10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 12, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
(Address of principal executive offices, including Zip Code)
(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 | ||
| The Stock Market LLC | ||||
| The 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.
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).
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 ☐ |
| 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 November 1, 2024, the Company had shares of common stock issued and outstanding.
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
September 30, 2024 |
December 31, 2023 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Advances on research and development contract services | ||||||||
| Prepaid insurance | ||||||||
| Other prepaid expenses | ||||||||
| Total current assets | ||||||||
| Deferred offering costs | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued
expenses, including $ |
$ | $ | ||||||
| Research
and development contract liabilities, including $ |
||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred Stock, $ par
value; authorized – shares; issued and outstanding – shares of Series A Convertible Preferred Stock,
$ |
||||||||
| Common stock, $ par value; authorized – shares; issued and outstanding – shares at September 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation to related parties, including stock-based compensation expense of $ and $ for the three months ended September 30, 2024 and 2023, respectively, and $ and $ for the nine months ended September 30, 2024 and 2023, respectively | ||||||||||||||||
| Patent and licensing legal and filing fees and costs | ||||||||||||||||
| Other costs and expenses | ||||||||||||||||
| Research
and development costs, including $ |
||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Foreign currency gain (loss) | ( |
) | ( |
) | ( |
) | ||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per common share – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding – basic and diluted | ||||||||||||||||
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 Nine Months Ended September 30, 2024 and 2023
|
Convertible Series A Preferred Stock |
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||||||||
| Three months ended September 30, 2024: | ||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Nine months ended September 30, 2024: | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
(continued)
| 5 |
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Continued)
Three Months and Nine Months Ended September 30, 2024 and 2023
|
Convertible Series A Preferred Stock |
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||||||||
| Three months ended September 30, 2023: | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Proceeds from sale of securities in registered direct offering, net of offering costs | — | |||||||||||||||||||||||||||
| Exercise of pre-funded common stock warrants | — | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Nine months ended September 30, 2023: | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Proceeds from sale of securities in registered direct offering, net of offering costs | — | |||||||||||||||||||||||||||
| Exercise of pre-funded common stock warrants | — | |||||||||||||||||||||||||||
| Exercise of common stock options | — | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense included in - | ||||||||
| General and administrative costs | ||||||||
| Research and development costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in - | ||||||||
| Advances on research and development contract services | ||||||||
| Prepaid insurance | ||||||||
| Other prepaid expenses | ( |
) | ( |
) | ||||
| Increase (decrease) in - | ||||||||
| Accounts payable and accrued expenses | ( |
) | ( |
) | ||||
| Research and development contract liabilities | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of securities
in registered direct offering, net of offering costs |
||||||||
| Exercise of pre-funded common stock warrants | ||||||||
| Exercise of common stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Cash: | ||||||||
| Net decrease | ( |
) | ( |
) | ||||
| Balance at beginning of period | ||||||||
| Balance at end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Deferred offering costs accrued | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for - | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
LIXTE BIOTECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 2024 and 2023
1. Organization and Basis of Presentation
The condensed consolidated financial statements of Lixte Biotechnology Holdings, Inc., a Delaware corporation), including its wholly-owned Delaware subsidiary, Lixte Biotechnology, Inc. (collectively, the “Company”), at September 30, 2024, and for the three months and nine months ended September 30, 2024 and 2023, are unaudited. In the opinion of management of the Company, all adjustments, including normal recurring accruals, have been made that are necessary to present fairly the financial position of the Company as of September 30, 2024, and the results of its operations for the three months and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal year. The condensed consolidated balance sheet at December 31, 2023 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 (“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, 2023, as filed with the SEC.
Business
The Company is a clinical-stage biopharmaceutical company focused on identifying new targets for cancer drug development and developing and commercializing cancer therapies. The Company’s corporate office is located in Pasadena, California.
The Company’s product pipeline is primarily focused on inhibitors of Protein Phosphatase 2A, which is used to enhance cytotoxic agents, radiation, immune checkpoint blockers and other cancer therapies. The Company believes that inhibitors of protein phosphatases have significant therapeutic potential for a broad range of cancers. The Company is focusing on the clinical development of a specific protein phosphatase inhibitor, referred to as LB-100, which has been shown to have clinical anti-cancer activity at doses that produce little or no toxicity.
