Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 12, 2024

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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 September 30, 2024

 

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 November 1, 2024, the Company had 2,249,290 shares of common stock issued and outstanding.

 

 

 

 

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

TABLE OF CONTENTS

 

 

Page

Number

   
PART I - FINANCIAL INFORMATION 3
   
Item 1. Condensed Consolidated Financial Statements 3
   
Condensed Consolidated Balance Sheets – September 30, 2024 (Unaudited) and December 31, 2023 3
   
Condensed Consolidated Statements of Operations (Unaudited) – Three Months and Nine Months Ended September 30, 2024 and 2023 4
   
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) – Three Months and Nine Months Ended September 30, 2024 and 2023 5
   
Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2024 and 2023 7
   
Notes to Condensed Consolidated Financial Statements (Unaudited) – Three Months and Nine Months Ended September 30, 2024 and 2023 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 56
   
Item 4. Controls and Procedures 56
   
PART II - OTHER INFORMATION 57
   
Item 1. Legal Proceedings 57
   
Item 1A. Risk Factors 57
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57
   
Item 3. Defaults Upon Senior Securities 58
   
Item 4. Mine Safety Disclosures 58
   
Item 5. Other Information 58
   
Item 6. Exhibits 58
   
SIGNATURES 59

 

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   $ 1,637,627     $ 4,203,488  
Advances on research and development contract services           78,016  
Prepaid insurance     17,081       17,116  
Other prepaid expenses     34,256       10,000  
Total current assets     1,688,964       4,308,620  
Deferred offering costs     6,928        
Total assets   $ 1,695,892     $ 4,308,620  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued expenses, including $0 and $36,250 to related parties at September 30, 2024 and December 31, 2023, respectively   $ 72,859     $ 156,758  
Research and development contract liabilities, including $0 and $120,768 to related parties at September 30, 2024 and December 31, 2023, respectively     256,097       157,100  
Total current liabilities     328,956       313,858  
                 
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 – 72,917 shares at September 30, 2024 and December 31, 2023     3,500,000       3,500,000  
Common stock, $0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 2,249,290 shares at September 30, 2024 and December 31, 2023     225       225  
Additional paid-in capital     49,316,710       48,976,265  
Accumulated deficit     (51,449,999 )     (48,481,728 )
Total stockholders’ equity     1,366,936       3,994,762  
Total liabilities and stockholders’ equity   $ 1,695,892     $ 4,308,620  

 

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 $106,827 and $112,106 for the three months ended September 30, 2024 and 2023, respectively, and $340,445 and $669,146 for the nine months ended September 30, 2024 and 2023, respectively     283,053       356,001       907,069       1,398,042  
Patent and licensing legal and filing fees and costs     45,416       178,012       192,239       835,362  
Other costs and expenses     293,158       357,681       1,168,582       1,081,893  
Research and development costs, including $76,278 and $51,568 for the three months ended September 30, 2024 and 2023, respectively, and $210,362 and $156,950 for the nine months ended September 30, 2024 and 2023, respectively, to a related party     361,630       132,487       691,402       749,029  
Total costs and expenses     983,257       1,024,181       2,959,292       4,064,326  
Loss from operations     (983,257 )     (1,024,181 )     (2,959,292 )     (4,064,326 )
Interest income     1,437       5,809       6,529       13,538  
Interest expense     (1,049 )     (279 )     (12,389 )     (6,088 )
Foreign currency gain (loss)     (3,161 )     (109 )     (3,119 )     2,102  
Net loss   $ (986,030 )   $ (1,018,760 )   $ (2,968,271 )   $ (4,054,774 )
                                 
Net loss per common share – basic and diluted   $ (0.44 )   $ (0.49 )   $ (1.32 )   $ (2.25 )
                                 
Weighted average common shares outstanding – basic and diluted     2,249,290       2,074,938       2,249,290       1,803,466  

 

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

 

    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 September 30, 2024:                                                        
Balance, June 30, 2024     350,000     $ 3,500,000       2,249,290     $ 225     $ 49,209,883     $ (50,463,969 )   $ 2,246,139  
Stock-based compensation expense                             106,827             106,827  
Net loss                                   (986,030 )     (986,030 )
Balance, September 30, 2024     350,000     $ 3,500,000       2,249,290     $ 225     $ 49,316,710     $ (51,449,999 )   $ 1,366,936  
                                                         
