NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months and Six Months Ended June 30, 2016 and 2015
1.
Organization and Basis of Presentation
The
condensed consolidated financial statements of the Lixte Biotechnology Holdings, Inc., a Delaware corporation (“Holdings”),
including its wholly-owned Delaware subsidiary, Lixte Biotechnology, Inc. (“Lixte”) (collectively, the “Company”),
at June 30, 2016, and for the three months and six months ended June 30, 2016 and 2015, are unaudited. In the opinion of management
of the Company, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the
financial position of the Company as of June 30, 2016, and the results of its operations for the three months and six months ended
June 30, 2016 and 2015, and its cash flows for the six months ended June 30, 2016 and 2015. Operating results for the interim
periods presented are not necessarily indicative of the results to be expected for a full fiscal year. The consolidated balance
sheet at December 31, 2015 has been derived from the Company’s audited financial statements at such date.
The
statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These 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, 2015, as filed with the SEC.
2.
Business
The
Company is a drug discovery company that uses biomarker technology to identify enzyme targets associated with serious common diseases
and then designs novel compounds to attack those targets. The Company’s product pipeline encompasses two major categories
of compounds at various stages of pre-clinical and clinical development that the Company believes have broad therapeutic potential
not only for cancer but also for other debilitating and life-threatening diseases.
The
Company’s activities are subject to significant risks and uncertainties, including the need for additional capital, as described
below. The Company has not yet commenced any sustainable revenue-generating operations, does not have any positive cash flows
from operations, and is dependent on equity capital to fund its operating requirements.
The
Company’s common stock is traded on the OTCQB operated by the OTC Markets under the symbol “LIXT”.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated
any sustainable revenues from operations to date, and does not expect to do so in the foreseeable future. The Company has experienced
recurring operating losses and negative operating cash flows since inception, and has financed its working capital requirements
during this period primarily through the recurring sale of its equity securities and the exercise of outstanding warrants. As
a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern.
In addition, the Company’s independent registered public accounting firm, in their report on the Company’s consolidated
financial statements for the year ended December 31, 2015, has expressed substantial doubt about the Company’s ability to
continue as a going concern.
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 profits. The Company’s
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Because
the Company is currently engaged in research at a relatively early stage, it will likely take a significant amount of time 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. In addition, to the
extent that the Company is able to generate revenues through licensing its technologies or through product sales, there can be
no assurance that the Company will be able to achieve positive earnings and operating cash flows.
At
June 30, 2016, the Company had cash and money market funds aggregating $1,149,903. In January 2016, the Company entered into an
agreement to sell additional shares of preferred stock for aggregate cash proceeds of $1,750,000 to be received by June 3, 2016,
which has been received. The Company also received licensing fee proceeds of $200,000 during the six months ended June 30, 2016,
and expects to receive a refund of advances made to or through Theradex Systems, Inc. of $181,510 upon the administrative closure
of the Phase 1 clinical trial of LB-100 (which was closed to further patient enrollment in April 2016). Accordingly, at June 30,
2016, the Company believes that it has sufficient resources to complete the analysis of the clinical data, reconcile and pay the
remaining costs owed to the participating clinical sites, and prepare and submit the required Clinical Study Report to the U.S.
Food and Drug Administration (“FDA”) on the completed Phase 1 clinical trial of LB-100, as well as to fund the Company’s
ongoing operating expenses, including maintaining its patent portfolio, through mid-2017.
The
amount and timing of future cash requirements will depend on the pace and design of the Company’s clinical trial program.
As market conditions present uncertainty as to the Company’s ability to secure additional funds, there can be no assurances
that the Company will be able to secure additional financing on acceptable terms, or at all, 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 technology and product development programs and/or clinical trials, or obtain
funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish
rights to certain of its compounds, or to discontinue its operations entirely.
3.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed consolidated financial statements of the Company are prepared in accordance with United States generally
accepted accounting principles (“GAAP”) and include the financial statements of Holdings and its wholly-owned subsidiary,
Lixte. Intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during
the reporting period. Significant estimates include accounting for potential liabilities and the assumptions utilized in valuing
stock-based compensation issued for services. Actual results could differ from those estimates.
Cash
Concentrations
The
Company’s cash balances may periodically exceed federally insured limits. The Company has not experienced a loss in such
accounts to date. The Company maintains its accounts with financial institutions with high credit ratings.
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates.
Research
and development costs are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the
completion of contracted work, or other information indicates that a different expensing schedule is more appropriate.
The
Company retained Theradex Systems, Inc. (“Theradex”), an international contract research organization (“CRO”)
that provides professional services for the clinical research and development of pharmaceutical compounds, to be responsible for
managing and administering the Company’s Phase 1 clinical trial of LB-100. The costs of the Phase 1 clinical trial of LB-100
that are being paid through Theradex are recorded and expensed based upon the documentation provided by the CRO.