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, relies on stock-based compensation for a substantial portion of employee and consultant compensation, and is dependent on periodic infusions of equity capital to fund its operating requirements.
Nasdaq Compliance
The
Company’s common stock and the warrants are traded on the Nasdaq Capital Market (“Nasdaq”) under the symbols “LIXT”
and “LIXTW”, respectively. On June 2, 2023, the Company effected a
On
August 19, 2024, the Company received a deficiency letter from the Listing Qualifications Department of Nasdaq indicating that it was
not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”), which requires the Company
to maintain a minimum stockholders’ equity of $
| 8 |
On October 3, 2024, the Company submitted a letter to Nasdaq with its plan to regain compliance with the Stockholders’ Equity Rule, which outlined the Company’s proposed initiatives to regain compliance by raising equity capital through various registered equity offerings.
On October 21, 2024, Nasdaq provided the Company notice that it had granted an extension through February 18, 2025 for the Company to regain compliance with the Stockholders’ Equity Rule. The Company must complete its capital raising initiatives and evidence compliance with the Stockholders’ Equity Rule through filing a Current Report on Form 8-K with the SEC providing certain required information by February 18, 2025.
If the Company fails to evidence compliance with the Stockholders’ Equity Rule upon filing its periodic report for the quarter ending March 31, 2025 with the SEC, the Company may be subject to delisting. If Nasdaq determines to delist the Company’s common stock, the Company will have the right to appeal to a Nasdaq hearings panel. The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process.
The Company intends to take reasonable measures available to regain compliance under Nasdaq’s listing rules and to remain listed on Nasdaq. However, there can be no assurances that the Company will ultimately regain compliance with the Stockholders’ Equity Rule, or be able to maintain compliance with all other applicable requirements for continued listing on Nasdaq. If the Company does not regain compliance with Nasdaq’s listing rules within the time period permitted by Nasdaq, then the Company’s securities will be delisted from Nasdaq.
Going Concern
For
the nine months ended September 30, 2024, the Company recorded a net loss of $
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 consolidated financial statements also do not reflect any adjustments relating to the recoverability of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company has no recurring source of revenues and has experienced negative operating cash flows since inception. The Company has financed its working capital requirements through the recurring sale of its equity securities.
Based on the foregoing, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are being issued. In addition, our independent registered public accounting firm has included an explanatory paragraph in their report with respect to this uncertainty that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2023. 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, design, and results of the Company’s clinical trial program, which, in turn, depends on the availability of operating capital to fund such activities.
| 9 |
Based on current operating plans, the Company estimates that its existing cash resources at September 30, 2024 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 the first quarter of 2025. As existing cash resources will not be sufficient to complete the clinical development of, and obtain regulatory approval for, the Company’s product candidate, the Company will need to raise additional capital in one or more tranches to fund its operations during the next few months in order to be able to effectively manage its current business plan during 2025 and thereafter, as well as to maintain its listing on Nasdaq. Furthermore, the Company’s operating plans and capital requirements may change as a result of many factors that are currently unknown and/or outside of the control of the Company. The Company is considering various strategies and alternatives to obtain the required additional capital.
As market conditions present uncertainty as to the Company’s ability to secure additional funds, there can be no assurance that the Company will be able to secure additional financing on acceptable terms, as and when necessary, to continue to conduct operations.
If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its clinical trial program, 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.
2. 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 Lixte Biotechnology Holdings, Inc. and its wholly-owned subsidiary, Lixte Biotechnology, Inc. Intercompany balances and transactions have been eliminated in consolidation.
Segment Information
The Company operates and reports in one segment, which consists of the development of a drug class called Protein Phosphatase 2A inhibitors. The Company’s operating segment is reported in a manner consistent with the internal reporting provided to the Company’s Chief Operating Decision Maker, which is the Company’s President and Chief Executive Officer.
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 the calculation of accruals for clinical trial costs and other potential liabilities, and valuing equity instruments issued for services.