Nine months ended September 30, 2024:                                                        
Balance, December 31, 2023     350,000     $ 3,500,000       2,249,290     $ 225     $ 48,976,265     $ (48,481,728 )   $ 3,994,762  
Stock-based compensation expense                             340,445             340,445  
Net loss                                   (2,968,271 )     (2,968,271 )
Balance, September 30, 2024     350,000     $ 3,500,000       2,249,290     $ 225     $ 49,316,710     $ (51,449,999 )   $ 1,366,936  

 

(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     350,000     $ 3,500,000       1,665,956     $ 166     $ 45,623,081     $ (46,430,713 )   $ 2,692,534  
Proceeds from sale of securities in registered direct offering, net of offering costs                 180,000       18       3,137,021             3,137,039  
Exercise of pre-funded common stock warrants                 403,334       41                   41  
Stock-based compensation expense                             112,106             112,106  
Net loss                                   (1,018,760 )     (1,018,760 )
Balance, September 30, 2023     350,000     $ 3,500,000       2,249,290     $ 225     $ 48,872,208     $ (47,449,473 )   $ 4,922,960  
                                                         
Nine months ended September 30, 2023:                                                        
Balance, December 31, 2022     350,000     $ 3,500,000       1,664,706     $ 166     $ 45,059,760     $ (43,394,699 )   $ 5,165,227  
Proceeds from sale of securities in registered direct offering, net of offering costs                 180,000       18       3,137,021             3,137,039  
Exercise of pre-funded common stock warrants                 403,334       41                   41  
Exercise of common stock options                 1,250             6,281             6,281  
Stock-based compensation expense                             669,146             669,146  
Net loss                                   (4,054,774 )     (4,054,774 )
Balance, September 30, 2023     350,000     $ 3,500,000       2,249,290     $ 225     $ 48,872,208     $ (47,449,473 )   $ 4,922,960  

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    2024     2023  
    Nine Months Ended September 30,  
    2024     2023  
             
Cash flows from operating activities:                
Net loss   $ (2,968,271 )   $ (4,054,774 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation expense included in -                
General and administrative costs     340,445       669,146  
Research and development costs            
Changes in operating assets and liabilities:                
(Increase) decrease in -                
Advances on research and development contract services     78,016       69,002  
Prepaid insurance     35       25,994  
Other prepaid expenses     (24,256 )     (17,460 )
Increase (decrease) in -                
Accounts payable and accrued expenses     (90,827 )     (8,593 )
Research and development contract liabilities     98,997       (74,457 )
Net cash used in operating activities     (2,565,861 )     (3,391,142 )
                 
Cash flows from financing activities:                
Proceeds from sale of securities in registered direct offering, net of
offering costs
          3,137,039  
Exercise of pre-funded common stock warrants           41  
Exercise of common stock options           6,281  
Net cash provided by financing activities           3,143,361  
                 
Cash:                
Net decrease     (2,565,861 )     (247,781 )
Balance at beginning of period     4,203,488       5,353,392  
Balance at end of period   $ 1,637,627     $ 5,105,611  
                 
Non-cash investing and financing activities:                
Deferred offering costs accrued   $ 6,928     $  
                 
Supplemental disclosures of cash flow information:                
Cash paid for -                
Interest   $ 12,389     $ 6,088  
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 1-for-10 reverse split of its outstanding shares of common stock in order to remain in compliance with the $1.00 minimum closing bid price requirement of Nasdaq. However, there can be no assurances that the Company will be able to remain in compliance with the $1.00 minimum closing bid price requirement of Nasdaq over time. In addition, Nasdaq has other continued listing requirements, one of which is maintaining a minimum net stockholders’ equity of $2,500,000.

 

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 $2,500,000. This notice of non-compliance has no immediate impact on the continued listing or trading of the Company’s securities on Nasdaq, which will continue to be listed and traded on Nasdaq, subject to the Company’s compliance with the other Nasdaq continued listing requirements.

 

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 $2,968,271 and used cash in operations of $2,565,861. At September 30, 2024, the Company had cash of $1,637,627 available to fund its operations. Because the Company is currently engaged in various early-stage 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 technology, product sales or other commercial activities, there can be no assurance that the Company will be able to achieve and maintain positive earnings and operating cash flows. At September 30, 2024, the Company’s remaining financial contractual commitments pursuant to clinical trial agreements and clinical trial monitoring agreements not yet incurred aggregated approximately $3,918,000 (see Note 8), which are currently scheduled to be incurred through approximately December 31, 2027.

 

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 $250,000 and $500,000, respectively. Morgan Stanley Wealth Management 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.

 

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 $45,416 and $178,012 for the three months ended September 30, 2024 and 2023, respectively, and $192,239 and $835,362 for the nine months ended September 30, 2024 and 2023, respectively. Patent and licensing legal and filing fees and costs are included in general and administrative costs in the Company’s consolidated statement of operations.

 

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 10% or more of general and administrative costs or research and development costs for the three months ended September 30, 2024 and 2023 are described below.

 

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 7.3% and 20.0% of total general and administrative costs, respectively. General and administrative costs for the three months ended September 30, 2024 and 2023 also included charges for the cost of directors and officer’s insurance of 18.4% and 11.9%, respectively, corporate legal fees of 9.8% and 10.6%, respectively, and for the fair value of stock options granted to directors and corporate officers representing 17.2% and 12.6%, respectively, of total general and administrative costs.

 

Research and development costs for the three months ended September 30, 2024 include charges from three vendors and consultants representing 57.2%, 21.1% and 15.1%, respectively, of total research and development costs. Research and development costs for the three months ended September 30, 2023 include charges from four vendors and consultants representing 38.9%, 24.9%, 15.9% and 14.9%, respectively, of total research and development costs.

 

Costs and expenses incurred that represented 10% or more of general and administrative costs or research and development costs for the nine months ended September 30, 2024 and 2023 are described below.

 

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 8.5% and 25.2% of total general and administrative costs, respectively. General and administrative costs for the nine months ended September 30, 2024 and 2023 also included charges for the cost of directors and officer’s insurance of 16.0% and 9.3%, respectively, corporate legal fees of 11.5% and 7.5%, respectively, and for the fair value of stock options granted to directors and corporate officers representing 15.0% and 20.2%, respectively, of total general and administrative costs.

 

Research and development costs for the nine months ended September 30, 2024 include charges from three vendors and consultants representing 41.2%, 30.4% and 12.6%, respectively, of total research and development costs. Research and development costs for the nine months ended September 30, 2023 include charges from three vendors and consultants representing 35.9%, 21.0%, and 12.4%, respectively, of total research and development costs.

 

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.

 

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. 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

 

 

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 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.

 

At September 30, 2024 and 2023, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share  

    2024     2023  
    September 30,  
    2024     2023  
             
Series A Convertible Preferred Stock     72,917       72,917  
Common stock warrants     808,365       808,365  
Common stock options, including options issued in the form of warrants     623,232       674,896  
Total     1,504,514       1,556,178  

 

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 1.0991 and 1.0885, respectively. During the nine 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 1.0991 and 1.0839, respectively. As of September 30, 2024 and December 31, 2023, the Company did not hold any currencies other than the United States dollar in its bank accounts, and was not a party to any foreign currency forward or exchange contracts.

 

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.

Schedule of Research and Development Costs 

    2024     2023     2024     2023  
   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2024     2023     2024     2023  
                         
United States   $ 278,808     $ 68,315     $ 427,736     $ 291,846  
Spain     6,544       9,496       51,022       283,035  
China           3,108       2,282       17,198  
Netherlands     76,278       51,568       210,362       156,950  
Total   $ 361,630     $ 132,487     $ 691,402     $ 749,029  

 

4. Stockholders’ Equity

 

Preferred Stock

 

The Company is authorized to issue a total of 10,000,000 shares of preferred stock, par value $0.0001 per share. On March 17, 2015, the Company filed a Certificate of Designations, Preferences, Rights and Limitations of its Series A Convertible Preferred Stock with the Delaware Secretary of State to amend the Company’s certificate of incorporation. The Company has designated a total of 350,000 shares as Series A Convertible Preferred Stock, which are non-voting and are not subject to increase without the written consent of a majority of the holders of the Series A Convertible Preferred Stock or as otherwise set forth in the Preferences, Rights and Limitations. The holders of each tranche of 175,000 shares of the Series A Convertible Preferred Stock are entitled to receive a per share dividend equal to 1% of the annual net revenue of the Company divided by 175,000, until converted or redeemed. As of September 30, 2024 and December 31, 2023, 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.

 

15

 

 

Each share of Series A Convertible Preferred Stock may be converted, at the option of the holder, into 0.20833 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 any cash liquidation preference rights or any registration rights. The 350,000 outstanding shares of Series A Convertible Preferred Stock were convertible into a total of 72,917 shares of common stock at September 30, 2024 and December 31, 2023.

