Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 10, 2022

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 001-39717

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-2903526
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

680 East Colorado Boulevard, Suite 180

Pasadena, California 91101

(Address of principal executive offices, including Zip Code)

 

(631) 830-7092

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.0001 per share   LIXT   The Nasdaq Stock Market LLC
Warrants to Purchase Common Stock, par value $0.0001 per share   LIXTW   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

 

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

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

 

As of August 1, 2022, the Company had 16,646,593 shares of common stock, $0.0001 par value, issued and outstanding.

 

 

 

 
 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

TABLE OF CONTENTS

 

 

Page

Number

   
PART I - FINANCIAL INFORMATION  
   
Item 1. Condensed Consolidated Financial Statements 3
   
Condensed Consolidated Balance Sheets – June 30, 2022 (Unaudited) and December 31, 2021 3
   
Condensed Consolidated Statements of Operations (Unaudited) – Three Months and Six Months Ended June 30, 2022 and 2021 4
   
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) – Three Months and Six Months Ended June 30, 2022 and 2021 5
   
Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, 2022 and 2021 7
   
Notes to Condensed Consolidated Financial Statements (Unaudited) – Three Months and Six Months Ended June 30, 2022 and 2021 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 48
   
Item 4. Controls and Procedures 48
   
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings 49
   
Item 1A. Risk Factors 49
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
   
Item 3. Defaults Upon Senior Securities 50
   
Item 4. Mine Safety Disclosures 50
   
Item 5. Other Information 50
   
Item 6. Exhibits 51
   
SIGNATURES 52

 

2

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

June 30,

2022

   

December 31,

2021

 
    (Unaudited)        
             
ASSETS                
Current assets:                
Cash   $ 7,735,772     $ 4,823,745  
Advances on research and development contract services     147,017       150,241  
Prepaid insurance     100,455       109,029  
Other prepaid expenses and current assets     40,562       10,249  
Total current assets     8,023,806       5,093,264  
Total assets   $ 8,023,806     $ 5,093,264  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued expenses, including $35,686 and $32,500 to related parties at June 30, 2022 and December 31, 2021, respectively   $ 372,708     $ 225,965  
Research and development contract liabilities     158,832       76,961  
Total current liabilities     531,540       302,926  
                 
Commitments and contingencies     -        -   
                 
Stockholders’ equity:                
Preferred Stock, $0.0001 par value; authorized – 10,000,000 shares; issued and outstanding – 350,000 shares of Series A Convertible Preferred Stock, $10.00 per share stated value, liquidation preference based on assumed conversion into common shares – 729,167 shares     3,500,000       3,500,000  
Common stock, $0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 16,646,593 shares at June 30, 2022 and 13,746,593 shares at December 31, 2021     1,664       1,374  
Additional paid-in capital     44,275,988       38,371,128  
Accumulated deficit     (40,285,386 )     (37,082,164 )
Total stockholders’ equity     7,492,266       4,790,338  
Total liabilities and stockholders’ equity   $ 8,023,806     $ 5,093,264  

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    2022     2021     2022     2021  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
                         
Revenues   $     $     $     $  
                                 
Costs and expenses:                                
General and administrative costs:                                
Compensation to related parties     753,530       1,061,137       1,319,452       1,877,169  
Patent and licensing legal and filing fees and costs     358,389       108,193       673,626       228,352  
Other costs and expenses     269,281       300,850       584,023       646,313  
Research and development costs     164,810       262,415       623,261       705,941  
Total costs and expenses     1,546,010       1,732,595       3,200,362       3,457,775  
Loss from operations     (1,546,010 )     (1,732,595 )     (3,200,362 )     (3,457,775 )
Interest income     191       180       300       326  
Interest expense     (627 )     (845 )     (3,121 )     (2,944 )
Foreign currency gain (loss)     142       94       (39 )     83  
Net loss   $ (1,546,304 )   $ (1,733,166 )   $ (3,203,222 )   $ (3,460,310 )
                                 
Net loss per common share – basic and diluted   $ (0.10 )   $ (0.13 )   $ (0.21 )   $ (0.26 )
                                 
Weighted average common shares outstanding – basic and diluted     16,200,439       13,633,040       14,980,295       13,203,010  

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

Three Months and Six Months Ended June 30, 2022 and 2021

 