Cash
Cash
is held in a cash bank deposit program maintained by Morgan Stanley Wealth Management, a division of Morgan Stanley Smith Barney LLC
(“Morgan Stanley”). Morgan Stanley is a FINRA-regulated broker-dealer. The Company’s policy is to maintain its cash
balances with financial institutions in the United States 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 periodically
has cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $
| 10 |
Research and Development
Research and development costs consist primarily of fees paid to consultants and contractors, and other expenses relating to the negotiation, design, development, conduct and management of clinical trials with respect to the Company’s clinical compound and product candidate. Research and development costs also include the costs to manufacture compounds used in research and clinical trials, which are charged to operations as incurred. The Company’s inventory of LB-100 for clinical use has been manufactured separately in the United States and in the European Union in accordance with the laws and regulations of such jurisdictions.
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 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 respective agreement. Obligations incurred with respect to mandatory scheduled payments under agreements without milestone provisions are accounted for when due, are recognized ratably over the appropriate period, as specified in the respective agreement, and are recorded as liabilities in the Company’s consolidated balance sheet, with a corresponding charge to research and development costs in the Company’s consolidated statement of operations.
Payments made pursuant to 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 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 various clinical trial and 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 amount is determined by amortizing the total policy premium charged on a straight-line basis over the respective policy period. As the policy premiums incurred are generally amortizable over the ensuing twelve-month period, they are recorded as a current asset in the Company’s consolidated balance sheet at each reporting date and appropriately amortized to the Company’s consolidated statement of operations for each reporting period.
Deferred Offering Costs
Deferred offering costs consist of costs incurred with respect to pending equity financing transactions, including legal fees. Such costs are deferred and charged to additional paid-in capital upon the successful completion of such financings, or are charged to operations if and when such financings are abandoned or terminated.
Patent and Licensing Legal and Filing Fees and Costs
Due
to the significant uncertainty associated with the successful development of 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 the Company’s intellectual property are charged to operations as incurred. Patent and licensing legal and filing
fees and costs were $
| 11 |
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 period (typically one year) or for a specific project or task. Costs and expenses incurred that
represented
General
and administrative costs for the three months ended September 30, 2024 and 2023 include charges from legal firms and other vendors for
general licensing and patent prosecution costs relating to the Company’s intellectual properties representing
Research
and development costs for the three months ended September 30, 2024 include charges from three vendors and consultants representing
Costs
and expenses incurred that represented
General
and administrative costs for the nine months ended September 30, 2024 and 2023 include charges from legal firms and other vendors for
general licensing and patent prosecution costs relating to the Company’s intellectual properties representing
Research
and development costs for the nine months ended September 30, 2024 include charges from three vendors and consultants representing
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. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the net deferred tax assets are fully offset by a valuation allowance at September 30, 2024 and December 31, 2023. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
The Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions in which the Company currently operates or has operated in the past. The Company had no unrecognized tax benefits as of September 30, 2024 or December 31, 2023 and does not anticipate any material amount of unrecognized tax benefits through December 31, 2024.
| 12 |
The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. The Company had not recorded any liability for uncertain tax positions as of September 30, 2024 or December 31, 2023. Subsequent to September 30, 2024, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
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. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
The fair value of stock options granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the expected life of the stock option, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock. Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The estimated volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common stock is determined by reference to the quoted market price of the Company’s common stock on the grant date. The expected dividend yield is based on the Company’s expectation of dividend payouts and is assumed to be zero.
The Company recognizes the fair value of stock-based compensation awards in general and administrative costs and in research and development costs, as appropriate, in the Company’s consolidated statements of operations. The Company issues new shares of common stock to satisfy stock option exercises.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. The Company has determined that the warrants issued in the July 20, 2023 equity financing (see Note 4) meet the requirements for equity classification. This assessment, which requires the use of professional judgment, is conducted when the warrants are issued and at the end each subsequent quarterly period while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be liability classified and recorded at their initial fair value on the date of issuance and remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants that are liability classified are recognized as a non-cash gain or loss in the statement of operations.
| 13 |
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 respective 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 common shares 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.
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Series A Convertible Preferred Stock | ||||||||
| Common stock warrants | ||||||||
| Common stock options, including options issued in the form of warrants | ||||||||
| Total | ||||||||
Foreign Currency Translation
The consolidated financial statements are presented in the United States dollar, which is the functional and reporting currency of the Company.