 

Based on the attributes of the Series A Convertible Preferred Stock as previously described, the Company has accounted for the Series A Convertible Preferred Stock as a permanent component of stockholders’ equity.

 

Common Stock

 

The Company is authorized to issue a total of 100,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2024 and December 31, 2023, the Company had 2,249,290 shares of common stock issued and outstanding.

 

On June 2, 2023, the Company effected a 1-for-10 reverse split of its outstanding shares of common stock.

 

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 1,250 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 1,250 shares exercisable at $5.025 per share for total cash proceeds of $6,281.

 

Effective July 20, 2023, the Company sold 180,000 shares of common stock at a price of $6.00 per share and pre-funded warrants to purchase 403,334 shares of common stock at a price of $5.9999 per pre-funded warrant to an institutional investor in a registered direct offering. The pre-funded warrants had an exercise price of $0.0001 per share, were immediately exercisable upon issuance, and were valid and exercisable until all pre-funded warrants were exercised in full.

 

During the period from July 24, 2023 through August 7, 2023, the 403,334 pre-funded warrants, exercisable at $0.0001 per common share, were exercised for total cash proceeds of $41, resulting in the issuance of 403,334 shares of common stock. The pre-funded warrants were determined to be common stock equivalents.

 

In a concurrent private placement to the institutional investor, the Company also sold warrants to purchase 583,334 shares of common stock. Each common warrant had an initial exercise price of $6.00 per share, was immediately exercisable upon issuance, and expires five years thereafter on July 20, 2028. The common warrants and the shares of common stock issuable upon exercise of the common warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”) and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. The shares of common stock issuable upon exercise of the warrants were registered for resale on a registration statement on Form S-3 declared effective by the SEC on May 2, 2024.

 

The registered direct offering and the concurrent private placement generated gross proceeds of $3,499,964. The total cash costs of the registered direct offering and the private placement were $362,925, resulting in net proceeds of $3,137,039. Pursuant to the placement agent agreement, the Company granted the placement agent warrants to purchase 35,000 shares of common stock at an exercise price of $6.60 per share and expiring on July 20, 2028.

 

16

 

 

The exercise prices of the warrants issued to the institutional investor (exercisable at $6.00 per share) and to the placement agent (exercisable at $6.60 per share) are subject to customary adjustments for stock splits, stock dividends, stock combinations, reclassifications, reorganizations, or similar events affecting the Company’s common stock. In addition, the warrants issued to the institutional investor contain a “fundamental transaction” provision which provides that if any defined fundamental transactions are within the Company’s control and are consummated, the holder of the unexercised common stock warrants would be entitled to receive, at its option, in exchange for extinguishment of such warrants, cash consideration equal to a Black-Scholes valuation amount, as defined in the warrant agreement. The fundamental transaction provision includes (i) a sale, lease, assignment, transfer, conveyance or other disposition of all or substantially all of the assets of the Company in one or a series of related transactions, or (ii) a change in control of the Company by which it, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination with another person or group, whereby such other person or group acquires more than 50% of the voting power of the common equity of the Company.

 

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     808,365     $ 16.407          
Issued                    
Exercised                    
Expired                    
Warrants outstanding at September 30, 2024     808,365     $ 16.407       3.24  
                         
Warrants exercisable at December 31, 2023     808,365     $ 16.407          
Warrants exercisable at September 30, 2024     808,365     $ 16.407       3.24  

 

At September 30, 2024, the outstanding warrants are exercisable at the following prices per common share:

 

Exercise Prices     Warrants
Outstanding (Shares)
 
         
$ 6.000       583,334  
$ 6.600       35,000  
$ 20.000       29,000  
$ 37.000       11,331  
$ 57.000       149,700  
          808,365  

 

17

 

 

The warrants exercisable at $57.00 per share at September 30, 2024 consist of 1,497,000 publicly-traded warrants, described herein on a pre-split 1-for-10 basis, that were issued as part of the Company’s November 2020 public offering of units, and are exercisable for a period of five years thereafter. As a result of the 1-for-10 reverse split of the Company’s common stock effective June 2, 2023, each such publicly-traded warrant currently now represents the right to purchase 1/10th of a share of common stock at the original exercise price of $5.70 per share. Accordingly, the exercise of 10 warrants, each exercisable at $5.70, are required to acquire one share of post-split common stock, which is equivalent to a purchase price of $57.00 per share.