    Shares     Amount     Shares     Par Value     Capital     Deficit     Equity  
   

Convertible
Series A
Preferred Stock

    Common Stock    

Additional

Paid-in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Par Value     Capital     Deficit     Equity  
                                           

Three months ended June 30,

2022:

                                                       
Balance, March 31, 2022     350,000     $ 3,500,000       13,746,593     $          1,374     $ 38,710,800     $ (38,739,082 )   $ 3,473,092  
Proceeds from sale of common stock in direct equity offering, net of offering costs                 2,900,000       290       5,141,094             5,141,384  
Stock-based compensation expense                             424,094             424,094  
Net loss                                   (1,546,304 )     (1,546,304 )
Balance, June 30, 2022     350,000     $ 3,500,000       16,646,593     $ 1,664     $ 44,275,988     $ (40,285,386 )   $ 7,492,266  
                                                         
Six months ended June 30, 2021:                                                        
Balance, December 31, 2021     350,000     $ 3,500,000       13,746,593     $ 1,374     $ 38,371,128     $ (37,082,164 )   $ 4,790,338  
Proceeds from sale of common stock in direct equity offering, net of offering costs                 2,900,000       290       5,141,094             5,141,384  
Stock-based compensation expense                             763,766             763,766  
Net loss                                   (3,203,222 )     (3,203,222 )
Balance, June 30, 2022     350,000     $ 3,500,000       16,646,593     $ 1,664     $ 44,275,988     $ (40,285,386 )   $ 7,492,266  

 

(Continued)

 

5

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Continued)

 

Three Months and Six Months Ended June 30, 2022 and 2021

 

   

Series A

Convertible

Preferred Stock

    Common Stock    

Additional

Paid-in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Par Value     Capital     Deficit     Equity  
                                           
Three months ended June 30, 2021:                                                        
Balance, March 31, 2021     350,000     $ 3,500,000       13,538,259     $          1,354     $ 36,227,258     $ (32,080,912 )   $ 7,647,700  
Exercise of stock options                 125,001       12       100,988             101,000  
Stock-based compensation expense                             850,804             850,804  
Net loss for the period                                   (1,733,166 )     (1,733,166 )
Balance, June 30, 2021     350,000     $ 3,500,000       13,663,260     $ 1,366     $ 37,179,050     $ (33,814,078 )   $ 6,866,338  
                                                         
Six months ended June 30, 2021:                                                        
Balance, December 31, 2020     350,000     $ 3,500,000       12,402,157     $ 1,240     $ 31,864,479     $ (30,353,768 )   $ 5,011,951  
Proceeds from sale of common stock in direct equity offering, net of offering costs                 1,133,102       113       3,689,648             3,689,761  
Exercise of warrants                 3,000       1       17,099             17,100  
Exercise of stock options                 125,001       12       100,988             101,000  
Stock-based compensation expense                             1,506,836             1,506,836  
Net loss for the period                                   (3,460,310 )     (3,460,310 )
Balance, June 30, 2021     350,000     $ 3,500,000       13,663,260     $ 1,366     $ 37,179,050     $ (33,814,078 )   $ 6,866,338  

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    2022     2021  
    Six Months Ended June 30,  
    2022     2021  
             
Cash flows from operating activities:                
Net loss   $ (3,203,222 )   $ (3,460,310 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation expense included in -                
General and administrative costs     763,766       1,506,836  
Changes in operating assets and liabilities:                
(Increase) decrease in -                
Advances on research and development contract services     3,224       (246,435 )
Prepaid insurance     8,574       (8,672 )
Other prepaid expenses and current assets     (30,313 )     (29,871 )
Increase (decrease) in -                
Accounts payable and accrued expenses     146,743       (27,845 )
Research and development contract liabilities     81,871       198,114  
Net cash used in operating activities     (2,229,357 )     (2,068,183 )
                 
Cash flows from financing activities:                
Proceeds from sale of common stock in direct equity offering, net of offering costs     5,141,384       3,689,761  
Exercise of common stock warrants           17,100  
Exercise of common stock options           101,000  
Payment of deferred offering costs           (10,467 )
Net cash provided by financing activities     5,141,384       3,797,394  
                 
Cash:                
Net increase     2,912,027       1,729,211  
Balance at beginning of period     4,823,745       5,069,266  
Balance at end of period   $ 7,735,772     $ 6,798,477  
                 
Supplemental disclosures of cash flow information:                
Cash paid for -                
Interest   $ 3,121     $ 2,944  
Income taxes   $     $  

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Three Months and Six Months Ended June 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 June 30, 2022, and for the three months and six months ended June 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 June 30, 2022, and the results of its operations for the three months and six months ended June 30, 2022 and 2021, and its cash flows for the six months ended June 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 (see Note 4) 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 has 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 plans to carefully 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.