The Company periodically incurs a cost or expense in a foreign jurisdiction denominated in a local currency. The Company purchases the required foreign currency to pay such cost or expense on an as-needed basis. Such cost or expense is converted into United States dollars for financial statement purposes based on the foreign currency conversion rate in effect on the transaction date. The Company purchases the requisite foreign currency to pay such cost or expense on an as-needed basis. Any gain or loss resulting from the purchase of the foreign currency is included as foreign currency gain (loss) in the consolidated statement of operations.
During
the three months ended September 30, 2024 and 2023, the Company incurred various costs and expenses denominated in Euros, which were
converted into United States dollars at the average rate of
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.
| 14 |
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, which consists of accounts payable and accrued expenses is considered to be representative of their respective fair values due to the short-term nature of those instruments.
Recent Accounting Pronouncements
In July 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-03, Presentation of Financial Statements (Topic 205), Income Statement — Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation — Stock Compensation (Topic 718) Presentation of Financial Statements (“ASU 2023-03”). ASU 2023-03 amends the FASB Accounting Standards Codification to include Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and SEC Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 — General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. As ASU 2023-03 did not provide any new guidance, there was no transition or effective date associated with its adoption. Accordingly, the Company adopted ASU 2023-03 immediately upon its issuance in July 2023. The adoption of ASU 2023-03 did not have any impact on the Company’s consolidated financial statements, including their presentation and related 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 statements, including their presentation and related disclosures.
3. Research and Development Costs
A summary of research and development costs for the three months and nine months ended September 30, 2024 and 2023, including costs associated with clinical trials involving the Company’s lead clinical compound LB-100, are summarized below based on the respective geographical regions where such costs have been incurred.
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Spain | ||||||||||||||||
| China | ||||||||||||||||
| Netherlands | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
4. Stockholders’ Equity
Preferred Stock
The
Company is authorized to issue a total of shares of preferred stock, par value $ 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 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 shares of the Series A Convertible Preferred Stock are entitled to receive a per share dividend equal
to
| 15 |
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 shares of common stock, par value $ per share. As of September 30, 2024 and December 31, 2023, the Company had shares of common stock issued and outstanding.
On
June 2, 2023, the Company effected a
The authorized number of shares of common stock and the par value per share were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split, with all fractional shares being rounded up to the next whole share.
All share and per share amounts and information presented herein have been retroactively adjusted to reflect the reverse stock split for all periods presented.
Effective
March 10, 2023, the Company issued shares of common stock upon the exercise of a stock option in the form of a warrant held by
a consultant to the Company for shares exercisable at $
Effective
July 20, 2023, the Company sold shares of common stock at a price of $ per share and pre-funded warrants to purchase
During
the period from July 24, 2023 through August 7, 2023, the
In
a concurrent private placement to the institutional investor, the Company also sold warrants to purchase
The
registered direct offering and the concurrent private placement generated gross proceeds of $
| 16 |
The
exercise prices of the warrants issued to the institutional investor (exercisable at $
If such fundamental transaction is not within the Company’s control, including not being approved by the Company’s Board of Directors, the warrant holder would only be entitled to receive the same type or form of consideration (and in the same proportion) equal to the Black-Scholes valuation amount of the remaining unexercised portion of the warrant on the date of consummation of such fundamental transaction as the holders of the Company’s common stock receive. Accordingly, these warrants are classified as a component of permanent stockholders’ equity. The Company will account for any cash payment for a warrant redemption as a distribution from stockholders’ equity, as and when a fundamental transaction is consummated and such cash payment is required to be made.
Common Stock Warrants
A summary of common stock warrant activity, including warrants to purchase common stock that were issued in conjunction with the Company’s public offering, during the nine months ended September 30, 2024 is presented below.