 

Based on the closing fair market value of $1.87 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 $250,000. The employment agreement with Dr. Kovach terminated upon his death on October 5, 2023. During the three months and nine months ended September 30, 2023, the Company paid $62,500 and $187,500, respectively, to Dr. Kovach under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement 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 was required to devote at least 50% of his business time to the Company’s activities. During the three months ended September 30, 2024 and 2023, the Company paid $14,583 and $43,750, respectively, to Dr. Miser under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statements of operations for such periods. During the nine months ended September 30, 2024 and 2023, the Company paid $102,083 and $131,250, respectively, to Dr. Miser under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement of operations for such periods. On May 29, 2024, the Company elected not to renew its employment agreement with Dr. Miser, as a result of which such employment agreement expired on July 31, 2024.

 

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. Mr. Forman is the son-in-law of Gil Schwartzberg (deceased), a former member of the Company’s Board of Directors who died on October 30, 2022 and was 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 Mr. 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. Additionally, effective November 6, 2022, Mr. Forman was promoted to Vice President and Chief Operating Officer with an annual salary of $200,000. Effective October 1, 2022, Mr. Forman has been provided a monthly office rent allowance, pursuant to which for the three months ended September 30, 2024 and 2023, the Company paid $3,218 and $7,323 respectively, on Mr. Forman’s behalf. For the nine months ended September 30, 2024 and 2023, Mr. Forman has been provided a monthly office rent allowance, pursuant to which the Company paid $13,099 and $11,436 respectively, on Mr. Forman’s behalf. During the three months ended September 30, 2024 and 2023, the Company paid $50,000 and $50,000, respectively, to Mr. Forman under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statements of operations for such periods. During the nine months ended September 30, 2024 and 2023, the Company paid $150,000 and $150,000, respectively, to Mr. Forman under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement of operations for such periods.

 

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 $120,000. Effective May 1, 2021, Mr. Weingarten’s annual salary was increased to $175,000. During the three months ended September 30, 2024 and 2023, the Company paid $43,750 and $43,750, respectively, to Mr. Weingarten under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statements of operations for such periods. During the nine months ended September 30, 2024 and 2023, the Company paid $131,250 and $131,250, respectively, to Mr. Weingarten under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement of operations for such periods.

 

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 $150,000. Effective October 6, 2023, Mr. van der Baan was appointed as Chairman of the Board of Directors upon the death of Dr. Kovach on October 5, 2023. Mr. van der Baan’s annual salary may be increased from time to time at the sole discretion of the Board of Directors. In addition, Mr. van der Baan is eligible to receive an annual bonus as determined at the sole discretion of the Board of Directors. The term of the employment agreement is for three years and is automatically renewable for additional one-year periods unless terminated by either party, subject to early termination provisions as described in the employment agreement. During the three months ended September 30, 2024 and 2023, the Company paid $39,175 and $1,667, respectively, to Mr. van der Baan under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement of operations for such periods. During the nine months ended September 30, 2024 and 2023, the Company paid $115,754 and $1,667, respectively, to Mr. van der Baan under this employment agreement, which costs are included in general and administrative costs in the Company’s consolidated statement of operations for such periods.

 

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 104,000 Euros (approximately $116,000 as of September 30, 2024), payable on a monthly basis. During the three months and nine months ended September 30, 2024, the Company paid $28,718 and $28,718, respectively, to Dr. Schellens under this consulting agreement, which costs are included in general and administrative costs in the Company’s consolidated statement 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. 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 $0 and $10,000, respectively, with respect to his annual cash board compensation. During the nine months ended September 30, 2024 and 2023, the Company recorded charges to general and administrative costs in the consolidated statement of operations of $10,000 and $30,000, respectively, with respect to his annual cash board compensation.

 

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 - $20,000 per year (except for Dr. Bernards, who was paid an additional annual cash fee of $40,000, in lieu of the annual June 30 grant of stock option as described below, through March 31, 2024)

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

 

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 25,000 shares of common stock, exercisable for a period of five years, at the closing market price on the date of grant, vesting 50% on the grant date and the remaining 50% vesting 12.5% on the last day of each calendar quarter beginning in the quarter immediately subsequent to the date of the grant until fully vested, subject to continued service. At the discretion of the Board of Directors, for a nominee to the Board of Directors who is restricted by their respective institution or employer from receiving equity-based compensation, in lieu of the grant of such stock options, the Company may elect to pay a one-time cash fee of $100,000 to such director, payable upfront.