 

8

 

 

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 June 30, 2022, the Company had cash of $7,735,772 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.

 

9

 

 

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.

 

10

 

 

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 $358,389 and $108,193 for the three months ended June 30, 2022 and 2021, respectively, and $673,626 and $228,352 for the six months ended June 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 six months ended June 30, 2022 and 2021 are described as follows.

 

General and administrative costs for the three months ended June 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 26.0% and 7.4% of total general and administrative costs, respectively.

 

Research and development costs for the three months ended June 30, 2022 include charges from five vendors and consultants representing 29.7%, 18.2%, 17.4%, 12.6%, and 10.2%, respectively, of total research and development costs for that period. Research and development costs for the three months ended June 30, 2021 include charges from three vendors and consultants representing 26.0%, 16.3% and 11.4%, respectively, of total research and development costs for that period.

 

General and administrative costs for the six months ended June 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 29.0% and 8.3% of total general and administrative costs, respectively.

 

Research and development costs for the six months ended June 30, 2022 include charges from two vendors and consultants representing 44.6% and 16.5%, respectively, of total research and development costs for that period. Research and development costs for the six months ended June 30, 2021 include charges from two vendors and consultants representing 43.8% and 19.7%, respectively, for that period.

 

11

 

 

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 June 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 June 30, 2022 or December 31, 2021. Subsequent to June 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.

 

12

 

 

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 June 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.

  

    2022     2021  
    June 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       2,550,000  
Total     7,454,477       6,389,477  

 

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.

 

13

 

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

 

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 June 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.

 

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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 June 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 June 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 $101,100.

 

Effective November 30, 2020, the Company raised gross proceeds of $5,700,000 through a public offering of 1,200,000 units at a sale price of $4.75 per unit. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock exercisable for a period of five years at an exercise price of $5.70 per share. Additionally, on December 7, 2020, the Company received an additional $1,800 from the sale of 180,000 warrants as part of the overallotment option granted to the underwriters in the public offering. The warrants sold are exercisable for five years and represent the right to purchase one share of common stock at an exercise price of $5.70 per share. The total cash costs of the public offering were $1,110,451, resulting in net proceeds of $4,591,349. Pursuant to the underwriting agreement, the Company granted warrants to the underwriters to purchase up to 120,000 shares of common stock exercisable commencing on May 24, 2021 and expiring on November 24, 2025, at an exercise price of $5.70 per share.

 

15

 

 

Common Stock Warrants

 

A summary of common stock warrant activity during the six months ended June 30, 2022 is presented below.

  

   

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 June 30, 2022     3,400,310     $ 5.450       2.22  

 

At June 30, 2022, the outstanding warrants are exercisable at the following prices per common share:

  

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 $0.74 per share on June 30, 2022, there was no intrinsic value attributed to exercisable but unexercised in-the-money common stock warrants at June 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.

 

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 June 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 six months ended June 30, 2022 and 2021, the Company paid $125,000 and $125,000, 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 June 30, 2022 and 2021, the Company paid $43,750 and $41,667, 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 six months ended June 30, 2022 and 2021, the Company paid $87,500 and $79,167, 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.

 

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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 June 30, 2022 and 2021, the Company paid $43,750 and $39,167, 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 six months ended June 30, 2022 and 2021, the Company paid $87,500 and $69,167, 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 June 30, 2022 and 2021, the Company paid $43,750 and $39,167, 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 six months ended June 30, 2022 and 2021, the Company paid $87,500 and $69,167, 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

 

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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 his or her 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 $135,686 and $27,833, respectively, for the three months ended June 30, 2022 and 2021. Total cash compensation paid to independent directors was $168,186 and $27,833, respectively, for the six months ended June 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 six months ended June 30, 2022 and 2021 is presented below.

  

    2022     2021     2022     2021  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2022     2021     2022     2021  
                         
Related party costs:                                
Cash-based   $ 329,436     $ 210,333     $ 555,686     $ 370,333  
Stock-based     424,094       850,804       763,766       1,506,836  
Total   $ 753,530     $ 1,061,137     $ 1,319,452     $ 1,877,169  

 

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 June 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.