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in Years) |
||||||||||
| Warrants outstanding at December 31, 2023 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Expired | ||||||||||||
| Warrants outstanding at September 30, 2024 | $ | |||||||||||
| Warrants exercisable at December 31, 2023 | $ | |||||||||||
| Warrants exercisable at September 30, 2024 | $ | |||||||||||
At September 30, 2024, the outstanding warrants are exercisable at the following prices per common share:
| Exercise Prices | Warrants
Outstanding (Shares) |
|||||
| $ | ||||||
| $ | ||||||
| $ | ||||||
| $ | ||||||
| $ | ||||||
| 17 |
The
warrants exercisable at $ per share at September 30, 2024 consist of
Based on the closing fair market value of $ per share on September 30, 2024, there was no intrinsic value attributed to exercisable but unexercised common stock warrants at September 30, 2024.
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 each of its executive officers at that time, consisting of Dr. John S. Kovach, Eric J. Forman, Dr. James S. Miser, and Robert N. Weingarten, payable monthly, as described below. These employment agreements were 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. Except as noted below, these employment agreements were automatically renewed for additional one-year periods in July and August 2021, 2022, 2023 and 2024.
The
Company entered into an employment agreement with Dr. Kovach dated July 15, 2020, effective October 1, 2020, to provide for Dr. Kovach
to continue to act as the Company’s President, Chief Executive Officer and Chief Scientific Officer, with an annual salary of $
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 $
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 $
| 18 |
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 $
The
Company entered into an employment agreement with Bastiaan van der Baan effective September 26, 2023 to act as the Company’s President
and Chief Executive Officer and as Vice Chairman of the Board of Directors, with an annual salary of $
On
May 31, 2024, the Company entered into a consulting agreement with Dr. Jan H.M. Schellens, M.D., Ph.D., Pursuant to the agreement, effective
July 1, 2024, the Company engaged Dr. Schellens as a consultant, and, effective August 1, 2024, as the Company’s Chief Medical
Officer. The term of the agreement are in effect from July 1, 2024 until the earliest of (i) termination by either party upon sixty days’
notice, (ii) Dr. Schellens’ death or disability, or (iii) termination by the Company for breach as provided in the agreement. Under
the agreement, Dr. Schellens provides his services for two days per week with the specific days in each week based on arrangements agreed
to from time to time between Dr. Schellens and the Company’s Chief Executive Officer. The Company pays Dr. Schellens an annual
compensation of Euros (approximately $ as of September 30, 2024), payable on a monthly basis. During the three months
and nine months ended September 30, 2024, the Company paid $
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. Upon
his appointment, it was agreed that Dr. Bernards would receive annual compensation for his services on the Board only in the form of
cash, in lieu of the annual June 30 grant of stock options as provided to the Company’s other non-officer directors. During the
three months ended September 30, 2024 and 2023, the Company recorded charges to general and administrative costs in the consolidated
statement of operations of $
In conjunction with the Company’s efforts to preserve cash, effective with the quarter ended June 30, 2024, Dr. Bernards agreed to receive equity-based compensation for his services on the Board, for the quarters ended June 30, 2024, September 30, 2024 and December 31, 2024. In order to reconcile his Board compensation with that of the other non-officer directors, Dr. Bernards has agreed to receive the same Board compensation, both in form and amount, as the other non-officer directors.
| 19 |
Previously, on October 8, 2021, the Company had entered into a Development Collaboration Agreement (subsequently amended and extended) 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 (see 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 non-officer directors for their services on the Board of Directors (the “Board Plan”), which was subsequently amended effective May 25, 2022 and July 9, 2024. Officers who also serve on the Board of Directors are not compensated separately for their service on the Board of Directors.
Cash compensation for directors, payable quarterly, is as follows:
Base
director compensation - $
Chairman
of audit committee – additional $
Chairman
of any other committees – additional $
Member
of audit committee – additional $
Member
of any other committees – additional $
In conjunction with the Company’s efforts to preserve cash, the Board approved an amendment to the Board Plan, such that for the quarters ended June 30, 2024, September 30, 2024 and December 31, 2024, the non-officer directors (including Dr. Bernards) will receive, in lieu of cash compensation, stock options exercisable for a period of five years, vesting immediately, to purchase common stock at an exercise price based on the closing market price at the end of each of the applicable quarters, with the amount of such stock options equal to the cash payment such director would otherwise have been entitled to receive for such quarter, divided by their quarter-end value as determined pursuant to the Black-Scholes option-pricing model. The Board may extend this amendment to the Board Plan for additional quarterly periods subsequent to December 31, 2024.
