIC and SIPC insurance limits of $250,000 and $500,000,
respectively. The financial institution that currently holds the Company’s cash balances also maintains supplemental insurance
coverage for its customers’ cash balances. 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 contractors, and other expenses relating to the acquisition,
design, development and clinical trials with respect to the Company’s compounds and product candidates. Research and development
costs also include the costs to produce the compounds used in research and clinical trials.
Research
and development costs are generally charged to operations 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.
However, payments for research and development costs that are contractually defined as non-refundable are charged to operations as incurred.
Obligations
incurred with respect to mandatory scheduled payments under research agreements with milestone provisions are recognized as charges to
research and development costs in the Company’s consolidated statement of operations based on the achievement of such milestones,
as specified in the agreement. Obligations incurred with respect to mandatory scheduled payments under research agreements without milestone
provisions are accounted for when due, 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.
Payments
made pursuant to research and development contracts are initially recorded as advances on research and development contract services
in the Company’s consolidated balance sheet and are then charged to research and development costs in the Company’s consolidated
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 consolidated balance sheet,
with a corresponding charge to research and development costs in the Company’s consolidated statement of operations. The Company
reviews the status of its research and development contracts on a quarterly basis.
Prepaid
Insurance
Prepaid
insurance represents the premiums paid for directors and officers insurance coverage and for general liability insurance coverage in
excess of the amortization of the total policy premium charged to operations to date. Such amortization is determined by amortizing the
total policy premium charged on a straight-line basis over the respective policy periods. As the policy premiums incurred are amortizable
in the ensuing twelve-month period, they are recorded as a current asset in the Company’s consolidated balance sheet at each reporting
date and amortized to the Company’s consolidated statement of operations for each reporting period.
As
of March 31, 2021, total insurance policy premiums, in excess of premiums paid to date, amounted to $88,456, and are payable in three
monthly installments of $29,767 through June 2021, with interest at 5.27% per annum. As of December 31, 2020, the unpaid insurance premium
obligation was $175,658.
Patent
and Licensing Related Legal and Filing 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 charged
to operations as incurred. Patent and licensing-related legal and filing costs were $120,160 and $133,467 for the three months ended
March 31, 2021 and 2020, respectively. Patent and licensing related legal and filing costs are included in general and administrative
costs in the Company’s consolidated statements of operations.
Concentration
of Risk
The
Company periodically contracts with vendors and consultants to provide services related to the Company’s operations. Charges incurred
for these services can be for a specific time period (typically one year) or for a specific project or task. Costs and expenses incurred
that represented 10% or more of general and administrative costs or research and development costs for the three months ended March 31,
2021 and 2020 are described as follows.
General
and administrative costs for the three months ended March 31, 2021 and 2020 include charges from a legal firm for general licensing and
patent prosecution costs relating to the Company’s intellectual properties representing 9.3% and 45.6%, respectively, of total
general and administrative costs. General and administrative costs for the three months ended March 31, 2020 also include charges from
an accounting firm and a financial consulting firm representing 12.5% and 11.1%, respectively, of total general and administrative costs.
Research
and development costs for the three months ended March 31, 2021 include charges from three vendors and consultants representing 54.2%,
15.9%, and 13.9%, respectively, of total research and development costs for that period. Research and development costs for the three
months ended March 31, 2020 include charges from five vendors and consultants representing 31.7%, 20.8%, 14.4%, 12.5% and 11.0%, respectively,
of total research and development costs for that period.
Income
Taxes
The
Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly,
the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and
the tax basis of assets and liabilities.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In
the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded
amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Should the
Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred
tax assets would be charged to operations in the period such determination was made.
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 March 31, 2021 or December
31, 2020 and does not anticipate any material amount of unrecognized tax benefits within the 12 months subsequent to March 31, 2021.
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. The Company had not recorded any liability for uncertain tax positions as of March 31, 2021 or December
31, 2020. Subsequent to March 31, 2021, any interest and penalties related to uncertain tax positions will be recognized as a component
of income tax expense.
Stock-Based
Compensation
The
Company periodically issues common stock and stock options to officers, directors, employees, Scientific Advisory Committee members,
contractors and consultants for services rendered. Options vest and expire according to terms established at the issuance date of each
grant. Stock grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over
the vesting period.
The
Company accounts for stock-based payments to officers, directors, employees, Scientific Advisory Committee members contractors and consultants
by measuring the cost of services received in exchange for equity awards utilizing 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
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 expected life of the stock option, 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.
Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as the mid-point between
the vesting period and the contractual term (the “simplified method”). Estimated volatility is based on the historical volatility
of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock
option being granted. 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 the common stock is determined by reference to the quoted market price of the Company’s common stock on the grant
date.
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 statements of operations. The Company issues new shares of common stock to
satisfy stock option exercises.
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 was the same for all periods presented because all preferred shares, warrants and stock
options outstanding were anti-dilutive.
At
March 31, 2021 and 2020, 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.
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
|
729,167
|
|
|
|
729,167
|
|
Common stock warrants
|
|
|
3,110,310
|
|
|
|
1,500,000
|
|
Common stock options, including options issued in the form of warrants
|
|
|
1,675,000
|
|
|
|
1,308,333
|
|
Total
|
|
|
5,514,477
|
|
|
|
3,537,500
|
|
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 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
December 2019, the Financial Accounting Standards board (the “FASB”) issued Accounting Standards Update (“ASU”)
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the
accounting for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance
in ASC 740. ASU 2019-12 was effective January 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s consolidated
financial statement presentation or disclosures.
In
August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity (“ASU 2020-06). ASU 2020-06 simplifies the accounting for convertible debt by eliminating
the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless
issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract,
will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in
less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires
entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s
own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted
for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements
to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required
to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December
15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted
as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06
did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
Management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material
impact on the Company’s financial statement presentation or disclosures.
4.
Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue 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 of its Series A Convertible Preferred Stock with the Delaware
Secretary of State to amend the Company’s certificate of incorporation. The Company has designated a total of 350,000 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 Preferences, Rights and Limitations. The
holders of each tranche of 175,000 shares 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. As of March 31, 2021 and December 31,
2020, 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.
Each
share of Series A Convertible Preferred Stock may be converted, at the option of the holder, into 2.0833 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. The Series A Convertible Preferred
Stock does not have a cash liquidation preference.
If
fully converted, the 350,000 outstanding shares of Series A Convertible Preferred Stock would convert into 729,167 shares of common stock
at December 31, 2020 and 2019. The Company had the right to redeem the Series A Convertible Preferred Stock up to the fifth anniversary
of their respective closing dates (March 17, 2015 and January 21, 2016) at a price per share equal to $50.00. Accordingly, as of December
31, 2020, the Company had the right to redeem the 175,000 shares of Series A Convertible Preferred Stock that were issued on January
21, 2016, however, that right expired on January 21, 2021. The Series A Convertible Preferred Stock has no right to cash, except with
respect to the payment of the aforementioned dividend based on the generation of revenues by the Company. The shares of Series A Convertible
Preferred Stock do not have any registration rights.
Based
on the attributes of the Series A Convertible Preferred Stock as previously described, the Company has accounted for the Series A Convertible
Preferred Stock as a permanent component of stockholders’ equity.
Common
Stock
The
Company is authorized to issue a total of 100,000,000 shares of common stock, par value $0.0001 per share. As of March 31, 2021 and December
31, 2020, the Company had 13,538,259 shares and 12,402,157 shares, respectively, of common stock issued, issuable and outstanding.
On
November 30, 2020, the Company raised gross proceeds $5,700,000 through a public offering of 1,200,000 units at a sale price of $4.75
per unit. Each unit consists of one share of common stock and one warrant to purchase one share of common stock exercisable for five
years at an exercise price of $5.70 per share. Additionally, on December 7, 2020, the Company received an additional $1,800 from the
sale of 180,000 warrants as part of the overallotment option granted to the underwriters in the public offering. The warrants sold are
exercisable for five years and represent the right to purchase one share of common stock at an exercise price of $5.70 per share. The
total cash costs of the public offering were $1,110,451, resulting in net cash proceeds of $4,591,349. Pursuant to the underwriting agreement,
the Company also granted to the underwriters warrants to purchase up to 120,000 shares of common stock commencing on May 24, 2021 and
expiring on November 24, 2025, at an exercise price of $5.70 per share.
During
February and March 2021, the Company issued 3,000 shares of common stock upon the exercise of 3,000 warrants at $5.70 per share and received
cash proceeds of $17,100.
Effective
March 2, 2021, the Company completed the sale of 1,133,102 shares of common stock at a price of $3.70 per share in a registered direct
equity offering, generating gross proceeds of $4,192,478. The total cash costs of this offering were $502,717, resulting in net proceeds
of $3,689,761. Pursuant to the placement agents’ agreement, the Company granted to the placement agents warrants to purchase up
to 113,310 shares of common stock commencing on March 2, 2021 and expiring on March 2, 2026, at an exercise price of $3.70 per share.
Common
Stock Warrants
A
summary of common stock warrant activity during the three months ended March 31, 2021 is presented below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2020
|
|
|
3,000,000
|
|
|
$
|
5.850
|
|
|
|
|
|
Issued
|
|
|
113,310
|
|
|
|
3.700
|
|
|
|
|
|
Exercised
|
|
|
(3,000
|
)
|
|
|
5.700
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Warrants outstanding at March 31, 2021
|
|
|
3,110,310
|
|
|
$
|
5.772
|
|
|
|
3.23
|
|
At
March 31, 2021, all outstanding warrants are exercisable at the following prices per common share:
Exercise
Prices
|
|
|
Warrants
Outstanding
(Shares)
|
|
$
|
3.700
|
|
|
|
113,310
|
|
$
|
5.700
|
|
|
|
1,497,000
|
|
$
|
6.000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
3,110,310
|
|
Based
on a fair market value of $3.29 per share on March 31, 2021, there was no intrinsic value attributed to exercisable but unexercised common
stock warrants at March 31, 2021.
Information
with respect to the issuance of common stock in connection with various stock-based compensation arrangements is provided at Note 6.
5.
Related Party Transactions
The
Company’s principal office facilities are being provided without charge by Dr. John S. Kovach, the President and Chief Executive
Officer. Such costs were not material to the consolidated financial statements and accordingly, have not been reflected therein.
In
September 2007, the Company entered into a consulting agreement with Gil N 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 stockholders. In January 2014 and August 2018, the Company entered into respective amendments
to this consulting agreement, which have extended the consulting agreement through January 28, 2024. Consideration under this consulting
agreement, including amendments, has been paid exclusively in the form of stock options. Effective April 9, 2021, Mr. Schwartzberg was
appointed to the Company’s Board of Directors. Mr. Schwartzberg is currently a significant stockholder of the Company and continues
to be a consultant to the Company.
The
Company entered into an employment agreement with Dr. Kovach dated July 15, 2020 and effective October 1, 2020 for Dr. Kovach to continue
to act as the Company’s President, Chief Executive Officer and Chief Scientific Officer with an annual salary of $250,000. During
the three months ended March 31, 2020, the Company paid Dr. Kovach a salary of $15,000, which amount is included in general and administrative
costs in the Company’s consolidated statements of operations.
The
Company entered into an employment agreement with Dr. James S. Miser, M.D., effective August 1, 2020 to act as the Company’s Chief
Medical Officer with an annual salary of $150,000. Dr. Miser is required to devote at least 50% of his business time to the Company’s
activities.
The
Company entered into an employment agreement with Eric J. Forman effective July 15, 2020, as amended on August 12, 2020, to act as the
Company’s Chief Administrative Officer with an annual salary of $120,000. Eric Forman is the son-in-law of Gil Schwartzberg, a
member of the Company’s Board of Directors, and a significant stockholder of and consultant to the Company, and is the son of Dr.
Stephen Forman, a member of the Company’s Board of Directors. Julie Forman, the wife of Eric Forman and the daughter of Gil Schwartzberg,
is Vice President of Morgan Stanley Wealth Management, where the Company’s cash is deposited and the Company maintains a continuing
banking relationship. During the three months ended March 31, 2020 (a period prior to his appointment as Chief Administrative Officer),
the Company paid legal and consulting fees to the Eric Forman Law Office of $12,000, which amount is included in general and administrative
costs in the Company’s consolidated statements of operations.
The
Company entered into an employment agreement with Robert N. Weingarten effective August 12, 2020 to act as the Company’s Vice President
and Chief Financial Officer with an annual salary of $120,000. During the three months ended March 31, 2020 (a period prior to his appointment
as Vice President and Chief Financial Officer), the Company paid Mr. Weingarten a total of $32,395 for accounting and financial consulting
services rendered with respect to the preparation of the Company’s consolidated financial statements and certain other financial
and compliance matters.
A
summary of related party costs, including the above-described payments to Mr. Forman in 2020 prior to his appointment as Chief Administrative
Officer, but excluding the payments to Mr. Weingarten in 2020 prior to his appointment as Vice President and Chief Financial Officer,
for the three months ended March 31, 2021 and 2020 is as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Related party costs:
|
|
|
|
|
|
|
|
|
Cash-based
|
|
$
|
160,000
|
|
|
$
|
27,000
|
|
Stock-based
|
|
|
656,032
|
|
|
|
—
|
|
Total
|
|
$
|
816,032
|
|
|
$
|
27,000
|
|
Stock-based
compensation arrangements involving members of the Company’s Board of Directors. officers and affiliates are described at Note
6.
6.
Stock-Based Compensation
The
Company issues common stock and stock options as incentive compensation to directors and as compensation for the services of employees,
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 provided
for the granting of awards, consisting of stock options, stock appreciation rights, performance shares, and restricted shares of common
stock, to employees and consultants, for up to 416,667 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 March 31, 2021, unexpired stock options for
208,333 shares were issued and outstanding under the 2007 Plan, of which stock options for 125,001 shares were exercised on April 22,
2021.
On
July 14, 2020, the Board of Directors of the Company adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides
for the granting of equity-based awards, consisting of stock options, restricted stock, restricted stock units, stock appreciation rights,
and other stock-based awards to employees, officers, directors and consultants of the Company and its affiliates for up to 2,333,333
shares of the Company’s common stock, under terms and conditions as determined by the Company’s Board of Directors. Stockholders
holding a majority of the voting power of the common stock of the Company approved the 2020 Plan pursuant to an action by written consent
dated July 31, 2020. Stockholders of the Company were notified of such action by written consent pursuant to an Information Statement
dated August 31, 2020 and mailed to stockholders on or about September 3, 2020. As of March 31, 2021, unexpired stock options for 1,400,000
shares were issued and outstanding under the 2020 Plan.
The
fair value of each stock option awarded is calculated on the grant date using the Black-Scholes option-pricing model. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect as of the grant date. The expected dividend yield assumption is based on the
Company’s expectation of dividend payouts and is assumed to be zero. The expected volatility is based on the historical volatility
of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock
option being granted. Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as
the mid-point between the vesting period and the contractual term (the “simplified method”). The fair market value of the
common stock is determined by reference to the quoted market price of the common stock on the grant date.
For
stock options requiring an assessment of value during the three months ended March 31, 2021, 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
|
|
|
0.80
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
201.47
|
%
|
Expected life
|
|
|
2.5 years
|
|
There
were no stock options requiring an assessment of value during the three months ended March 31, 2020.
On
July 15, 2020, as amended on August 12, 2020, in connection with the employment agreement entered into with Eric J. Forman, Mr. Forman
was granted options for 58,333 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options
have a term of five years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common
stock on the grant date. The options vested as to 25% on August 12, 2020, and will vest 25% on each of the first, second and third anniversaries
of the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined
to be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore
charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations
ratably from August 12, 2020 through August 12, 2023. During the three months ended March 31, 2021, the Company recorded a charge to
general and administrative costs in the consolidated statement of operations of $24,710 with respect to these stock options.
On
August 1, 2020, in connection with an employment agreement entered into with Dr. James S. Miser, M.D., Dr. Miser was granted options
for 83,334 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options have a term of five
years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common stock on the effective
date of the employment agreement. The options vested as to 25% on the effective date, and will vest 25% on each of the first, second
and third anniversaries of the effective date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $572,650 ($6.8718 per share), of which $143,163 was attributable to the stock options fully-vested on August
1, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options will
be charged to operations ratably from August 1, 2020 through August 1, 2023. During the three months ended March 31, 2021, the Company
recorded a charge to general and administrative costs in the consolidated statement of operations of $35,300 with respect to these stock
options.
On
August 12, 2020, in connection with the employment agreement entered into with Robert N. Weingarten, Mr. Weingarten was granted options
for 58,333 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options have a term of five
years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common stock on the grant
date. The options vested as to 25% on August 12, 2020, and will vest 25% on each of the first, second and third anniversaries of the
grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to
be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore
charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations
ratably from August 12, 2020 through August 12, 2023. During the three months ended March 31, 2021, the Company recorded a charge to
general and administrative costs in the consolidated statement of operations of $24,710 with respect to these stock options.
Effective
January 6, 2021, in recognition with their service as directors of the Company over the past year, the Company granted to each of Dr.
Winson Sze Chun Ho, Dr. Yun Yen, Dr. Stephen Forman, and Dr. Philip Palmedo, fully-vested stock options to purchase an aggregate of 200,000
shares (50,000 shares to each director) of the Company’s common stock, exercisable for a period of five years from the grant date
at $3.21 per share, which was the approximate 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 $571,312 ($2.8566 per share) and
was recorded as a charge to general and administrative costs in the consolidated statement of operations on the grant date.
A
summary of stock-based compensation costs for the three months ended March 31, 2021 and 2020 is as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Related parties
|
|
$
|
656,032
|
|
|
$
|
—
|
|
Non-related parties
|
|
|
—
|
|
|
|
—
|
|
Total stock-based compensation costs
|
|
$
|
656,032
|
|
|
$
|
—
|
|
A
summary of stock option activity, including options issued in the form of warrants, during the three months ended March 31, 2021 is presented
below.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Remaining Contractual
Life (in Years)
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at December 31, 2020
|
|
|
1,475,000
|
|
|
$
|
4.136
|
|
|
|
|
|
Granted
|
|
|
200,000
|
|
|
|
3.210
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Stock options outstanding at March 31, 2021
|
|
|
1,675,000
|
|
|
$
|
4.193
|
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at March 31, 2021
|
|
|
1,525,000
|
|
|
$
|
3.719
|
|
|
|
2.95
|
|
Total
deferred compensation expense for the outstanding value of unvested stock options was approximately $810,000 at March 31, 2021, which
will be recognized subsequent to March 31, 2021 over a weighted-average period of approximately 28 months.
The
exercise prices of common stock options outstanding and exercisable, including options issued in the form of warrants, at March 31, 2021
are as follows:
Exercise
Prices
|
|
|
Options
Outstanding
(Shares)
|
|
|
Options
Exercisable (Shares)
|
|
|
|
|
|
|
|
|
|
$
|
0.720
|
|
|
|
75,000
|
|
|
|
75,000
|
|
$
|
0.900
|
|
|
|
50,000
|
|
|
|
50,000
|
|
$
|
0.960
|
|
|
|
33,333
|
|
|
|
33,333
|
|
$
|
1.200
|
|
|
|
83,333
|
|
|
|
83,333
|
|
$
|
1.680
|
|
|
|
66,667
|
|
|
|
66,667
|
|
$
|
3.000
|
|
|
|
666,667
|
|
|
|
666,667
|
|
$
|
3.210
|
|
|
|
200,000
|
|
|
|
200,000
|
|
$
|
6.000
|
|
|
|
166,667
|
|
|
|
166,667
|
|
$
|
6.600
|
|
|
|
50,000
|
|
|
|
50,000
|
|
$
|
7.140
|
|
|
|
200,000
|
|
|
|
50,000
|
|
$
|
12.000
|
|
|
|
83,333
|
|
|
|
83,333
|
|
|
|
|
|
|
1,675,000
|
|
|
|
1,525,000
|
|
The
intrinsic value of exercisable but unexercised in-the-money stock options at March 31, 2021 was approximately $880,750, based on a fair
market value of $3.29 per share on March 31, 2021.
Outstanding
stock options to acquire 150,000 shares of the Company’s common stock had not vested at March 31, 2021.
The
Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.
7.
Income Taxes
During
the three months ended March 31, 2021 and 2020, there was no provision for income taxes as the Company incurred losses during those periods.
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The Company recorded a full valuation allowance against
its deferred tax assets as the Company believes it is more likely than not the deferred tax assets will not be realized.
8.
Commitments and Contingencies
Legal
Claims
The
Company may be subject to legal claims and actions from time to time as part of its business activities. As of March 31, 2021, the Company
was not subject to any pending or threatened legal claims or actions.
Clinical
Trial Agreements
Moffitt.
Effective August 20, 2018, the Company entered into a Clinical Trial Research Agreement with the Moffitt Cancer Center and Research
Institute Hospital Inc., Tampa, Florida, effective for a term of five years, unless terminated earlier by the Company pursuant to 30
days written notice. Pursuant to the Clinical Trial Research Agreement, Moffitt agreed to conduct and manage a Phase 1b/2 clinical trial
to evaluate the therapeutic benefit of the Company’s lead anti-cancer clinical compound LB-100 to be administered intravenously
in patients with low or intermediate-1 risk myelodysplastic syndrome (MDS).
In
November 2018, the Company received approval from the U.S. Food and Drug Administration for its Investigational New Drug Application
(“IND”) to conduct a Phase 1b/2 clinical trial to evaluate the therapeutic benefit of LB-100 in patients with low and intermediate-1
risk MDS who have failed or are intolerant of standard treatment. Patients with MDS, although usually older, are generally well except
for severe anemia requiring frequent blood transfusions. This Phase 1b/2 clinical trial utilizes LB-100 as a single agent in the treatment
of patients with low and intermediate-1 risk MDS, including patients with del(5q) myelodysplastic syndrome (del5qMDS) failing first line
therapy. The bone marrow cells of patients with del5qMDS are deficient in PP2A by virtue of an acquired mutation and are especially vulnerable
to further inhibition of PP2A by LB-100. The clinical trial began at a single site in April 2019 and the first patient was entered into
the clinical trial in July 2019. A total enrollment of 41 patients is planned. An interim analysis will be done after the first 21 patients
are entered. If there are 3 or more responders but fewer than 7, an additional 20 patients will be entered. If at any point there are
7 or more responders, this will be sufficient evidence to support continued development of LB-100 for the treatment of low and intermediate-1
risk MDS. Recruitment has been slow and the Covid-19 pandemic has further reduced recruitment of patients into the protocol. At the current
rate of accrual, the trial would be completed over a period of four years from its initiation, with the final analysis and reporting
expected by July 2023. However, with additional funds, the Company’s objective would be to add two additional MDS centers to the
Phase 2 portion of the study to accelerate patient accrual, with the goal of an earlier reporting date.
During
the three months ended March 31, 2021 and 2020, the Company paid Moffitt $7,384 and $13,667, respectively, pursuant to this agreement.
As of March 31, 2021, total costs of $110,328 have been incurred pursuant to this agreement.
GEIS.
Effective July 31, 2019, the Company entered into a Collaboration Agreement for an Investigator-Initiated Clinical Trial with the
Spanish Sarcoma Group (Grupo Español de Investigación en Sarcomas or “GEIS”), Madrid, Spain, to carry out a
study entitled “Randomized phase I/II trial of LB-100 plus doxorubicin vs. doxorubicin alone in first line of advanced soft tissue
sarcoma”. The purpose of this clinical trial is to obtain information about the efficacy and safety of LB-100 combined with doxorubicin
in soft tissue sarcomas. Doxorubicin is the global standard for initial treatment of advanced soft tissue sarcomas (“ASTS”).
Doxorubicin alone has been the mainstay of first line treatment of ASTS for over 40 years, with little therapeutic gain from adding cytotoxic
compounds to or substituting other cytotoxic compounds for doxorubicin. In animal models, LB-100 consistently enhances the anti-tumor
activity of doxorubicin without apparent increases in toxicity.
GEIS
has a network of referral centers in Spain and across Europe that have an impressive track record of efficiently conducting innovative
studies in ASTS. The Company agreed to provide GEIS with a supply of LB-100 to be utilized in the conduct of this clinical trial, as
well as to provide funding for the clinical trial. The goal was to enter the first patient during the quarter ending December 31, 2020,
with approximately 150 patients to be enrolled over two years. Advanced sarcoma is a very aggressive disease. The design of the study
assumes a median progression free survival (PFS, no evidence of disease progression or death from any cause) of 4.5 months in the doxorubicin
arm and an alternative median PFS of 7.5 months in the doxorubicin plus LB-100 arm to demonstrate a statistically significant decrease
in relative risk of progression or death by adding LB-100. There is a planned interim analysis of the primary endpoint when about half
of the 102 events required for final analysis is reached.
The
Company had previously expected that this clinical trial would commence during the quarter ended June 30, 2020. However, during July
2020, the Spanish regulatory authority advised the Company that although it had approved the scientific and ethical basis of the protocol,
it required that the Company manufacture new inventory of LB-100 under current Spanish pharmaceutical manufacturing standards. These
regulations were adopted subsequent to the production of the Company’s existing LB-100 inventory. The Company is in the process
of obtaining approval from the European Union regulatory authorities for new inventory of LB-100. Accordingly, the clinical trial is
now estimated to begin during the quarter ending September 30, 2021 and to be completed by the quarter ending September 30, 2024. The
interim analysis is expected in June 2023 and could indicate either inferiority or superiority of LB-100 plus doxorubicin as compared
to doxorubicin alone. A positive study would have the potential to change the standard therapy for this disease after four decades of
failure to improve the marginal benefit of doxorubicin alone.
The
Company’s agreement with GEIS provides for various payments based on achieving specific milestones over the term of the agreement.
On February 18, 2020, the Company advanced $43,411 to GEIS towards a second milestone payment obligation of $87,471, which was expected
to become due and payable during the quarter ended June 30, 2020 based on the anticipated achievement of the second milestone, and which
was therefore recorded as an advance on the Company’s balance sheet at March 31, 2020. However, as a result of the substantial
delay in commencing the clinical trial as described above, the achievement of the second milestone had been delayed until mid-2021 and
the Company therefore determined to charge such advance to research and development costs in the Company’s statement of operations
at June 30, 2020. Subsequently, on February 26, 2021, the Company paid an additional $24,171 to GEIS towards the second milestone payment
for current work being done under this agreement.
Accordingly,
during the three months ended March 31, 2021 and 2020, the Company incurred costs of $24,171 and $0, respectively, pursuant to this agreement.
As of March 31, 2021, total costs of $155,053 have been incurred pursuant to this agreement.
The
Company’s aggregate commitments pursuant to the aforementioned clinical trial agreements, less amounts previously paid to date
under these agreements, totaled approximately $5,019,000 as of March 31, 2021, consisting of approximately $4,403,000 relating to the
GEIS clinical trial and approximately $616,000 relating to the Moffit clinical trial, which are expected to be incurred over the next
five years through December 31, 2025.
In
order to manufacture a new inventory supply of LB-100 for the GEIS clinical trial, the Company has engaged a number of vendors to carry
out the multiple tasks needed to make and gain approval of a new clinical product for investigational study in Spain. These tasks include
the synthesis under good manufacturing practices (GMP) of the active pharmacologic ingredient (API), with documentation of each of the
steps involved by an independent auditor. The API is then transferred to a vendor that prepares the clinical drug product (DP), also
under GMP conditions documented by an independent auditor. The DP is then sent to a vendor to test for purity and sterility, provide
appropriate labels, store the drug, and distribute the drug to the clinical centers for use in the clinical trials. A formal application
documenting all steps taken to prepare the DP for clinical use must be submitted to the appropriate regulatory authorities for review
and approval before being used in a clinical trial.
The
Company estimates that this program to provide new inventory of the DP for the Spanish sarcoma study, and potentially for subsequent
multiple trials within the European Union, will cost approximately $600,000. The Company’s remaining aggregate commitments under
this program, less amounts previously paid to date, totaled approximately $300,000 as of March 31, 2021, which are expected to be incurred
through June 30, 2021.
City
of Hope. Effective January 18, 2021, the Company executed a Clinical Research Support Agreement with City of Hope National Medical
Center, an NCI-designated comprehensive cancer center, and City of Hope Medical Foundation (collectively, “City of Hope”),
to carry out a Phase 1b clinical trial of LB-100, the Company’s first-in-class protein phosphatase inhibitor, combined with a standard
regimen for untreated, extensive stage-disease small cell lung cancer (ED-SCLC). LB-100 will be given in combination with carboplatin,
etoposide and atezolizumab, an FDA-approved but marginally effective regimen, to previously untreated ED-SCLC patients. The dose of LB-100
will be escalated with the standard fixed doses of the 3-drug regimen to reach a recommended Phase 2 dose (RP2D). Patient entry will
be expanded so that a total of 12 patients will be evaluable at the RP2D to confirm the safety of the LB-100 combination and to look
for potential therapeutic activity as assessed by objective response rate, duration of overall response, progression-free-survival and
overall survival.
The
clinical trial was initiated on March 9, 2021, with patient accrual expected to take approximately 18 to 24 months to complete. If LB-100
does potentiate the benefit of the standard regimen, some evidence could be noted at 12 months into the clinical trial, but an assessment
of potential increased activity is likely to require at least 24 months.
As
of March 31, 2021, the Company had paid an initial non-refundable payment under this agreement of $240,508, which was charged to research
and development costs in the statement of operations upon payment. As of March 31, 2021, total costs of $240,508 have been incurred pursuant
to this agreement.
The
Company’s aggregate commitments pursuant to this clinical trial agreement, less amounts previously paid to date under this agreement,
totaled approximately $2,718,000 as of March 31, 2021, which are expected to be incurred over the next two years. If a significant number
of patients fail during the dose-escalation process, an increase of up to 12 patients would likely be necessary, at an estimated additional
cost of approximately $800,000.
Clinical
Trial Monitoring Agreements
Moffitt.
On September 12, 2018, the Company finalized a work order agreement with Theradex Systems, Inc. (“Theradex”), an international
contract research organization (“CRO”), to monitor the Phase 1b/2 clinical trial being managed and conducted by Moffitt.
The clinical trial began in April 2019 and the first patient was entered into the clinical trial in July 2019. At the current rate of
accrual, the trial would be completed over a period of four years from its initiation, with the final analysis and reporting expected
by July 2023.
Costs
under this work order agreement are estimated to be approximately $954,000, with such payments expected to be divided approximately 94%
to Theradex for services and approximately 6% for payments for pass-through costs. The costs of the Phase 1b/2 clinical trial being paid
to or through Theradex are being recorded and charged to operations based on the periodic documentation provided by the CRO. During the
three months ended March 31, 2021 and 2020, the Company incurred costs of $941 and $5,686, respectively, pursuant to this work order.
As of March 31, 2021, total costs of $76,729 have been incurred pursuant to this work order agreement.
The
Company’s aggregate commitment pursuant to this clinical trial monitoring agreement, less amounts previously paid to date under
this agreement, totaled approximately $876,000 as of March 31, 2021, which are expected to be incurred over the next five years through
June 30, 2025.
City
of Hope. On February 5, 2021, the Company signed a new work order agreement with Theradex to monitor the City of Hope investigator-initiated
clinical trial in small cell lung cancer in accordance with FDA requirements for oversight by the sponsoring party. During the three
months ended March 31, 2021, the Company incurred costs of $3,540 pursuant to this work order. As of March 31, 2021, total costs of $3,540
have been incurred pursuant to this work order agreement.
The
Company’s aggregate commitment pursuant to this clinical trial monitoring agreement, less amounts previously paid to date under
this agreement, totaled approximately $332,000 as of March 31, 2021, which are expected to be incurred through September 30, 2023.
Patent
and License Agreements
On
March 22, 2018, the Company entered into a Patent Assignment and Exploitation Agreement with INSERM TRANSFERT SA, acting as delegatee
of the French National Institute of Health and Medical Research, for the assignment to the Company of INSERM’S interest in United
States Patent No. 9,833,450 entitled “Oxabicyloheptanes and Oxabicycloheptenes for the Treatment of Depressive and Stress Disorders”,
which was filed with the United States Patent and Trademark Office in the name of INSERM and the Company as co-owners on February 19,
2015 and granted on May 12, 2017, and related patent applications and filings. INSERM is a French public institution dedicated to research
in the field of health and medicine that had previously entered into a Material Transfer Agreement with the Company to allow INSERM to
conduct research on the Company’s proprietary compound LB-100 and/or its analogs for the treatment of depressive or stress disorders
in humans. Pursuant to the Agreement, the Company has agreed to make certain milestone payments to INSERM aggregating up to $1,750,000
upon achievement of development milestones and up to $6,500,000 upon achievement of commercial milestones. The Company also agreed to
pay INSERM certain commercial royalties on net sales of products attributed to the Agreement. The Company’s current plan is to
complete the validation process to evaluate LB-100 for the treatment of depressive or stress disorders in humans within three years;
however, the exploitation of this patent for the treatment of depressive and stress disorders in humans will require substantial additional
capital and/or a joint venture or other type of business arrangement with a pharmaceutical company with substantially greater capital
and business resources than those available to the Company. As there can be no assurances that the Company will be able to obtain the
capital or business resources necessary to focus on the exploitation of this patent, it is uncertain as to when, if at all, the Company
may reach any of the development or commercialization milestones under the Agreement. As of March 31, 2021 and 2020, no amounts were
due under this agreement.
Effective
August 20, 2018, the Company entered into an Exclusive License Agreement with Moffitt. Pursuant to the License Agreement, Moffitt granted
the Company an exclusive license under certain patents owned by Moffitt (the “Licensed Patents”) relating to the treatment
of MDS and a non-exclusive license under inventions, concepts, processes, information, data, know-how, research results, clinical data,
and the like (other than the Licensed Patents) necessary or useful for the practice of any claim under the Licensed Patents or the use,
development, manufacture or sale of any product for the treatment of MDS which would otherwise infringe a valid claim under the Licensed
Patents. The Company was obligated to pay Moffitt a non-refundable license issue fee of $25,000 after the first patient is entered into
a Phase 1b/2 clinical trial to be managed and conducted by Moffitt. The clinical trial began at a single site in April 2019 and the first
patient was entered into the clinical trial in July 2019. The Company is also obligated to pay Moffitt an annual license maintenance
fee of $25,000 commencing on the first anniversary of the Effective Date and every anniversary thereafter until the Company commences
payment of minimum royalty payments. The Company has also agreed to pay non-refundable milestone payments to Moffitt, which cannot be
credited against earned royalties payable by the Company, based on reaching various clinical and commercial milestones aggregating $1,897,000,
subject to reduction by 40% under certain circumstances relating to the status of Valid Claims, as such term is defined in the License
Agreement. During the three months ended March 31, 2021 and 2020, the Company recorded charges to operations of $6,164 and $6,165, respectively,
in connection with its obligations under the License Agreement. As of March 31, 2021, no milestones had yet been attained.
The
Company will be obligated to pay Moffitt earned royalties of 4% on worldwide cumulative net sales of royalty-bearing products, subject
to reduction to 2% under certain circumstances, on a quarterly basis, with a minimum royalty payment of $50,000 in the first four years
after sales commence, and $100,000 in year five and each year thereafter, subject to reduction by 40% under certain circumstances relating
to the status of Valid Claims, as such term is defined in the License Agreement. The Company’s obligation to pay earned royalties
under the License Agreement commences on the date of the first sale of a royalty-bearing product, and shall automatically expire on a
country-by-country basis on the date on which the last valid claim of the Licensed Patents expires, lapses or is declared invalid, and
the obligation to pay any earned royalties under the License Agreement shall terminate on the date on which the last valid claim of the
Licensed Patents expires, lapses, or is declared to be invalid in all countries.
Employment
Agreements with Officers
During
July and August 2020, the Company entered into one-year employment agreements with its executive officers, consisting of Dr. John S.
Kovach, Eric J. Forman, Dr. James S. Miser, and Robert N. Weingarten, which provided for aggregate annual compensation of $640,000, payable
monthly (see Note 5). The employment agreements are automatically renewable for additional one-year periods unless terminated by either
party upon 60 days written notice prior to the end of the applicable one-year period, or by death, or by termination for cause.
Other
Significant Agreements and Contracts
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. 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. The agreement has been automatically renewed for additional one-year terms on its anniversary date since 2014. Consulting
and advisory fees charged to operations pursuant to this agreement were $4,000 and $4,000 for the three months ended March 31, 2021 and
2020, respectively, which were included in research and development costs in the consolidated statements of operations.
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 included, 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 April 2018, it was mutually agreed
to suspend services and payments under the Collaboration Agreement, without extending its term, for the period from February 1, 2018
through the September 13, 2019 anniversary date. In February 2019, the Company and BioPharmaWorks subsequently agreed to resume the Collaboration
Agreement effective March 1, 2019, and the Collaboration Agreement is currently in effect. The Company recorded charges to operations
pursuant to this Collaboration Agreement of $30,000 and $30,000 for the three months ended March 31, 2021 and 2020, respectively, which
were included in research and development costs in the consolidated statements of operations.
Effective
August 12, 2020, the Company entered into a Master Service Agreement with the Foundation for Angelman Syndrome Therapy (FAST) to collaborate
in supporting preclinical studies of the potential benefit of LB-100 in a mouse model of Angelman Syndrome (AS) as reported in The Proceedings
of The National Academy of Science (Wang et al, June 3, 2019). The preclinical studies will take place at The University of California
- Davis under the direction of Dr. David Segal, an internationally recognized leader in AS research. If the preclinical studies confirm
that LB-100 reduces AS signs in rodent models, the Company has agreed to enter into discussions with FAST with respect to possible collaborations
to most efficiently assess the benefit of LB-100 in patients with AS, which is a rare disease affecting an estimated one out of 12,000
to one out of 20,000 persons in the United States. The genetic cause of AS, reduced function of a specific maternal gene called Ube3,
has been understood for some time, but the molecular abnormality resulting from the genetic lesion has now been shown to be increased
concentrations of protein phosphatase 2A (PP2A), a molecular target of the Company’s investigational compound, LB-100. The Company
has agreed to provide FAST with a supply of LB-100 to be utilized in the conduct of this study, which is initially expected to be completed
within three years. Conditioned on FAST’s completion of this study, the Company has agreed to pay FAST five percent (5%) of all
proceeds, as defined in the Master Service Agreement, received by the Company, up to a maximum of $250,000 from the exploitation of the
study results.
Effective
December 21, 2020, the Company entered into a services agreement with IRTH Communications, LLC for investor/public relations, financial
communications, and strategic consulting services, effective for an initial term of twelve months and renewable annually thereafter.
The Company agreed to pay a monthly fee of $7,500, including any renewal term, and also agreed to issue restricted shares of common stock,
fully vested upon issuance, with a grant date fair value of $100,000 (see Note 4). Upon the commencement of any renewal term, the Company
will be obligated to issue additional restricted shares of common stock, fully vested upon issuance, with a grant date fair value of
$100,000. During the three months ended March 31, 2021, the Company incurred charges in the amount of $22,500 with respect to this agreement,
which amount is included in general and administrative costs in the Company’s consolidated statements of operations.
Impact
of the Novel Coronaviru-19) on the Company’s Business Activities
The
global outbreak of the novel coronavirus (COVID-19) has led to disruptions in general economic activities worldwide, as businesses and
governments have taken broad actions to mitigate this public health crisis. In
light of the uncertain and continually evolving situation relating to the spread of COVID-19, this pandemic could pose a risk to the
Company. The extent to which the coronavirus may impact the Company’s business activities will depend on future developments, which
are highly uncertain and cannot be predicted at this time. The Company intends to continue to monitor the situation and may adjust its
current business plans as more information and guidance become available.
The
coronavirus pandemic presents a challenge to medical facilities worldwide. As the Company’s clinical trials are conducted on an
outpatient basis, it is not currently possible to predict the full impact of this developing health crisis on such clinical trials, which
could include delays in and increased costs of such clinical trials. Current indications from the clinical research organizations conducting
the clinical trials for the Company are that such clinical trials are being delayed or extended for several months as a result of the
coronavirus pandemic.
There
is also significant uncertainty as to the effect that the coronavirus may have on the amount and type of financing available to the Company
in the future.
The
Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become
available.
9.
Subsequent Events
The
Company performed an evaluation of subsequent events through the date of filing of these consolidated financial statements with the SEC.
Other than those matters described below, there were no material subsequent events which affected, or could affect, the amounts or disclosures
in the consolidated financial statements.
Compensatory
Arrangements for Board of Directors, Other Committee Members and Officers
On
April 9, 2021, the Board of Directors approved a comprehensive cash and equity compensation package for the members of the Board of Directors
and committee members, effective immediately.
The
Board of Directors approved the following cash compensation for non-officer directors, payable quarterly:
Base
director compensation - $20,000 per year
Chairman
of audit committee - additional $10,000 per year
Chairman
of any other committees - additional $5,000 per year
Member
of audit committee - additional $5,000 per year
Member
of any other committees - additional $2,500 per year
The
Board of Directors also approved the annual granting of stock options to each non-officer director to purchase 100,000 shares of common
stock at the closing market price on the earlier of the date of the annual meeting of shareholders or the last business day of the month
ending June 30, vesting 12.5% on the last day of each subsequent calendar quarter-end until fully vested.
The
Board of Directors also approved the granting of stock options to a new director to purchase 250,000 shares of common stock, exercisable
at the closing market price on the date of grant for a period of five years, vesting 50% on the grant date and the remainder vesting
12.5% on the last day of each subsequent calendar quarter-end until fully vested.
On
April 9, 2021, the Board of Directors also approved an increase in annual compensation to each of Eric J. Forman, the Company’s
Chief Administrative Officer, Dr. James S. Miser, the Company’s Chief Medical Officer, and Robert N. Weingarten, the Company’s
Chief Financial Officer, to $175,000 effective May 1, 2021.
Changes
in Board of Directors and Issuance of Stock Options
On
April 9, 2021, Winson Sze Chun Ho resigned from the Company’s Board of Directors to focus on clinical and pre-clinical cancer research
in academic medicine. Concurrent with his resignation, the Board of Directors appointed Gil Schwartzberg to fill the vacancy created
by Dr. Ho’s resignation. In connection with his appointment to the Board of directors, Mr. Schwartzberg was granted options exercisable
for a period of five years to purchase 250,000 shares of the Company’s common stock at an exercise price of $3.20 per share (the
closing market price on the date of grant), vesting 50% on the grant date and the remainder vesting 12.5% on the last day of each subsequent
calendar quarter-end until fully vested.
Exercise
of Stock Options
On
April 22, 2021, the Company issued 125,001 shares of its common stock upon the exercise of options held by an officer and two of the
Company’s Directors as follows: 75,000 options at $0.72 per share, 16,667 options at $0.90 per share, and 33,334 options at $0.96
per share, for total cash proceeds of $101,101.