Payments
made pursuant to research and development contracts are initially recorded as advances on research and development contract services
in the Company’s balance sheet and then charged to research and development costs in the Company’s statement of operations
as those contract services are performed. Expenses incurred under research and development contracts in excess of amounts advanced
are recorded as research and development contract liabilities in the Company’s balance sheet, with a corresponding charge
to research and development costs in the Company’s statement of operations. The Company reviews the status of its research
and development contracts on a quarterly basis.
At
June 30, 2016, the Company had made advances to or through Theradex aggregating $181,510, which are expected to be refunded to
the Company upon completion of the Company’s Phase 1 clinical trial of LB-100.
Patent
Costs
Due
to the significant uncertainty associated with the successful development of one or more commercially viable products based on
the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal and
filing fees, are expensed as incurred. Patent costs were $96,127 and $84,745 for the three months ended June 30, 2016 and 2015,
respectively, and $198,083 and $212,226 for the six months ended June 30, 2016 and 2015, respectively. Patent costs are included
in research and development costs in the Company’s condensed consolidated statements of operations.
Accounting
for Preferred Stock
The
Company accounts for preferred stock as either equity or debt, depending on the specific characteristics of the security issued.
The Series A Convertible Preferred Stock issued by the Company in January 2016 and March 2015 has been classified in stockholders’
equity, as described at Note 5.
Concentration
of Risk
The
Company periodically contracts with directors, including companies controlled by or associated with directors, to provide consulting
services related to the Company’s research and development and clinical trial activities. Agreements for these services
can be for a specific time period (typically one year) or for a specific project or task, and can include both cash and non-cash
compensation. The only such contract that represents 10% or more of general and administrative or research and development costs
is described below.
On
September 21, 2012, the Company entered into a work order agreement with Theradex, the CRO responsible for the clinical development
of the Company’s lead anti-cancer compound LB-100, to manage and administer the Phase 1 clinical trial of LB-100. The Phase
1 clinical trial of LB-100, which began during April 2013 with the entry of patients into the clinical trial, was carried out
by nationally recognized comprehensive cancer centers. As the patient accrual goal was reached in April 2016, the clinical trial
was closed to further patient enrollment at that time. All patients completed treatment with LB-100 and were off study by the
end of May 2016. The Company estimates that it will continue to incur costs through December 2016 to complete the analysis of
the clinical data, reconcile and pay the remaining costs owed to the participating clinical sites, and prepare and submit the
required Clinical Study Report to the FDA on the completed Phase 1 clinical trial of LB-100.
The
Phase 1 clinical trial was estimated to cost a total of approximately $2,200,000, with such payments expected to be allocated
approximately 60% for services provided by Theradex and approximately 40% for pass-through costs for clinical center laboratory
costs and investigator costs over the life of the clinical trial. Total costs charged to operations through June 30, 2016 for
services paid to or through Theradex pursuant to this arrangement, which were first incurred in 2013, aggregated $1,866,828.
During
the three months ended June 30, 2016 and 2015, $92,553 and $150,107, respectively, of such clinical trial costs were incurred,
representing approximately 29% and 52% of research and development costs for such periods. During the six months ended June 30,
2016 and 2015, the Company incurred $206,104 and $500,708, respectively, of such clinical trial costs, representing approximately
35% and 63% of research and development costs for such periods. Costs pursuant to this agreement are included in research and
development costs in the Company’s condensed consolidated statements of operations.
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 has elected to deduct research and development costs on a current basis for federal income tax purposes. For federal tax
purposes, start-up and organization costs were deferred until January 1, 2008 at which time the Company began to amortize such
costs over a 180-month period.
The
Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of
its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination
was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
The
Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net
operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions
in which the Company currently operates or has operated in the past. The Company had no unrecognized tax benefits as of June 30,
2016 and 2015 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
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. As of June 30, 2016, the Company had not recorded any liability for uncertain tax positions. In
subsequent periods, 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, Scientific Advisory Committee members and consultants
for services rendered. Options vest and expire according to terms established at the issuance date of each grant.
The
Company accounts for stock-based payments to officers and directors by measuring the cost of services received in exchange for
equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line
basis in the Company’s financial statements over the vesting period of the awards. The Company accounts for stock-based
payments to Scientific Advisory Committee members and consultants by determining the value of the stock compensation based upon
the measurement date at either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary
performance to earn the equity instruments is complete.
Stock
grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the
vesting period.
Stock
options granted to members of the Company’s Scientific Advisory Committee and to outside consultants are revalued each reporting
period to determine the amount to be recorded as an expense in the respective period. As the stock options vest, they are valued
on each vesting date and an adjustment is recorded for the difference between the value already recorded and the value on the
date of vesting.
The
fair value of common stock issued as stock-based compensation is determined by reference to the closing price of the Company’s
common stock on the date of issuance. 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 life of the
equity award, 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 over the term of the equity award. Estimated volatility is based on the historical
volatility of the Company’s common stock. 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 common stock is determined by reference to the quoted market price of the Company’s
common stock.
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 condensed consolidated statement of operations. The Company issues new shares of
common stock to satisfy stock option exercises.
Revenue
Recognition
The
Company recognizes revenue when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists;
(ii) delivery of the products and/or services has occurred; (iii) the fees earned can be readily determined; and (iv) collectability
of the fees is reasonably assured.
Revenues
from milestone payments under license agreements are recognized when earned and the Company has no further performance obligations
thereunder.
Comprehensive
Income (Loss)
Components
of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which
they are recognized. Comprehensive income or loss is defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any
related tax effect to arrive at comprehensive income (loss). The Company did not have any items of comprehensive income (loss)
for the three months and six months ended June 30, 2016 and 2015.
Earnings
(Loss) Per Share
The
Company’s computation of earnings (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured
as the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., preferred
shares, warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date,
if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss
per share) are excluded from the calculation of diluted EPS.
Net
income (loss) attributable to common stockholders consists of net income or loss, as adjusted for preferred stock dividends declared,
amortized or accumulated.
Loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted loss per common share is the same for all periods presented because all preferred shares,
warrants and stock options outstanding are anti-dilutive.
At
June 30, 2016 and 2015, 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.
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
|
4,375,000
|
|
|
|
2,187,500
|
|
Common stock options
|
|
|
8,600,000
|
|
|
|
7,250,000
|
|
Total
|
|
|
12,975,000
|
|
|
|
9,437,500
|
|
Fair
Value of Financial Instruments
The
authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified
and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity
in Level 3 fair value measurements, is also required.
Level
1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
Level
2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include
fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.
Level
3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based
derivatives and commingled investment funds, and are measured using present value pricing models.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based
on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels,
the Company performs an analysis of the assets and liabilities at each reporting period end.
Money
market funds are the only financial instrument that is measured and recorded at fair value on the Company’s consolidated
balance sheet on a recurring basis.
The
carrying value of financial instruments (consisting of cash and 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
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance
under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU 2014-09
also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain
or fulfill a contract. Based on the FASB’s Exposure Draft Update issued on April 29, 2015, Revenue from Contracts With Customers
(Topic 606): Deferral of the Effective Date, it is expected that ASU 2014-09 will now be effective for reporting periods beginning
after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period. Entities will be able to transition to the standard either retrospectively
or as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2014-09 is not expected to have any impact
on the Company’s financial statement presentation or disclosures.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements –
Going Concern (Subtopic 205-10). ASU 2014-15 provides guidance as to management’s responsibility to evaluate whether there
is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should
be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is
not expected to have any impact on the Company’s financial statement presentation and disclosures.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires
a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about
leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that
the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification
of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount,
timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has
not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.
Management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have
a material impact on the Company’s financial statement presentation or disclosures.
4.
License Agreement
Effective
December 25, 2015, the Company entered into a License Agreement (the “TMU License Agreement”) with Taipei Medical
University (“TMU”), pursuant to which the Company granted to TMU an exclusive license of its lead anti-cancer compound
LB-100 in the treatment of hepatocellular carcinoma (“HCC”) in Asia. Under the TMU License Agreement, TMU will determine
the effectiveness of LB-100 against HCC in clinical trials conducted in accordance with both Taiwan and United States regulatory
requirements.
Under
the TMU License Agreement, TMU is obligated to make non-refundable milestone payments to the Company of $200,000 within ninety
days from the effective date of December 25, 2015, $50,000 upon the completion of the first Phase 1b/2 clinical trial, $150,000
upon the completion of the first Phase 3 clinical trial, and $200,000 upon the first filing of a New Drug Application (“NDA”)
with the FDA or a comparable non-United States regulatory authority. During the term of the TMU License Agreement, TMU will also
pay earned royalties of 10% on cumulative net sales, and 10% to 15% on non-sale based sub-license income. A Phase 1b/2 clinical
trial of LB-100 plus doxorubicin, to be managed and funded by TMU, is expected to commence during the fourth quarter of 2016.
The
Company did not have any further performance obligations under the TMU License Agreement on the December 25, 2015 effective date.
Accordingly, as the $200,000 licensing fee was fully earned on the December 25, 2015 effective date, the Company recorded such
amount as licensing fee revenue at December 31, 2015. The Company received the $200,000 milestone payment on March 18, 2016.
5.
Stockholders’ Equity
Preferred
Stock
The
Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.001 per share. On March 17, 2015, the Company
filed a Certificate of Designations, Preferences, Rights and Limitations (the “Certificate of Designations”) of its
Series A Convertible Preferred Stock with the Delaware Secretary of State to amend the Company’s certificate of incorporation.
The number of shares designated as Series A Convertible Preferred Stock was 175,000 (which 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
Certificate of Designations). Effective January 28, 2016, the Series A Convertible Preferred Stock Certificate of Designations
was amended to increase the number of authorized shares of Series A Convertible Preferred Stock from 175,000 to 350,000. Accordingly,
as of June 30, 2016, 9,650,000 shares of preferred stock were undesignated and may be issued with such rights and powers as the
Board of Directors may designate
Effective
March 17, 2015, the Company entered into a Securities Purchase Agreement with a current stockholder of the Company who owned 10.6%
of the Company’s issued and outstanding shares of common stock immediately prior to the financing transaction, pursuant
to which such stockholder purchased 175,000 shares of the Company’s non-voting Series A Convertible Preferred Stock (the
“Preferred Stock”) at a price per share of $10.00, representing an aggregate purchase price of $1,750,000.
Effective
January 28, 2016, the Company entered into a Securities Purchase Agreement with the holder of the Preferred Stock sold on March
17, 2015, pursuant to which the Company sold an additional 175,000 shares of Preferred Stock at a price per share of $10.00, representing
an aggregate purchase price of $1,750,000, payable $583,333 on closing, $583,333 on or before March 4, 2016, and $583,334 on or
before June 3, 2016. All such installments had been received at June 30, 2016.
This
class of Preferred Stock has a dividend per share equal to 1% of the annual net revenue of the Company divided by 175,000, until
converted or redeemed. Based on the Company’s net revenues for the year ended December 31, 2015 of $200,000, the Company
recorded a dividend of $2,000 on the shares of Preferred Stock issued and outstanding at that time. The dividend has been presented
as a current liability in the Company’s condensed consolidated balance sheets as of December 31, 2015. The dividend was
paid in cash on May 1, 2016.
Each
share of Preferred Stock may be converted, at the option of the holder, into 12.5 shares of common stock (subject to customary
anti-dilution provisions) and the 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 Preferred Stock has a liquidation
preference based on its assumed conversion into shares of common stock.
If
fully converted, the Preferred Stock sold in the March 17, 2015 closing would convert into 2,187,500 shares of common stock, representing
an effective price per share of common stock of $0.80. On March 17, 2015, the closing price of the Company’s common stock
was $0.25 per share. If fully converted, the Preferred Stock sold in the January 21, 2016 closing would also convert into 2,187,500
shares of common stock, representing an effective price per share of common stock of $0.80. On January 21, 2016, the closing price
of the Company’s common stock was $0.22 per share. The Company has the right to redeem the Preferred Stock up to the fifth
anniversary of the respective closing dates at a price per share equal to $50.00. The Preferred Stock has no right to cash, except
for the payment of the aforementioned dividend when the Company generates revenues, and does not have any registration rights.
Based
on the attributes of the Preferred Stock described above, the Company has determined to account for the Preferred Stock as a permanent
component of stockholders’ equity. Legal costs of $12,608 incurred with respect to the issuance of the Preferred Stock on
March 17, 2015 were charged directly to additional paid-in capital. No costs were incurred with respect to the issuance of the
Preferred Stock on January 21, 2016.
Common
Stock
Effective
March 17, 2015, the Company’s Chairman and major stockholder converted advances due to him aggregating $92,717 into 92,717
shares of the Company’s common stock, reflecting an effective price of $1.00 per share. On the effective date of the transaction,
the closing price of the Company’s common stock was $0.25 per share. The Company accounted for this transaction as a capital
transaction.
Information
with respect to the issuance of common stock in connection with various stock-based compensation arrangements is provided at Note
8.
Common
Stock Warrants
On
March 6, 2015, the Company’s Board of Directors extended to April 15, 2015 the outstanding warrants to acquire 2,928,800
shares of the Company’s common stock, which were then currently scheduled to expire on March 31, 2015, and discounted the
cash exercise prices of the warrants by 50%. Warrants so extended and discounted consisted of 1,075,000 warrants currently exercisable
at $0.75 per share and 1,853,800 warrants currently exercisable at $0.50 per share. The difference in the fair value of the warrants
immediately before and after the grant of the extensions, as calculated pursuant to the Black-Scholes option-pricing model, was
determined to be $34,016 (average of $0.01 per share), and such amount was charged to operations on March 6, 2015. The fair value
of the warrant extensions was calculated using the following input variables: stock price - $0.30 per share; exercise price -
$0.50 and $0.75 per share; expected life – 25 to 40 days; expected volatility – 199%; expected dividend yield - 0%;
risk-free interest rate – 0.01%. The difference in the fair value of the warrants immediately before and after the grant
of the discount, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $171,757 (an average of
$0.06 per share), and such amount was charged to operations on March 6, 2015. The fair value of the warrant discount was calculated
using the following input variables: stock price - $0.30 per share; exercise price - $0.50 and $0.75 per share to $0.25 and $0.375
per share, respectively; expected life – 15 days (the period during which the discount was available); expected volatility
– 199%; expected dividend yield - 0%; risk-free interest rate – 0.01%.
As
a result of the March 6, 2015 warrant extension and discount offers, warrants to acquire 1,050,000 shares of the Company’s
common stock were exercised in April 2015 (including warrants to acquire 500,000 shares of common stock by Dr. Debbie Schwartzberg,
an affiliate of the Company, and 300,000 shares of common stock by Philip F. Palmedo, a director of the Company) at exercise prices
ranging from $0.25 to $0.375 per share. The exercise of the warrants generated aggregate net proceeds to the Company of $315,000
(average exercise price of $0.30 per share).
As
of June 30, 2016 and December 31, 2015, there were no warrants outstanding to purchase common stock.
6.
Money Market Funds
Money
market funds at June 30, 2016 and December 31, 2015 consisted of investments in shares of Morgan Stanley New York Municipal Money
Market Trust with a fairt value of $1,054,127 and $104,095, respectively.
The
Morgan Stanley New York Municipal Money Market Trust is an open-end fund incorporated in the USA. The Fund’s objective is
as high level of daily income exempt from federal and New York income tax as is consistent with stability of principal and liquidity.
The Fund invests in high quality, short- term municipal obligations that pay interest exempt from federal and NY taxes.
The
following table presents money market funds at their level within the fair value hierarchy at June 30, 2016 and December 31, 2015.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,054,127
|
|
|
$
|
1,054,127
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
104,095
|
|
|
$
|
104,095
|
|
|
$
|
—
|
|
|
$
|
—
|
|
7.
Related Party Transactions
The
Company had advances from its Chairman and major stockholder, Dr. John Kovach, aggregating $92,717, which were non-interest bearing,
due on demand, and included in current liabilities in the Company’s consolidated balance sheets through December 31, 2014.
Effective March 17, 2015, such advances were converted into 92,717 shares of the Company’s common stock, reflecting an effective
price of $1.00 per share. On the effective date of the transaction, the closing price of the Company’s common stock was
$0.25 per share.
Dr.
Kovach was paid a salary of $15,000 for the three months ended June 30, 2016 and 2015, and $30,000 for the six months ended June
30, 2016 and 2015, which amounts are included in general and administrative costs in the Company’s condensed consolidated
statements of operations.
Dr.
Kovach is not involved in other business activities but could, in the future, become involved in other business opportunities
that become available. Accordingly, Dr. Kovach may face a conflict in selecting between the Company and his other business interests.
The Company has not yet formulated a policy for the resolution of such potential conflicts.
The
Company’s principal office facilities have been provided without charge by Dr. Kovach. Such costs were not material to the
Company’s consolidated financial statements and, accordingly, have not been reflected therein.
Legal
and consulting fees charged to operations for services rendered by the Eric Forman Law Office were $12,000 for the three months
ended June 30, 2016 and 2015, and $24,000 for the six months ended June 30, 2016 and 2015. Eric J. Forman is the son-in-law of
Gil Schwartzberg, a significant stockholder of and consultant to the Company, and is the son of Dr. Stephen J. Forman, who was
elected to the Company’s Board of Directors on May 13, 2016.
Effective
January 1, 2014, the Company entered into an Advisory Agreement with Dr. Kathleen P. Mullinix, a member of the Board of Directors
of the Company, effective for an initial term of one year through December 31, 2014 to advise on business development matters.
The Advisory Agreement provided for annual cash compensation of $25,000. The term of the Advisory Agreement is automatically extended
for a term of one year annually unless a notice of intent to terminate is given by either party at least 90 days before the end
of the applicable term. Accordingly, the Advisory Agreement was extended for additional terms of one year effective January 1,
2015 and 2016. The Company recognized a charge to operations of $6,250 as consulting and advisory fees pursuant to this Advisory
Agreement during the three months ended June 30, 2016 and 2015, and $12,500 during the six months ended June 30, 2016 and 2015,
which were included in general and administrative costs in the Company’s condensed consolidated statements of operations.
Stock-based
compensation arrangements involving members of the Company’s Board of Directors and affiliates are described at Note 8.
Total stock-based compensation expense relating to directors, officers, affiliates and related parties was $101,404 and $0 for
the three months ended June 30, 2016 and 2015, respectively. Total stock-based compensation expense relating to directors, officers,
affiliates and related parties was $101,404 and $74,901 for the six months ended June 30, 2016 and 2015, respectively.
8.
Stock-Based Compensation
The
Company issues common stock and stock options as incentive compensation to directors and as compensation for the services of independent
contractors and consultants of the Company.
On
June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”),
which provides for the granting of awards, consisting of stock options, stock appreciation rights, performance shares, or restricted
shares of common stock, to employees and independent contractors, for up to 2,500,000 shares of the Company’s common stock,
under terms and condition, as determined by the Company’s Board of Directors. As of June 30, 2016, unexpired stock options
for 1,200,000 shares were issued and outstanding under the 2007 Plan, and stock options for 1,300,000 were available for issuance
under the 2007 Plan.
The
fair value of each stock option awarded is estimated on the date of grant and subsequent measurement dates using the Black-Scholes
option-pricing model. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts.
The expected volatilities are based on historical volatility of the Company’s stock. The risk-free interest rate is based
on the U.S. treasury yield curve in effect as of the grant date. The expected life of the stock options is the average of the
vesting term and the full contractual term of the stock options.
For
stock options requiring an assessment of value during the six months ended June 30, 2016, the fair value of each stock option
award was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free
interest rate
|
|
|
0.60%
to 1.23
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Expected
volatility
|
|
|
196.75%
to 198.43
|
%
|
Expected
life
|
|
|
2.5
to 5.0 years
|
|
For
stock options requiring an assessment of value during the six months ended June 30, 2015, the fair value of each stock option
award was estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free
interest rate
|
|
|
0.68%
to 1.66
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Expected
volatility
|
|
|
243.00
|
%
|
Expected
life
|
|
|
3.5
to 4.3 years
|
|
On
January 28, 2014, the Company approved a second amendment to the Company’s consulting agreement with Gil Schwartzberg, a
significant stockholder of and consultant to the Company, dated September 12, 2007 to extend it for an additional four years to
January 28, 2019 and granted to Mr. Schwartzberg stock options to purchase an additional aggregate of 4,000,000 shares of common
stock, exercisable for a period of the earlier of five years from the grant date or the termination of the consulting agreement
at $0.50 per share, with one-half of the stock options (2,000,000 shares) vesting immediately and one-half of the stock options
(2,000,000 shares) vesting on January 28, 2015. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $596,400 ($0.15 per share) on January 28, 2014, of which $298,200 was attributable
to the stock options that were fully vested on January 28, 2014 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 January 28, 2014 through January
28, 2015. During the six months ended June 30, 2015, the Company recorded a charge to operations of $74,901 with respect to these
stock options.
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice
in the field of oncology research and drug development. As part of the agreement, NDA also agreed to cause its president, Dr.
Daniel D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. In connection with this agreement,
NDA was granted stock options to purchase 100,000 shares of the Company’s common stock, vesting 25,000 shares on June 24,
2014, and thereafter 25,000 shares annually on June 24, 2015, 2016 and 2017, exercisable for a period of five years from the date
of grant at $0.13 per share, which was the fair market value 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 initially determined to be $12,960
($0.13 per share), and is being charged to operations ratably from December 24, 2013 through June 24,2017. During the three months
ended June 30, 2016 and 2015, the Company recorded a charge to operations of $6,254 and $1,554, respectively, with respect to
these stock options. During the six months ended June 30, 2016 and 2015, the Company recorded a (credit) charge to operations
of $(4,542) and $3,870, respectively, with respect to these stock options.
On
October 7, 2014, the Company entered into an Advisory Agreement with Andrew Robell for consultation and advice with respect to
identifying and assessing potential licensing and strategic opportunities through September 30, 2016. In connection with the agreement,
the Company granted stock options to Mr. Robell to purchase 200,000 shares of the Company’s common stock, vesting 100,000
shares on October 7, 2014 and 100,000 shares on October 7, 2015, exercisable for a period of five years from the date of grant
at $0.50 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was
determined to be $20,000 ($0.10 per share), of which $10,000 was attributable to the stock options fully-vested on October 7,
2014 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 October 7, 2014 through October 7, 2015. During the three months and six months ended June
30, 2015, the Company recorded a charge to operations of $6,339 and $13,116, respectively, with respect to these stock options.
On
October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC (“ProActive”) for
strategic advisory, investor relations and public relations services through October 6, 2015. In connection with the agreement,
the Company agreed to pay ProActive a monthly fee of $1,500 in cash and agreed to issue to ProActive 250,000 shares of the Company’s
common stock, vesting 125,000 shares upon execution of the agreement on October 7, 2014 and 125,000 shares six months thereafter
on April 7, 2015. Additionally, the Company issued a stock option in the form of a warrant to ProActive to purchase 500,000 shares
of the Company’s common stock, vesting upon execution of the agreement on October 7, 2014, and exercisable for a period
of one year from the date of grant at $0.25 per share. The fair value of the warrant, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $33,000 ($0.066 per share). The Company inadvertently neglected to timely record a
charge to operations in 2014 of $45,500 with respect to this transaction, as well as to record a portion of the fair value of
the remaining unvested 125,000 shares in 2014 (which had a fair value on the grant date of $12,500). The Company recorded a charge
to operations for the aggregate fair value of these securities of $76,750 during the three months ended June 30, 2015. Management
performed an evaluation with respect to this matter and determined that this correction was not qualitatively or quantitatively
material to the Company’s financial statements for the years ended December 31, 2014 or 2015, and thus determined that no
restatement of such prior periods was necessary or appropriate under the circumstances.
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks LLC (“BioPharmaWorks”),
pursuant to which the Company engaged BioPharmaWorks to perform certain services for the Company as described at Note 9. In connection
with the Collaboration Agreement, the Company agreed to issue to BioPharmaWorks 1,000,000 fully-vested shares of the Company’s
common stock, valued at $260,000, based upon the closing price of the Company’s common stock of $0.26 per share, on September
14, 2015. Additionally, the Company issued to BioPharmaWorks two options in the form of warrants to purchase 1,000,000 shares
(500,000 shares per warrant) of the Company’s common stock. The first warrant will vest on September 14, 2016, and is exercisable
for a period of five years from the date of grant at $1.00 per share. The second warrant will vest on September 14, 2017, and
is exercisable for a period of five years from the date of grant at $2.00 per share. The fair value of the first and second warrants,
as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $128,400 ($0.2568 per share) and $127,850
($0.2557 per share), respectively. During the three months and six months ended June 30, 2016, the Company recorded a charge to
operations of $63,757 and $43,024, respectively, with respect to these common shares and warrants.
On
November 28, 2015, the Company entered into a two-year advisory agreement with Dr. Fritz Henn, M.D., Ph.D., for consultation and
advice on the development of certain of the Company’s products for clinical neurological and neuropsychiatric applications.
Dr. Henn is an internationally recognized investigative neuroscientist and psychiatrist. In connection with the advisory agreement,
and as sole compensation, Dr. Henn was granted stock options to purchase 200,000 shares of the Company’s common stock, with
100,000 shares vesting on November 28, 2015, and 100,000 shares vesting on November 28, 2016. The stock options are exercisable
for a period of five years from the grant date at $0.50 per share. The fair value of these stock options, as calculated pursuant
to the Black-Scholes option-pricing model, was initially determined to be $103,360 ($0.5168 per share), of which $51,680 was attributable
to the stock options fully-vested on November 28, 2015 and was therefore charged to operations on that date. The remaining unvested
portion of the fair value of the stock options is being charged to operations ratably from November 28, 2015 through November
28, 2016. During the three months and six months ended June 30, 2016, the Company recorded a charge to operations of $7,280 and
$8,439, respectively, with respect to these stock options.
Effective
April 25, 2016, in connection with her continuing role as a member of the Company’s Board of Directors, Dr. Kathleen P.
Mullinix was granted fully-vested stock options under the 2007 Plan to purchase 150,000 shares of the Company’s common stock.
The stock options are exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $17,535 ($0.1169 per share), which was charged to operations on the date of grant.
Effective
April 25, 2016, in connection with his continuing role as a member of the Company’s Board of Directors, Dr. Philip F. Palmedo
was granted fully-vested stock options under the 2007 Plan to purchase 450,000 shares of the Company’s common stock. The
stock options are exercisable for a period of five years from the date of grant at $0.12 per share, which was the fair market
value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $52,604 ($0.1169 per share), which was charged to operations on the date of grant.
Effective
May 13, 2016, in conjunction with his appointment as a director of the Company, the Company granted to Dr. Stephen J. Forman stock
options to purchase an aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for a period of five years
from vesting date at $0.16 per share, which was the fair market value of the Company’s common stock on such date. One-half
(100,000 shares) vest annually on each of May 13, 2016 and 2017. The fair value of these stock options, as calculated pursuant
to the Black-Scholes option-pricing model, was determined to be $31,180 ($0.1559 per share), of which $15,590 was attributable
to the stock options fully-vested on May 13, 2016 and was therefore was charged to operations on that date. The remaining unvested
portion of the fair value of the stock options is being charged to operations ratably from May 13, 2016 through May 13, 2017.
During the three months and six months ended June 30, 2016, the Company recorded a charge to operations of $17,640 with respect
to these stock options.
Effective
June 7, 2016, in connection with his continuing role as a consultant to the Company, Eric Forman was granted fully-vested stock
options under the 2007 Plan to purchase 100,000 shares of the Company’s common stock. The stock options are exercisable
for a period of five years from the date of grant at $0.15 per share. The fair market value of the Company’s common stock
on the date of grant was $0.14 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing
model, was determined to be $13,625 ($0.1363 per share), which was charged to operations on the date of grant.
Total
stock-based compensation expense was $178,695 and $84,643 for the three months ended June 30, 2016 and 2015, respectively. Total
stock-based compensation expense was $148,325 and $168,637 for the six months ended June 30, 2016 and 2015, respectively.
A
summary of stock option activity during the six months ended June 30, 2016 is presented in the tables below.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Of
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in Years)
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2015
|
|
|
7,950,000
|
|
|
$
|
0.697
|
|
|
|
|
|
Granted
|
|
|
900,000
|
|
|
|
0.132
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
(250,000
|
)
|
|
|
0.980
|
|
|
|
|
|
Options outstanding at June 30, 2016
|
|
|
8,600,000
|
|
|
$
|
0.629
|
|
|
|
2.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2015
|
|
|
6,800,000
|
|
|
$
|
0.586
|
|
|
|
|
|
Options exercisable at June 30, 2016
|
|
|
7,375,000
|
|
|
$
|
0.521
|
|
|
|
2.52
|
|
Total
deferred compensation expense for the outstanding value of unvested stock options was approximately $98,000 at June 30, 2016,
which is being recognized subsequent to June 30, 2016 over a weighted-average period of approximately eleven months.
The
exercise prices of common stock options outstanding and exercisable are as follows at June 30, 2016:
|
|
|
Options
|
|
|
Options
|
|
Exercise
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Prices
|
|
|
(Shares)
|
|
|
(Shares)
|
|
|
|
|
|
|
|
|
|
$
|
0.120
|
|
|
|
600,000
|
|
|
|
600,000
|
|
$
|
0.130
|
|
|
|
100,000
|
|
|
|
75,000
|
|
$
|
0.150
|
|
|
|
100,000
|
|
|
|
100,000
|
|
$
|
0.160
|
|
|
|
200,000
|
|
|
|
100,000
|
|
$
|
0.250
|
|
|
|
500,000
|
|
|
|
500,000
|
|
$
|
0.500
|
|
|
|
4,400,000
|
|
|
|
4,300,000
|
|
$
|
0.650
|
|
|
|
700,000
|
|
|
|
700,000
|
|
$
|
1.000
|
|
|
|
1,500,000
|
|
|
|
1,000,000
|
|
$
|
2.000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
|
|
|
8,600,000
|
|
|
|
7,375,000
|
|
The
intrinsic value of exercisable but unexercised in-the-money stock options at June 30, 2016 was approximately $62,300, based on
a fair market value of $0.20 per share on June 30, 2016.