 

Annual grant of options to directors – Effective on the last business day of the month of June, the Company grants options to purchase 10,000 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 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 $40,000 to such director, payable quarterly.

 

Total cash compensation paid to non-officer directors was $0 and $42,228, respectively, for the three months ended September 30, 2024 and 2023. Total cash compensation paid to non-officer directors was $38,819 and $127,229, 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.

 

    2024     2023     2024     2023  
   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2024     2023     2024     2023  
                         
Related party costs:                                
Cash-based   $ 176,226     $ 243,895     $ 566,624     $ 728,896  
Stock-based     106,827       112,106       340,445       669,146  
Total   $ 283,053     $ 356,001     $ 907,069     $ 1,398,042  

 

6. Stock-Based Compensation

 

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 233,333 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 180,000 shares, to a total of 413,333 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 336,667 shares, to a total of 750,000 shares.

 

As of September 30, 2024, unexpired stock options for 623,232 shares were issued and outstanding under the 2020 Plan and 126,768 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.

 

For stock options requiring an assessment of value during the nine months ended September 30, 2024, 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     3.550% to 4.290 %
Expected dividend yield     0 %
Expected volatility     125.59% to 126.45 %
Expected life     2.5 to 3.5 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     4.565% to 4.843 %
Expected dividend yield     0 %
Expected volatility     138.05 %
Expected life     4.0 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 5,833 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options are exercisable for a period of five years at an exercise price of $71.40 per share, which was equal to the closing market price of the Company’s common stock on the grant date. The options vested 25% on August 12, 2020, 2021 and 2022, respectively, with the final 25% vesting on August 12, 2023. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($68.718 per share), of which $100,214 was attributable to the portion of 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 was charged to operations ratably from August 12, 2020 through August 12, 2023. The Company recorded a charge to general and administrative costs in the consolidated statement of operations for the three months and nine months ended September 30, 2023 of $11,806 and $61,501, respectively, with respect to these stock options.

 

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 8,333 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options are exercisable for a period of five years at an exercise price of $71.40 per share, which was equal to the closing market price of the Company’s common stock on the effective date of the employment agreement. The options vested 25% on August 1, 2020, 2021 and 2022, respectively, with the final 25% vesting on August 1, 2023. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $572,650 ($68.718 per share), of which $143,163 was attributable to the portion of 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 was charged to operations ratably from August 1, 2020 through August 1, 2023. The Company recorded a charge to general and administrative costs in the consolidated statement of operations for the three months and nine months ended September 30, 2023 of $12,551 and $83,544, respectively, with respect to these stock options.

 

On August 12, 2020, in connection with the employment agreement with Robert N. Weingarten, Mr. Weingarten was granted stock options to purchase 5,833 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options are exercisable for a period of five years at an exercise price of $71.40 per share, which was equal to the closing market price of the Company’s common stock on the grant date. The options vested 25% on August 12, 2020, 2021 and 2022, respectively, with the final 25% vesting on August 12, 2023. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($68.718 per share), of which $100,214 was attributable to the portion of 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 was charged to operations ratably from August 12, 2020 through August 12, 2023. The Company recorded a charge to general and administrative costs in the consolidated statement of operations for the three months and nine months ended September 30, 2023 of $11,806 and $61,501, 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 stock options to purchase 25,000 shares of the Company’s common stock, exercisable for a period of five years at an exercise price of $28.00 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 ($26.335 per share), of which $329,188 was attributable to the portion of 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 was charged to operations ratably from May 11, 2021 through June 30, 2023. The Company recorded a charge to general and administrative costs in the consolidated statement of operations for the three months and nine months ended September 30, 2023 of $0 and $76,388, respectively, with respect to these stock options.

 

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 10,000 shares (a total of 50,000 shares) of the Company’s common stock, exercisable for a period of five years at an exercise price of $30.30 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 fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $1,421,095 ($28.423 per share), which was charged to operations ratably from July 1, 2021 through June 30, 2023. The Company recorded a charge to general and administrative costs in the consolidated statement of operations for the three months and nine months ended September 30, 2023 of $0 and $211,413, 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 stock options to purchase 25,000 shares of the Company’s common stock, exercisable for a period of five years at an exercise price of $7.40 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, subject to continued service. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $158,525 ($6.341 per share), of which $79,263 was attributable to the portion of 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 was charged to operations ratably from June 17, 2022 through June 30, 2024. 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 $0 and $