 

18

 

 

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 six months ended June 30, 2022, 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     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 six months ended June 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 as to 25% on August 12, 2020 and August 12, 2021, and will vest 25% on each of the second and third anniversaries of the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options is being charged to operations ratably from August 12, 2020 through August 12, 2023. During the three months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $24,985 and $24,985, respectively, with respect to these stock options. During the six months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $49,695 and $49,695, 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 as to 25% on August 1, 2020 and August 1, 2021, and will vest 25% on each of the second and third anniversaries of the effective date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $572,650 ($6.8718 per share), of which $143,163 was attributable to the stock options fully-vested on August 1, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options is being charged to operations ratably from August 1, 2020 through August 1, 2023. During the three months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $35,693 and $35,693, respectively, with respect to these stock options. During the six months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $70,993 and $70,993, respectively, with respect to these stock options.

 

19

 

 

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 as to 25% on August 12, 2020 and August 12, 2021, and will vest 25% on each of the second and third anniversaries of the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options is being charged to operations ratably from August 12, 2020 through August 12, 2023. During the three months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $24,985 and $24,985, respectively, with respect to these stock options. During the six months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $49,695 and $49,695, 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 June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $42,228 and $414,851, respectively, with respect to these stock options. During the six months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $83,992 and $414,851, 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 June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $38,405 and $350,290, respectively, with respect to these stock options. During the six months ended June 30, 2022 and 2021, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $76,388 and $350,290, respectively, with respect to these stock options.

 

20

 

 

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 and six months ended June 30, 2022, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $177,150 and $352,355, 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 six months ended June 30, 2022, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $80,647 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, 2023. During the three months and six months ended June 30, 2022, the Company did not record a charge to operations with respect to these stock options.

 

A summary of stock-based compensation costs for the three months and six months ended June 30, 2022 and 2021 is as follows:

  

    2022     2021     2022     2021  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
                         
Related parties   $ 424,094     $ 850,804     $ 763,766     $ 1,506,836  
Non-related parties                        
Total stock-based compensation costs   $ 424,094     $ 850,804     $ 763,766     $ 1,506,836  

 

A summary of stock option activity, including options issued in the form of warrants, during the six months ended June 30, 2022 is presented below.

  

   

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 June 30, 2022     3,325,000     $ 3.083       3.48  
                         
Stock options exercisable at June 30, 2022     2,225,000     $ 3.570       2.99  

 

21

 

 

Total deferred compensation expense for the outstanding value of unvested stock options was approximately $1,808,000 at June 30, 2022, which will be recognized subsequent to June 30, 2022 over a weighted-average period of approximately 15 months.

 

The exercise prices of common stock options outstanding and exercisable, including options issued in the form of warrants, at June 30, 2022 are as follows:

  

Exercise

Prices

   

Options

Outstanding
(Shares)

   

Options

Exercisable
(Shares)

 
               
$ 0.740       750,000       125,000  
$ 0.900       33,333       33,333  
$ 1.680       33,333       33,333  
$ 2.060       200,000       200,000  
$ 2.800       250,000       187,500  
$ 3.000       666,667       666,667  
$ 3.030       500,000       250,000  
$ 3.200       250,000       187,500  
$ 3.210       150,000       150,000  
$ 6.000       166,667       166,667  
$ 6.600       41,667       41,667  
$ 7.140       200,000       100,000  
$ 12.000       83,333       83,333  
          3,325,000       2,225,000  

 

Based on a fair market value of $0.74 per share on June 30, 2022, there was no intrinsic value attributed to exercisable but unexercised in-the-money common stock options at June 30, 2022.

 

Outstanding stock options to acquire 1,100,000 shares of the Company’s common stock had not vested at June 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 six months ended June 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.

 

22

 

 

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 June 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 June 30, 2022, the Company’s unpaid remaining contractual commitments pursuant to clinical trial agreements, clinical trial monitoring agreements, and agreements for the production of LB-100 for clinical use, as described below, aggregated $8,147,000, 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 June 30, 2022 and 2021, the Company incurred costs of $6,073 and $10,309, respectively, pursuant to this agreement, which have been included in research and development costs in the Company’s consolidated statements of operations. During the six months ended June 30, 2022 and 2021, the Company incurred costs of $9,405 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 June 30, 2022, total costs of $114,082 have been incurred pursuant to this agreement. The Company’s aggregate commitment pursuant to this agreement, less amounts previously paid to date, totaled approximately $594,000 as of June 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.

 

23

 

 

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.

 

A new batch of LB 100 has been prepared and is now undergoing the multitude of analytical studies of the formulated product necessary to gain approval for use in the European Union. Regulatory reviews by the European Union have been delayed, as a result of which the final review of the clinical product by Spanish regulatory authorities will also be delayed. Accordingly, the clinical trial is now estimated to commence during the quarter ending December 31, 2022 and be completed by June 30, 2025.

 

The interim analysis of this clinical trial could indicate either inferiority or superiority of LB-100 plus doxorubicin as compared to doxorubicin alone. A positive study would have the potential to change the standard therapy for this disease after four decades of failure to improve the marginal benefit of doxorubicin alone.

 

The Company’s agreement with GEIS provides for various payments based on achieving specific milestones over the term of the agreement. Through June 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 June 30, 2022 and 2021, the Company did not incur any costs pursuant to this agreement. During the six months ended June 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 June 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 $4,166,000 as of June 30, 2022, which is expected to be incurred through December 31, 2025.

 

In order to manufacture a new inventory supply of LB-100 for the GEIS clinical trial, the Company has engaged a number of vendors to carry out the multiple tasks needed to make and gain approval of a new clinical product for investigational study in Spain. These tasks include the synthesis under good manufacturing practices (GMP) of the active pharmacologic ingredient (API), with documentation of each of the steps involved by an independent auditor. The API is then transferred to a vendor that prepares the clinical drug product, also under GMP conditions documented by an independent auditor. The clinical drug product is then sent to a vendor to test for purity and sterility, provide appropriate labels, store the drug, and distribute the drug to the clinical centers for use in the clinical trials. A formal application documenting all steps taken to prepare the 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.

 

24

 

 

On November 2, 2021, the Company entered into a Development Agreement with Famar Health Care Services Madrid SA (“Famar”) to prepare a new batch of clinical LB-100 for use in clinical trials to be conducted in the European Union. During the three months and six months ended June 30, 2022, the Company incurred costs of $0 and $292,293, respectively, pursuant to this agreement, which has been included in research and development costs in the Company’s consolidated statements of operations. As of June 30, 2022, the Company had no further commitment pursuant to this agreement, but has continued to engage the services of Famar on a specific project basis.

 

As of June 30, 2022, this program to provide new inventory of the clinical drug product for the Spanish sarcoma study, and potentially for subsequent multiple trials within the European Union, has cost approximately $1,138,000 to date, with an additional approximately $20,000 expected to be incurred through December 31, 2022. As the production of the new inventory of the clinical drug product 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.

 

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 June 30, 2022 and 2021, the Company incurred costs of $0 and $285,020, respectively, pursuant to this agreement. During the six months ended June 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 June 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.

 

25

 

 

The neurosurgical unit at the NCI, which had been closed due to the Covid-19 epidemic, has reopened, and patient accrual has resumed. 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. The resulting data is expected to become available by December 31, 2022.

 

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 June 30, 2022 and 2021, the Company incurred costs of $4,558 and $7,540, respectively, pursuant to this work order. During the six months ended June 30, 2022 and 2021, the Company incurred costs of $7,839 and $8,481, respectively, pursuant to this work order. As of June 30, 2022, total costs of $99,723 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 $862,000 as of June 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 June 30, 2022 and 2021, the Company incurred costs of $11,235 and $10,773, respectively, pursuant to this work order. During the six months ended June 30, 2022 and 2021, the Company incurred costs of $15,735 and $14,313, respectively, pursuant to this work order. As of June 30, 2022, total costs of $40,361 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 $296,000 as of June 30, 2022, which is expected to be incurred through June 30, 2025.

 

Patent and License Agreements

 

On March 22, 2018, the Company entered into a Patent Assignment and Exploitation Agreement with INSERM TRANSFERT SA, acting as delegatee of the French National Institute of Health and Medical Research, for the assignment to the Company of INSERM’S interest in United States Patent No. 9,833,450 entitled “Oxabicyloheptanes and Oxabicycloheptenes for the Treatment of Depressive and Stress Disorders”, which was filed with the United States Patent and Trademark Office in the name of INSERM and the Company as co-owners on February 19, 2015 and granted on May 12, 2017, and related patent applications and filings. INSERM is a French public institution dedicated to research in the field of health and medicine that had previously entered into a Material Transfer Agreement with the Company to allow INSERM to conduct research on the Company’s proprietary compound LB-100 and/or its analogs for the treatment of depressive or stress disorders in humans. Pursuant to the Agreement, the Company has agreed to make certain milestone payments to INSERM aggregating up to $1,750,000 upon achievement of development milestones and up to $6,500,000 upon achievement of commercial milestones. The Company also agreed to pay INSERM certain commercial royalties on net sales of products attributed to the Agreement. The Company’s 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 June 30, 2022 and December 31, 2021, no amounts were due under this agreement.

 

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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 June 30, 2022 and 2021, the Company recorded charges to operations of $6,233 and $6,233, respectively, in connection with its obligations under the License Agreement. During the six months ended June 30, 2022 and 2021, the Company recorded charges to operations of $12,398 and $12,397, respectively, in connection with its obligations under the License Agreement. As of June 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 an additional one-year period in July and August 2021.

 

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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 June 30, 2022 and 2021, respectively, and $8,000 and $8,000 for the six months ended June 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. The Company recorded charges to operations pursuant to this Collaboration Agreement of $30,000 and $30,000 for the three months ended June 30, 2022 and 2021, respectively, and $60,000 and $60,000 for the six months ended June 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 will 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 is initially expected to be completed within three years. Conditioned on FAST’s completion of this study, the Company has agreed to pay FAST five percent (5%) of all proceeds, as defined in the Master Service Agreement, received by the Company, up to a maximum of $250,000 from the exploitation of the study results.

 

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 awaiting input from FAST as to whether it intends to continue to pursue pre-clinical studies of LB 100.

 

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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 June 30, 2022, the Company incurred charges in the amount of $48,886 with respect to this agreement, which amount is included in research and development costs in the Company’s consolidated statements of operations. During the six months ended June 30, 2022, the Company incurred charges in the amount of $103,116 with respect to this agreement, which amount is included in research and development costs in the Company’s consolidated statements of operations. As of June 30, 2022, total costs of $158,364 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 $361,000 as of June 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 June 30, 2022 and 2021, the Company incurred costs of $19,597 and $15,423, respectively, pursuant to this work order. During the six months ended June 30, 2022 and 2021, the Company incurred costs of $20,353 and $17,432, respectively, pursuant to this work order. As of June 30, 2022, total costs of $210,062 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 $64,000 as of June 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, 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. There were no material subsequent events which affected, or could affect, the amounts or disclosures in the condensed consolidated financial statements.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q of Lixte Biotechnology Holdings, Inc. (the “Company”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These might include statements regarding the Company’s financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future clinical trials and their timing and costs, product demand, supply, manufacturing costs, marketing and pricing factors are all forward-looking statements. These statements are generally accompanied by words such as “intend”, “anticipate”, “believe”, “estimate”, “potential(ly)”, “continue”, “forecast”, “predict”, “plan”, “may”, “will”, “could”, “would”, “should”, “expect” or the negative of such terms or other comparable terminology. The Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to it on the date hereof, but the Company cannot provide assurances that these assumptions and expectations will prove to have been correct or that the Company will take any action that the Company may presently be planning. These forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially from those expected, anticipated or implied in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, regulatory policies or changes thereto, available cash, research and development results, competition from other similar businesses, and market and general economic factors. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, including the section entitled “Item 1A. Risk Factors”. The Company does not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

 

Overview

 

The Company is a drug discovery company that uses biomarker technology to identify enzyme targets associated with serious common diseases and then designs novel compounds to attack those targets. The Company’s product pipeline 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 has developed two classes of drugs for the treatment of cancer, consisting of protein phosphatase inhibitors (PTase-i), designated by us as the LB-100 series of compounds, and histone deacetylase inhibitors (HDACi), designated by us as the LB-200 series of compounds.

 

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, relies on stock-based compensation for a substantial portion of employee and consultant compensation, does not have positive cash flows from operations, and is dependent on periodic infusions of equity capital to fund its operating requirements.

 

Recent Developments

 

April 12, 2022 News Release

 

The Company announced that Professor René Bernards, Neth