Equity compensation for directors is as follows:
Appointment
of new directors – The Company grants options to purchase shares of common stock, exercisable for a period of ,
at the closing market price on the date of grant, vesting 50% on the grant date and the remaining % vesting % on the last day of
each calendar quarter beginning in the quarter immediately subsequent to the date of the grant until fully vested, subject to continued
service. At the discretion of the Board of Directors, for a nominee to the Board of Directors who is restricted by their respective institution
or employer from receiving equity-based compensation, in lieu of the grant of such stock options, the Company may elect to pay a one-time
cash fee of $
Annual
grant of options to directors – Effective on the last business day of the month of June, the Company grants options to purchase
shares of common stock, exercisable for a period of five years, at the closing market price on the date of grant, vesting %
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 on the grant date, the amount of such stock option
grant is 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 $
Total cash compensation paid to non-officer directors was $ and $, respectively, for the three months ended September 30, 2024 and 2023. Total cash compensation paid to non-officer directors was $ and $, respectively, for the nine months ended September 30, 2024 and 2023.
| 20 |
Stock-based compensation granted to members of the Company’s Board of Directors, officers and affiliates is described at Note 6.
A summary of related party costs, including compensation under employment and consulting agreements and fees paid to non-officer directors for their services on the Board of Directors, for the three months and nine months ended September 30, 2024 and 2023, is presented below.
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Related party costs: | ||||||||||||||||
| Cash-based | $ | $ | $ | $ | ||||||||||||
| Stock-based | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company periodically 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 was subsequently approved by the stockholders of the Company. The 2020 Plan 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, initially for a total of shares of the Company’s common stock, under terms and conditions as determined by the Company’s Board of Directors. On October 7, 2022, the stockholders of the Company approved an amendment to the 2020 Plan to increase the number of common shares issuable thereunder by shares, to a total of shares. On November 27, 2023, the stockholders of the Company approved an amendment to the 2020 Plan to increase the number of common shares issuable thereunder by shares, to a total of shares.
As of September 30, 2024, unexpired stock options for shares were issued and outstanding under the 2020 Plan and shares were available for issuance under the 2020 Plan.
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.
| Risk-free interest rate | % to | % | ||
| Expected dividend yield | % | |||
| Expected volatility | % to | % | ||
| Expected life | to years |
| 21 |
For stock options requiring an assessment of value during the nine months ended September 30, 2023, 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 | % to | % | ||
| Expected dividend yield | % | |||
| Expected volatility | % | |||
| Expected life | years |
On
July 15, 2020, as amended on August 12, 2020, in connection with the employment agreement with Eric J. Forman, Mr. Forman was granted
stock options to purchase shares of the Company’s common stock. The options can be exercised on a cashless basis. The options
are exercisable for a period of at an exercise price of $ per share, which was equal to the closing market price of the
Company’s common stock on the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model,
was determined to be $
On
August 1, 2020, in connection with an employment agreement with Dr. James S. Miser, M.D., Dr. Miser was granted stock options to purchase
shares of the Company’s common stock. The options can be exercised on a cashless basis. The options are exercisable for a
period of at an exercise price of $ 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 fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $
On
August 12, 2020, in connection with the employment agreement with Robert N. Weingarten, Mr. Weingarten was granted stock options to purchase
shares of the Company’s common stock. The options can be exercised on a cashless basis. The options are exercisable for a
period of at an exercise price of $ per share, which was equal to the closing market price of the Company’s common
stock on the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to
be $
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 stock options to purchase shares of the Company’s common stock, exercisable for a period of
at an exercise price of $ per share (the closing market price on the grant date), The fair value of these stock options, as calculated
pursuant to the Black-Scholes option-pricing model, was determined to be $
| 22 |
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 to purchase shares (a total
of shares) of the Company’s common stock, exercisable for a period of at an exercise price of $ per share
(the closing market price on the grant date),
The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $
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 stock options to purchase shares of the Company’s common stock, exercisable for a period of
at an exercise price of $ per share (the closing market price on the grant date), The fair value
of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $