NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months and Nine Months Ended September 30, 2022 and 2021
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 September
30, 2022, and for the three months and nine months ended September 30, 2022 and 2021, 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 September 30, 2022, and the results of its operations for the three months and nine months ended September
30, 2022 and 2021, and its cash flows for the nine months ended September 30, 2022 and 2021. 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, 2021 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, 2021, as filed with the SEC.
Listing
of the Company’s Common Stock on The Nasdaq Capital Market
The
Company’s common stock and the warrants issued in its public offering are traded on The Nasdaq Capital Market under the symbols
“LIXT” and “LIXTW”, respectively.
On
June 24, 2022, the Company received a written notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”)
that the Company has not been in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for a
period of 30 consecutive business days. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum closing bid price
of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists
if the deficiency continues for a period of 30 consecutive business days. The Notice had no immediate effect on the listing of the Company’s
common stock on The Nasdaq Capital Market.
In
accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is provided a compliance period of 180 calendar days from the date of
the Notice, or until December 21, 2022, to regain compliance with the minimum closing bid price requirement. If the Company does not
regain compliance during the compliance period ending December 21, 2022, the Company may be afforded a second 180 calendar day period
to regain compliance. To qualify for the second compliance period, the Company must (i) meet the continued listing requirement for market
value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the minimum
closing bid price requirement, and (ii) notify Nasdaq of its intent to cure the deficiency. The Company can achieve compliance with the
minimum closing bid price requirement if, during either compliance period, the minimum closing bid price per share of the Company’s
common stock is at least $1.00 for a minimum of 10 consecutive business days. The Company anticipates that its shares of common stock
will continue to be listed and traded on The Nasdaq Capital Market during the compliance period(s).
The
Company is continuing to assess potential actions to regain compliance. However, the Company may be unable to regain compliance with
the minimum closing bid price requirement during the compliance period(s), in which case the Company anticipates Nasdaq would provide
a notice to the Company that its shares of common stock are subject to delisting, and the Company’s common shares would thereupon
be delisted.
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
September 30, 2022, the Company had cash of $6,561,840 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, 2021, 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.
Based
on current operating plans, the Company estimates that existing cash resources will provide sufficient working capital to fund the current
clinical trial program with respect to the development of the Company’s lead anti-cancer clinical compound LB-100 through approximately
September 30, 2023. However, existing cash resources will not be sufficient to complete development of and obtain regulatory approval
for the Company’s product candidate, and the Company will need to raise significant additional capital to do so. In addition, the
Company’s operating plan may change as a result of many factors currently unknown, and additional funds may be needed sooner than
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.
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
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 the 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 the
cash balances of its customers. The Company has not experienced any losses to date resulting from this policy.
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, which are charged to operations as incurred.
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, the termination of an agreement, 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 at each balance sheet 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.
Patent
and Licensing Legal and Filing Fees and 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 and licensing legal and filing fees and costs related to the development
and protection of its intellectual property are charged to operations as incurred. Patent and licensing legal and filing fees and costs
were $271,163 and $137,114 for the three months ended September 30, 2022 and 2021, respectively, and $944,789 and $365,466 for the nine
months ended September 30, 2022 and 2021, respectively. Patent and licensing legal and filing fees and 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 and nine months
ended September 30, 2022 and 2021 are described as follows.
General
and administrative costs for the three months ended September 30, 2022 and 2021 include charges from legal firms and other vendors for
general licensing and patent prosecution costs relating to the Company’s intellectual properties representing 22.5% and 13.6% of
total general and administrative costs, respectively.
Research
and development costs for the three months ended September 30, 2022 include charges from four vendors and consultants representing 32.0%,
23.2%, 16.9%, and 11.0%, respectively, of total research and development costs for that period. Research and development costs for the
three months ended September 30, 2021 include charges from three vendors and consultants representing 13.5%, 13.2% and 12.7%, respectively,
of total research and development costs for that period.
General
and administrative costs for the nine months ended September 30, 2022 and 2021 include charges from legal firms and other vendors for
general licensing and patent prosecution costs relating to the Company’s intellectual properties representing 25.0% and 9.7% of
total general and administrative costs, respectively.
Research
and development costs for the nine months ended September 30, 2022 include charges from two vendors and consultants representing 31.0%
and 16.7%, respectively, of total research and development costs for that period. Research and development costs for the nine months
ended September 30, 2021 include charges from three vendors and consultants representing 33.2%, 26.9% and 10.5%, respectively, 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 September 30, 2022 or
2021 and does not anticipate any material amount of unrecognized tax benefits through December 31, 2022.
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 September 30, 2022 or December
31, 2021. Subsequent to September 30, 2022, 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”). The 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 expected dividend yield is based on the Company’s expectation of dividend payouts and is assumed to be zero.
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
September 30, 2022 and 2021, 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.
Schedule
of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
| |
2022 | | |
2021 | |
| |
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Series A Convertible Preferred Stock | |
| 729,167 | | |
| 729,167 | |
Common stock warrants | |
| 3,400,310 | | |
| 3,110,310 | |
Common stock options, including options issued in the form of warrants | |
| 3,325,000 | | |
| 2,466,667 | |
Total | |
| 7,454,477 | | |
| 6,306,144 | |
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
August 2020, the Financial Accounting Standards Board (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.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU
2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an
exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange
as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as
the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification
or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment
for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination
or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring
on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 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 September 30, 2022 and December
31, 2021, the Company had 9,650,000 shares of undesignated preferred stock which 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 September 30, 2022 and December 31, 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 September 30, 2022 and
December 31, 2021, the Company had 16,646,593 shares and 13,746,593 shares, respectively, of common stock issued, issuable and outstanding.
Effective
April 12, 2022, the Company completed the sale of 2,900,000 shares of common stock at a price of $2.00 per share in a registered direct
equity offering, generating gross proceeds of $5,800,000. The total cash costs of this offering were $658,616, resulting in net proceeds
of $5,141,384. Pursuant to the placement agents’ agreement, the Company granted warrants to the placement agents to purchase up
to 290,000 shares of common stock expiring on April 14, 2027, at an exercise price of $2.00 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 warrants to the placement agents to purchase up
to 113,310 shares of common stock expiring on March 2, 2026, at an exercise price of $3.70 per share.
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 $101,000.
Effective
July 14, 2021, a stock option held by a consultant of the Company for 83,333 shares of common stock were exercised at $1.20 per share.
The exercise of this stock option generated total cash proceeds of $100,000 and resulted in the issuance of 83,333 shares of common stock.
Common
Stock Warrants
A
summary of common stock warrant activity during the nine months ended September 30, 2022 is presented below.
Schedule
of Warrants Outstanding
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (in Years) | |
| |
| | |
| | |
| |
Warrants outstanding at December 31, 2021 | |
| 3,110,310 | | |
$ | 5.772 | | |
| | |
Issued | |
| 290,000 | | |
| 2.000 | | |
| | |
Exercised | |
| — | | |
| — | | |
| | |
Expired | |
| — | | |
| — | | |
| | |
Warrants outstanding at September 30, 2022 | |
| 3,400,310 | | |
$ | 5.450 | | |
| 1.97 | |
At
September 30, 2022, the outstanding warrants are exercisable at the following prices per common share:
Schedule of Warrants Outstanding and Exercisable
Exercise Prices | | |
Warrants Outstanding (Shares) | |
$ | 2.000 | | |
| 290,000 | |
$ | 3.700 | | |
| 113,310 | |
$ | 5.700 | | |
| 1,497,000 | |
$ | 6.000 | | |
| 1,500,000 | |
| | | |
| 3,400,310 | |
Based
on a fair market value of $0.55 per share on September 30, 2022, there was no intrinsic value attributed to exercisable but unexercised
in-the-money common stock warrants at September 30, 2022.
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
Related
party transactions include transactions with the Company’s officers, directors and affiliates.
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, payable monthly, as described below. 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. These employment agreements were automatically renewed
for an additional one-year period in July and August 2021 and 2022.
The
Company entered into an employment agreement with Dr. Kovach dated July 15, 2020, 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 September 30, 2022 and 2021, the Company paid $62,500 and $62,500, respectively, to Dr. Kovach under this employment
agreement, which are included in general and administrative costs in the Company’s consolidated statements of operations for such
periods. During the nine months ended September 30, 2022 and 2021, the Company paid $187,500 and $187,500, respectively, to Dr. Kovach
under this employment agreement, which are included in general and administrative costs in the Company’s consolidated statements
of operations for such periods.
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. Effective May 1, 2021, Dr. Miser’s annual salary was increased to $175,000.
Dr. Miser is required to devote at least 50% of his business time to the Company’s activities. During the three months ended September
30, 2022 and 2021, the Company paid $43,750 and $43,750, respectively, to Dr. Miser under this employment agreement, which are included
in general and administrative costs in the Company’s consolidated statements of operations for such periods. During the nine months
ended September 30, 2022 and 2021, the Company paid $131,250 and $122,917, respectively, to Dr. Miser under this employment agreement,
which are included in general and administrative costs in the Company’s consolidated statements of operations for such periods.
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, at which firm the Company’s cash is on deposit and with which the Company
maintains a continuing banking relationship. Effective May 1, 2021, Mr. Forman’s annual salary was increased to $175,000. During
the three months ended September 30, 2022 and 2021, the Company paid $43,750 and $43,750, respectively, to Mr. Forman under this employment
agreement, which are included in general and administrative costs in the Company’s consolidated statements of operations for such
periods. During the nine months ended September 30, 2022 and 2021, the Company paid $131,250 and $112,917, respectively, to Mr. Forman
under this employment agreement, which are included in general and administrative costs in the Company’s consolidated statements
of operations for such periods.
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. Effective May 1, 2021, Mr. Weingarten’s annual salary was increased
to $175,000. During the three months ended September 30, 2022 and 2021, the Company paid $43,750 and $43,750, respectively, to Mr. Weingarten
under this employment agreement which are included in general and administrative costs in the Company’s consolidated statements
of operations for such periods. During the nine months ended September 30, 2022 and 2021, the Company paid $131,250 and $112,917, respectively,
to Mr. Weingarten under this employment agreement which are included in general and administrative costs in the Company’s consolidated
statements of operations for such periods.
Appointment
of Dr. René Bernards to the Board of Directors
Effective
as of June 15, 2022, Dr. René Bernards was appointed to the Company’s Board of Directors as an independent director. Dr.
Bernards is a leader in the field of molecular carcinogenesis and is employed by the Netherlands Cancer Institute in Amsterdam.
On
October 8, 2021, the Company entered into a Development Collaboration Agreement with the Netherlands Cancer Institute, Amsterdam, one
of the world’s leading comprehensive cancer centers, and Oncode Institute, Utrecht, a major independent cancer research center,
to identify the most promising drugs to be combined with LB-100, and potentially LB-100 analogues, to be used to treat a range of cancers,
as well as to identify the specific molecular mechanisms underlying the identified combinations, as described at Note 8.
Compensatory
Arrangements for Members of the Board of Directors
Effective
April 9, 2021, the Board of Directors approved a comprehensive cash and equity compensation program for the independent members of the
Board of Directors and committee members. Effective May 25, 2022, the Board of Directors approved an amendment to the program. Officers
who also serve on the Board of Directors are not compensated separately for their service on the Board of Directors.
Cash
compensation for independent directors, payable quarterly, is as follows:
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
Equity
compensation for independent directors is as follows:
Appointment
of new independent directors - The Company will grant options to purchase 250,000 shares of common stock, exercisable for a period of
five years at the closing market price on the date of grant, vesting 50% on the grant date and the remaining 50% vesting 12.5% on the
last day of each calendar quarter beginning in the quarter immediately subsequent to the date of the grant until fully vested, subject
to continued service. At the discretion of the Board of Directors, for a nominee to the Board of Directors who is restricted by their
respective institution or employer from receiving equity-based compensation, in lieu of the grant of such stock options, the Company
may elect to pay a one-time cash fee of $100,000 to such director, payable upfront.
Annual
grant of options to independent directors - Effective on the last business day of the month of June, the Company will grant options to
purchase 100,000 shares of common stock, exercisable for a period of five years at the closing market price on the date of grant, vesting
12.5% on the last day of each calendar quarter beginning in the quarter immediately subsequent to the date of grant until fully vested,
subject to continued service. If any director has served for less than 12 full calendar months at the grant date, the amount of such
stock option grant shall be prorated based on the length of service of such director. At the discretion of the Board of Directors, for
a nominee to the Board of Directors who is restricted by their respective institution or employer from receiving equity-based compensation,
in lieu of the grant of such stock options, the Company may elect to pay an annual cash fee of $40,000 to such director, payable quarterly.
Total
cash compensation paid to independent directors was $53,324 and $32,500, respectively, for the three months ended September 30, 2022
and 2021. Total cash compensation paid to independent directors was $221,510 and $60,332, respectively, for the nine months ended September
30, 2022 and 2021.
Stock-based
compensation granted to members of the Company’s Board of Directors. officers and affiliates is described at Note 6.
A
summary of related party costs, including compensation under employment and consulting agreements and fees paid to non-officer directors
for their services on the Board of Directors, for the three months and nine months ended September 30, 2022 and 2021 is presented below.
Summary of Related Party Costs
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Compensation to related parties: | |
| | | |
| | | |
| | | |
| | |
Cash-based | |
$ | 247,074 | | |
$ | 226,250 | | |
$ | 802,760 | | |
$ | 596,583 | |
Stock-based | |
| 396,883 | | |
| 347,222 | | |
| 1,160,649 | | |
| 1,854,058 | |
Total | |
$ | 643,957 | | |
$ | 573,472 | | |
$ | 1,963,409 | | |
$ | 2,450,641 | |
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
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. The 2020
Plan was subsequently approved by the stockholders of the Company.
As
of September 30, 2022, unexpired stock options for 2,100,000 shares were issued and outstanding under the 2020 Plan and 233,333 shares
were available for issuance under the 2020 Plan. Subsequently, on October 7, 2022, the Company held a meeting of stockholders, at which
meeting the stockholders approved a proposal to amend the 2020 Plan to increase the number of common shares issuable thereunder by 1,800,000
shares, to a total of 4,133,333 shares.
The
fair value of a stock option award 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 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. 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 nine months ended September 30, 2022, the fair value of each stock option award
was estimated using the Black-Scholes option-pricing model with the following assumptions:
Schedule of Fair Value of Each Option Award Estimated Assumption
Risk-free interest rate | |
| 3.03 | % |
Expected dividend yield | |
| 0 | % |
Expected volatility | |
| 153.17 | % |
Expected life | |
| 3.5 years | |
For
stock options requiring an assessment of value during the nine months ended September 30, 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 | |
| 0.89 | % |
Expected dividend yield | |
| 0 | % |
Expected volatility | |
| 198.79 | % |
Expected life | |
| 3.5 to 3.6 years | |
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 market price of the Company’s
common stock on the grant date. The options vested 25% on August 12, 2020, 2021 and 2022, respectively, with the final 25% vesting on
August 12, 2023, subject to continued service. 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
is being charged to operations ratably from August 12, 2020 through August 12, 2023. During the three months ended September 30, 2022
and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $25,259 and
$25,259, respectively, with respect to these stock options. During the nine months ended September 30, 2022 and 2021, the Company recorded
charges to general and administrative costs in the consolidated statement of operations of $74,954 and $74,954, respectively, 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 market price of the Company’s common stock on the
effective date of the employment agreement. The options vested 25% on August 1, 2020, 2021 and 2022, respectively, with the final 25%
vesting on August 1, 2023, subject to continued service. 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 is being charged to operations ratably from August 1, 2020 through August 1, 2023. During the three months ended September 30,
2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $36,085
and $36,085, respectively, with respect to these stock options. During the nine months ended September 30, 2022 and 2021, the Company
recorded charges to general and administrative costs in the consolidated statement of operations of $107,078 and $107,078, respectively,
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 market price of the Company’s common stock on the
grant date. The options vested 25% on August 12, 2020, 2021 and 2022, respectively, with the final 25% vesting on August 12, 2023, subject
to continued service. 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 is being charged to operations
ratably from August 12, 2020 through August 12, 2023. During the three months ended September 30, 2022 and 2021, the Company recorded
charges to general and administrative costs in the consolidated statement of operations of $25,259 and $25,259, respectively, with respect
to these stock options. During the nine months ended September 30, 2022 and 2021, the Company recorded charges to general and administrative
costs in the consolidated statement of operations of $74,954 and $74,954, respectively, with respect to these stock options.
Effective
January 6, 2021, in recognition of their service as directors of the Company over the past year, the Company granted fully-vested stock
options to purchase 50,000 shares of common stock to each of Dr. Winson Sze Chun Ho, Dr. Yun Yen, Dr. Stephen Forman, and Dr. Philip
Palmedo (an aggregate of 200,000 shares), 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 charged to general and
administrative costs in the consolidated statement of operations on the grant date.
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, and in accordance with the Company’s
cash and equity compensation package for members of 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 grant date), 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. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined
to be $753,611 ($3.0144 per share), of which $376,800 was attributable to the stock options fully-vested on April 9, 2021 and was therefore
charged to operations on that date. The remaining unvested portion of the fair value of the stock options is being charged to operations
ratably from April 9, 2021 through June 30, 2023. During the three months ended September 30, 2022 and 2021, the Company recorded charges
to general and administrative costs in the consolidated statement of operations of $42,692 and $42,692, respectively, with respect to
these stock options. During the nine months ended September 30, 2022 and 2021, the Company recorded charges to general and administrative
costs in the consolidated statement of operations of $126,684 and $457,543, respectively, with respect to these stock options.
On
May 11, 2021, the Board of Directors appointed Regina Brown to the Board of Directors. In connection with her appointment to the Board
of Directors, and in accordance with the Company’s cash and equity compensation package for members of the Board of Directors,
Ms. Brown 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 $2.80 per share (the closing market price on the grant date), 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. The fair value of these stock options, as calculated
pursuant to the Black-Scholes option-pricing model, was determined to be $658,363 ($2.6335 per share), of which $329,188 was attributable
to the stock options fully-vested on May 11, 2021 and was therefore charged to operations on that date. The remaining unvested portion
of the fair value of the stock options is being charged to operations ratably from May 11, 2021 through June 30, 2023. During the three
months ended September 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement
of operations of $38,827 and $38,827, respectively, with respect to these stock options. During the nine months ended September 30, 2022
and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $115,215 and
$389,117, respectively, with respect to these stock options.
On
June 30, 2021, the Board of Directors, in accordance with the Company’s cash and equity compensation package for members of the
Board of Directors, granted to each of the five non-officer directors of the Company stock options exercisable for a period of five years
to purchase 100,000 shares (a total of 500,000 shares) of the Company’s common stock at an exercise price of $3.03 per share (the
closing market price on the grant date), vesting 12.5% on the last day of each subsequent calendar quarter-end until fully vested. The
total fair value of the 500,000 stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be
$1,421,095 ($2.84225 per share), which is being charged to operations ratably from July 1, 2021 through June 30, 2023. During the three
months ended September 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement
of operations of $179,100 and $179,100, respectively, with respect to these stock options. During the nine months ended September 30,
2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $531,455
and $179,100, respectively, with respect to these stock options.
On
June 17, 2022, the Board of Directors appointed Bas van der Baan to the Board of Directors. In connection with his appointment to the
Board of Directors, and in accordance with the Company’s cash and equity compensation package for members of the Board of Directors,
Mr. Baan 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 $0.74 per share (the closing market price on the grant date), 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. The fair value of these stock options, as calculated
pursuant to the Black-Scholes option-pricing model, was determined to be $158,525 ($0.6341 per share), of which $79,263 was attributable
to the stock options fully-vested on June 17, 2022 and was therefore charged to operations on that date. The remaining unvested portion
of the fair value of the stock options is being charged to operations ratably from June 17, 2022 through June 30, 2024. During the three
months and nine months ended September 30, 2022, the Company recorded charges to general and administrative costs in the consolidated
statement of operations of $9,801 and $90,449, respectively, with respect to these stock options.
On
June 30, 2022, the Board of Directors, in accordance with the Company’s cash and equity compensation package for members of the
Board of Directors, granted to each of the five non-officer directors of the Company stock options exercisable for a period of five years
to purchase 100,000 shares (a total of 500,000 shares) of the Company’s common stock at an exercise price of $0.74 per share (the
closing market price on the grant date), vesting 12.5% on the last day of each subsequent calendar quarter-end until fully vested. The
total fair value of the 500,000 stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be
$316,700 ($0.6334 per share), which is being charged to operations ratably from July 1, 2022 through June 30, 2024. During the three
months and nine months ended September 30, 2022, the Company recorded charges to general and administrative costs in the consolidated
statement of operations of $39,860 and $39,860, respectively, with respect to these stock options.
A
summary of stock-based compensation costs for the three months and nine months ended September 30, 2022 and 2021 is as follows:
Summary of Stock-based Compensation Costs
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Related parties | |
$ | 396,883 | | |
$ | 347,222 | | |
$ | 1,160,649 | | |
$ | 1,854,058 | |
Non-related parties | |
| — | | |
| — | | |
| — | | |
| — | |
Total stock-based compensation costs | |
$ | 396,883 | | |
$ | 347,222 | | |
$ | 1,160,649 | | |
$ | 1,854,058 | |
A
summary of stock option activity, including options issued in the form of warrants, during the nine months ended September 30, 2022 is
presented below.
Summary of Stock Option Activity Including Options Form of Warrants
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (in Years) | |
| |
| | |
| | |
| |
Stock options outstanding at December 31, 2021 | |
| 2,666,667 | | |
$ | 3.738 | | |
| | |
Granted | |
| 750,000 | | |
| 0.740 | | |
| | |
Exercised | |
| — | | |
| — | | |
| | |
Expired/Forfeited | |
| (91,667 | ) | |
| 2.962 | | |
| | |
Stock options outstanding at September 30, 2022 | |
| 3,325,000 | | |
$ | 3.083 | | |
| 3.23 | |
| |
| | | |
| | | |
| | |
Stock options exercisable at September 30, 2022 | |
| 2,446,875 | | |
$ | 3.532 | | |
| 2.84 | |
Total
deferred compensation expense for the outstanding value of unvested stock options was approximately $1,411,000 at September 30, 2022,
which will be recognized subsequent to September 30, 2022 over a weighted-average period of approximately 12 months.
The
exercise prices of common stock options outstanding and exercisable, including options issued in the form of warrants, at September 30,
2022 are as follows:
Schedule of Exercise Prices of Common Stock Options Outstanding and Exercisable Including Options Form of Warrants
Exercise Prices | | |
Options Outstanding (Shares) | | |
Options Exercisable (Shares) | |
| | |
| | |
| |
$ | 0.740 | | |
| 750,000 | | |
| 203,125 | |
$ | 0.900 | | |
| 33,333 | | |
| 33,333 | |
$ | 1.680 | | |
| 33,333 | | |
| 33,333 | |
$ | 2.060 | | |
| 200,000 | | |
| 200,000 | |
$ | 2.800 | | |
| 250,000 | | |
| 203,125 | |
$ | 3.000 | | |
| 666,667 | | |
| 666,667 | |
$ | 3.030 | | |
| 500,000 | | |
| 312,500 | |
$ | 3.200 | | |
| 250,000 | | |
| 203,125 | |
$ | 3.210 | | |
| 150,000 | | |
| 150,000 | |
$ | 6.000 | | |
| 166,667 | | |
| 166,667 | |
$ | 6.600 | | |
| 41,667 | | |
| 41,667 | |
$ | 7.140 | | |
| 200,000 | | |
| 150,000 | |
$ | 12.000 | | |
| 83,333 | | |
| 83,333 | |
| | | |
| 3,325,000 | | |
| 2,446,875 | |
Based
on a fair market value of $0.55 per share on September 30, 2022, there was no intrinsic value attributed to exercisable but unexercised
in-the-money common stock options at September 30, 2022.
Outstanding
stock options to acquire 878,125 shares of the Company’s common stock had not vested at September 30, 2022.
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 and nine months ended September 30, 2022 and 2021, the Company did not record any 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 has recorded a full valuation allowance against its deferred tax assets for all periods presented 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 September 30, 2022 and
December 31, 2021, the Company was not subject to any pending or threatened legal claims or actions.
Principal
Commitments
Clinical
Trial Agreements
At
September 30, 2022, the Company’s unpaid remaining contractual commitments pursuant to clinical trial agreements, and clinical
trial monitoring agreements, as described below, aggregated $8,002,000, which are currently scheduled to be incurred through December
31, 2025. The Company’s ability to conduct and fund these contractual commitments is subject to the timely availability of sufficient
capital to fund such expenditures, as well as any changes in the allocation or reallocation of such funds to the Company’s current
or future clinical trial programs. The Company expects that the full amount of these expenditures will be incurred only if such clinical
trial programs are conducted as originally designed and their respective enrollments and duration are not modified or reduced. Clinical
trial programs, such as the types that the Company is engaged in, can be highly variable and can frequently involve a series of changes
and modifications over time as clinical data is obtained and analyzed, and are frequently modified, suspended or terminated before the
clinical trial endpoint. Accordingly, such contractual commitments as discussed herein should be considered as estimates only based on
current clinical assumptions and conditions, and are typically subject to significant revisions over time.
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 clinical trial is expected to be completed by June 30, 2025. However, with additional funds, the Company would consider
adding two additional MDS centers to the Phase 2 portion of the study to accelerate patient accrual.
During
the three months ended September 30, 2022 and 2021, the Company incurred costs of $9,218 and $0, respectively, pursuant to this agreement,
which have been included in research and development costs in the Company’s consolidated statements of operations. During the nine
months ended September 30, 2022 and 2021, the Company incurred costs of $18,623 and $17,693, respectively, pursuant to this agreement,
which have been included in research and development costs in the Company’s consolidated statements of operations. As of September
30, 2022, total costs of $123,300 have been incurred pursuant to this agreement. The Company’s aggregate commitment pursuant to
this agreement, less amounts previously paid to date, totaled approximately $590,000 as of September 30, 2022, which is expected to be
incurred through December 31, 2025.
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 with respect to 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 approximately 150 patients in this clinical trial over a period
of two years. As 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 approximately 50% 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
standards were adopted subsequent to the production of the Company’s existing LB-100 inventory.
In
order to manufacture a new inventory supply of LB-100 for the GEIS clinical trial, the Company 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 was then transferred to a vendor that prepares the clinical drug product, also under
GMP conditions documented by an independent auditor. The clinical drug product was 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 clinical drug product for clinical use must be submitted to the appropriate regulatory
authorities for review and approval before being used in a clinical trial.
As
of September 30, 2022, this program to provide new inventory of the clinical drug product for the Spanish Sarcoma Group study, and potentially
for subsequent multiple trials within the European Union, had cost $1,144,041. While the production of new inventory has been completed,
immaterial amounts of trailing costs are expected.
On
October 13, 2022, the Company announced that the Spanish Agency for Medicines and Health Products (Agencia Española de Medicamentos
y Productos Sanitarios or “AEMPS”) had authorized a Phase 1b/randomized Phase 2 study of LB-100, the Company’s lead
clinical compound, plus doxorubicin, versus doxorubicin alone, the global standard for initial treatment of advanced soft tissue sarcomas
(ASTS). Consequently, the GEIS clinical trial is now scheduled to commence during late 2022 or the first quarter of 2023 and to be completed
by June 30, 2025. Up to 170 patents will be entered into the clinical trial. The Phase 1b section of the protocol is expected to be completed
by December 31, 2023, at which time the Company expects to have data on both response and toxicity from this portion of the clinical
trial.
The
interim analysis of this clinical trial will be done before full accrual of patients is completed to determine whether the study has
the possibility of showing superiority of the combination of LB-100 plus doxorubicin 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.
Through September 30, 2022, the Company has paid GEIS an aggregate of $67,582 towards the second milestone payment for current work being
done under this agreement.
During
the three months ended September 30, 2022 and 2021, the Company did not incur any costs pursuant to this agreement. During the nine months
ended September 30, 2022 and 2021, the Company incurred costs of $0 and $24,171, respectively, pursuant to this agreement, which have
been included in research and development costs in the Company’s consolidated statements of operations. As of September 30, 2022,
total costs of $155,053 have been incurred pursuant to this agreement. The Company’s aggregate commitment pursuant to this agreement,
less amounts previously paid to date, totaled approximately $3,836,000 as of September 30, 2022, which is expected to be incurred through
December 31, 2025.
On
October 7, 2022, the third milestone pursuant to this agreement was achieved. Accordingly, as of that date, the balance remaining pursuant
to the second milestone of $18,244, and the amount due upon achieving the third milestone of $254,543, became due and were paid subsequent
to September 30, 2022.
City
of Hope. Effective January 18, 2021, the Company executed a Clinical Research Support Agreement with the 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 treatment of 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 two years to complete. However, patient
accrual has been slower than expected. The Company is currently seeking to add two additional centers to increase the rate of patient
accrual. With the additional sites, the Company expects this clinical trial to be completed by December 31, 2024. Without additional
sites, the completion date for this clinical trial will be no sooner than December 31, 2025.
During
the three months ended September 30, 2022 and 2021, the Company did not incur any costs pursuant to this agreement. During the nine months
ended September 30, 2022 and 2021, the Company incurred costs of $0 and $525,528, respectively, pursuant to this agreement. The Company’s
aggregate commitment pursuant to this agreement, less amounts previously paid to date, totaled approximately $2,433,000 as of September
30, 2022, which is expected to be incurred through December 31, 2024, based upon a target of 42 enrollees. 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. The Company currently expects that enrollment in this clinical trial will range from approximately 18
to 30 enrollees, with 24 enrollees as the most likely number. Should fewer than 42 enrollees be required, the Company has agreed to compensate
City of Hope on a per enrollee basis.
National
Cancer Institute Pharmacologic Clinical Trial. In May 2019, the National Cancer Institute (NCI) initiated a glioblastoma (GBM) pharmacologic
clinical trial. During the fourth quarter of 2019, the NCI enrolled the first two patients of a planned eight patient pharmacologic study
of the ability of LB-100 to enter the brain and penetrate recurrent brain tumors in patients where surgical removal of the cancers is
indicated (clinical trials registry NCT03027388). This study is being conducted and funded by the NCI under a Cooperative Research and
Development Agreement, with the Company being required to provide the LB-100 clinical compound.
Primary
malignant brain tumors (gliomas) are very challenging to treat. Radiation combined with the chemotherapeutic drug temozolomide has been
the mainstay of therapy of the most aggressive gliomas (glioblastoma multiforme or GBM) for decades, with some further benefit gained
by the addition of one or more anti-cancer drugs, but without major advances in overall survival for the majority of patients. In animal
models of GBM, the Company’s novel protein phosphatase inhibitor, LB-100, has been found to enhance the effectiveness of radiation,
temozolomide chemotherapy treatments and immunotherapy, raising the possibility that LB-100 may improve outcomes of standard GBM treatment
in the clinic. Although LB-100 has proven safe in patients at doses associated with apparent anti-tumor activity against several human
cancers arising outside the brain, the ability of LB-100 to penetrate tumor tissue arising in the brain is not known. Unfortunately,
many drugs potentially useful for GBM treatment do not enter the brain in amounts necessary for anti-cancer action.
The
neurosurgical unit at the NCI, which had been closed to research studies due to the Covid-19 epidemic, was reopened and patient
accrual has been completed, and the Company is awaiting the resulting data. There is an urgent need to improve therapy for this type
of aggressive brain tumor. If the NCI study shows that LB-100 does penetrate the brain, a clinical study of LB-100 in combination
with standard therapy for GBM, the drug temozolomide and radiation, both of which have been well documented in pre-clinical studies
to be significantly enhanced by LB-100, would be of significant interest to neuro-oncologists frustrated by decades of limited
advances in therapy for this common brain tumor in adults.
The
NCI study is designed to determine the extent to which LB-100 enters recurrent malignant gliomas. Patients having surgery to remove one
or more tumors will receive one dose of LB-100 prior to surgery and have blood and tumor tissue analyzed to determine the amount of LB-100
present and to determine whether the cells in the tumors show the biochemical changes expected to be present if LB-100 reaches its molecular
target. As a result of the innovative design of the NCI study, data from a few patients should be sufficient to provide a sound rationale
for conducting a larger clinical trial to determine the effectiveness of adding LB-100 to the standard treatment regimen for GBMs. Five
patients have been entered and analysis of the blood and tissue will now proceed. If there is evidence in at least two of the patients
of penetration of LB 100 into tumor tissue, the study will be deemed as successful.
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 clinical trial is expected to be completed by June 30, 2025.
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 September 30, 2022 and 2021, the Company incurred costs of $11,953 and $869, respectively, pursuant to this work order.
During the nine months ended September 30, 2022 and 2021, the Company incurred costs of $19,791 and $9,350, respectively, pursuant to
this work order. As of September 30, 2022, total costs of $111,676 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, totaled approximately
$853,000 as of September 30, 2022, which is expected to be incurred 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. Costs under this
work order agreement are estimated to be approximately $335,000. During the three months ended September 30, 2022 and 2021, the Company
incurred costs of $7,731 and $6,857, respectively, pursuant to this work order. During the nine months ended September 30, 2022 and 2021,
the Company incurred costs of $23,466 and $21,170, respectively, pursuant to this work order. As of September 30, 2022, total costs of
$48,092 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, totaled approximately $290,000 as of September 30, 2022, which is expected
to be incurred through June 30, 2025.
Patent
and License Agreements
INSERM.
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
initial plan was 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 September 30, 2022 and December
31, 2021, no
amounts were due under this agreement.
Moffitt. 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 September 30, 2022 and 2021, the Company recorded charges to operations of $6,301
and $6,301,
respectively, in connection with its obligations under the License Agreement. During the nine months ended September 30, 2022 and 2021,
the Company recorded charges to operations of $18,699
and $18,698,
respectively, in connection with its obligations under the License Agreement. As of September 30, 2022, 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. These
employment agreements were automatically renewed for additional one-year periods in July and August 2021 and 2022.
On
April 9, 2021, the Board of Directors increased the annual compensation 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,
under the employment agreements, such that the total aggregate annual compensation of all officers increased to $775,000, effective May
1, 2021.
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 September 30, 2022
and 2021, respectively, and $12,000 and $12,000 for the nine months ended September 30, 2022 and 2021, 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. Excluding expense reimbursements,
the Company recorded charges to operations pursuant to this Collaboration Agreement of $30,000 and $30,000 for the three months ended
September 30, 2022 and 2021, respectively, and $90,000 and $90,000 for the nine months ended September 30, 2022 and 2021, 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 pre-clinical 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 pre-clinical studies were to be conducted at The University of California
- Davis under the direction of Dr. David Segal, an internationally recognized leader in AS research. If the pre-clinical 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 was 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.
The
research team at the University of California - Davis recently completed their pre-clinical study of the potential benefit of LB-100
in a mouse model of AS, and the results are currently under review by FAST. The preliminary analysis indicates that the positive results
previously reported by Chinese investigators were not confirmed in the US model. The Company is currently awaiting input from FAST as
to whether it intends to continue to pursue pre-clinical studies of LB 100. To date, FAST has not indicated whether it desires to pursue
further studies of LB-100.
On
October 8, 2021, the Company entered into a Development Collaboration Agreement with the Netherlands Cancer Institute, Amsterdam (NKI),
one of the world’s leading comprehensive cancer centers, and Oncode Institute, Utrecht, a major independent cancer research center,
to identify the most promising drugs to be combined with LB-100, and potentially LB-100 analogues, to be used to treat a range of cancers,
as well as to identify the specific molecular mechanisms underlying the identified combinations. The Company has agreed to fund the study
and provide a sufficient supply of LB-100 to conduct the study. The study is expected to take approximately two years to conduct. During
the three months ended September 30, 2022, the Company incurred charges in the amount of $46,068 with respect to this agreement, which
amount is included in research and development costs in the Company’s consolidated statements of operations. During the nine months
ended September 30, 2022, the Company incurred charges in the amount of $149,184 with respect to this agreement, which amount is included
in research and development costs in the Company’s consolidated statements of operations. As of September 30, 2022, total costs
of $204,433 have been incurred pursuant to this collaboration agreement. The Company’s aggregate commitment pursuant to this collaboration
agreement, less amounts previously paid to date, totaled approximately $250,000 as of September 30, 2022, which is expected to be incurred
through June 30, 2025. As the work is being conducted in Europe and is paid for in Euros, final costs are subject to foreign currency
fluctuations between the United States Dollar and the Euro.
On
February 2, 2012, the Company entered into a contract with MRI Global for the analysis and stability testing of LB-100. On June 10, 2022,
the contract was amended to reflect a new total contract price of $273,980 and an estimated completion date of April 30, 2023. During
the three months ended September 30, 2022 and 2021, the Company incurred costs of $6,749 and $0, respectively, pursuant to this work
order. During the nine months ended September 30, 2022 and 2021, the Company incurred costs of $27,102 and $17,432, respectively, pursuant
to this work order. As of September 30, 2022, total costs of $212,778 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, totaled approximately
$61,000 as of September 30, 2022.
External
Risks Associated with the Company’s Business Activities
Covid-19
Virus. 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 and capital raising efforts 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 or more as a result
of the coronavirus pandemic.
Inflation
Risk. The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the
general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary and interest
rate pressures in the future, which would have the effect of increasing the Company’s operating costs (including, specifically,
clinical trial costs), and which would put additional stress on the Company’s working capital resources.
Supply
Chain Issues. The Company does not currently expect that supply chain issues will have a significant impact on its business activities,
including its ongoing clinical trials.
Potential
Recession. There are various indications that the United States economy may be entering a recessionary period. Although unclear at
this time, an economic recession would likely impact the general business environment and the capital markets, which could, in turn,
affect the Company.
The
Company is continuing to monitor these matters and will adjust its current business and financing 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 condensed consolidated financial statements
with the SEC. Other than the matters noted below, there were no material subsequent events which affected, or could affect, the amounts
or disclosures in the condensed consolidated financial statements.
On
November 6, 2022, the Board of Directors of the Company approved the following actions:
(1)
Promoted Eric Forman, the Company’s Chief Administrative Officer, to Vice President and Chief Operating Officer, and increased
his annual salary from $175,000 to $200,000 per year.
(2)
Authorized the issuance of warrants to BioPharmaWorks, which has provided consulting services to the Company since September 2015, to
purchase 100,000 shares of the Company’s common stock, fully vested upon issuance, exercisable for a period of 5 years at $0.5025
per share, which was the closing market price of the Company’s common stock on Friday, November 4, 2022.
(3)
Authorized the issuance of stock options under the Company’s 2020 Stock Incentive Plan to Dr. John S. Kovach, Eric J. Forman,
Dr. James S. Miser and Robert N. Weingarten to each purchase 200,000 shares of the Company’s common stock, exercisable for a
period of five years at $2.00 per share, vesting 25% on the issuance date and 25% on each anniversary date thereafter until fully
vested, subject to continued service. The closing market price of the Company’s common stock on Friday, November 4, 2022, was
$0.5025 per share.
(4)
Approved an amendment to the Company’s Amended and Restated Bylaws to reduce the quorum requirement to hold a meeting of stockholders
from 50% to 33-1/3% of the total number of outstanding shares of the Company entitled to vote at the meeting, present in person or represented
by proxy.