The
intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2015 was approximately $31,300, based
on a fair market value of $0.296 per share on December 31, 2015.
Outstanding
options to acquire 1,225,000 shares of the Company’s common stock had not vested at June 30, 2016.
The
Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.
9.
Commitments and Contingencies
The
Company is not currently subject to any pending or threatened legal actions or claims.
Significant
agreements and contracts are summarized as follows:
On
September 21, 2012, the Company entered into a work order agreement with Theradex, the CRO responsible for the clinical development
of the Company’s lead anti-cancer compound LB-100, to manage and administer the Phase 1 clinical trial of LB-100. The Phase
1 clinical trial of LB-100, which began during April 2013 with the entry of patients into the clinical trial, was carried out
by nationally recognized comprehensive cancer centers. As the patient accrual goal was reached in April 2016, the clinical trial
was closed to further patient enrollment at that time. All patients completed treatment with LB-100 and were off study by the
end of May 2016. The Company estimates that it will continue to incur costs through December 2016 to complete the analysis of
the clinical data, reconcile and pay the remaining costs owed to the participating clinical sites, and prepare and submit the
required Clinical Study Report to the FDA on the completed Phase 1 clinical trial of LB-100.
The
Phase 1 clinical trial was estimated to cost a total of approximately $2,200,000, with such payments expected to be allocated
approximately 60% for services provided by Theradex and approximately 40% for pass-through costs for clinical center laboratory
costs and investigator costs over the life of the clinical trial. Total costs charged to operations through June 30, 2016 for
services paid to or through Theradex pursuant to this arrangement, which were first incurred in 2013, aggregated $1,866,828.
On
December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice
in the field of oncology research and drug development. As part of the agreement, NDA also agreed to cause its president, Dr.
Daniel D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. The term of the agreement was
for one year and provided for a quarterly cash fee of $4,000. The agreement was automatically renewed on its anniversary date
for an additional one-year term. Consulting and advisory fees charged to operations pursuant to this agreement were $4,000 during
the three months ended June 30, 2016 and 2015, and $8,000 during the six months ended June 30, 2016 and 2015.
Effective
January 1, 2014, the Company entered into an Advisory Agreement with Dr. Kathleen P. Mullinix, a member of the Board of Directors
of the Company, effective for an initial term of one year through December 31, 2014 to advise on business development matters.
The Advisory Agreement provided for annual cash compensation of $25,000. The term of the Advisory Agreement was automatically
extended for a term of one year annually unless a notice of intent to terminate was given by either party at least 90 days before
the end of the applicable term. Accordingly, the Advisory Agreement was extended for additional terms of one year effective January
1, 2015 and 2016. The Company recognized a charge to operations of $6,250 as consulting and advisory fees pursuant to this Advisory
Agreement during the three months ended June 30, 2016 and 2015, and $12,500 during the six months ended June 30, 2016 and 2015.
On
October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC for strategic advisory, investor
relations and public relations services through October 6, 2015. Among other things, the agreement provided for compensation in
the form of a monthly cash fee of $1,500. The Company recorded a charge to operations pursuant to this agreement of $4,500 and
$9,000 for the three months and six months ended June 30, 2015, respectively.
Effective
September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks, pursuant to which the Company engaged
BioPharmaWorks to perform certain services for the Company. Those services include, among other things: (a) assisting the Company
to (i) commercialize its products and strengthen its patent portfolio, (ii) identify large pharmaceutical companies with potential
interest in the Company’s product pipeline, and (iii) prepare and deliver presentations concerning the Company’s products;
(b) at the request of the Board of Directors, serving as backup management for up to three months should the Company’s Chief
Executive Officer and scientific leader be temporarily unable to carry out his duties; (c) being available for consultation in
drug discovery and development; and (d) identifying providers and overseeing tasks relating to clinical use and commercialization
of new compounds. BioPharmaWorks was founded in 2015 by former Pfizer scientists with extensive multi-disciplinary research and
development and drug development experience. The Collaboration Agreement is for an initial term of two years and automatically
renews for subsequent annual periods unless terminated by a party not less than 60 days prior to the expiration of the applicable
period. In connection with the Collaboration Agreement, the Company agreed to pay BioPharmaWorks a monthly fee of $10,000, subject
to the right of the Company to pay a negotiated hourly rate in lieu of the monthly payment, and agreed to issue to BioPharmaWorks
certain equity-based compensation as described at Note 8. The Company recorded a charge to operations pursuant to this Collaboration
Agreement of $30,000 and $60,000 during the three months and six months ended June 30, 2016, respectively.
Summary
of Principal Cash Obligations and Commitments
The
following table sets forth the Company’s principal cash obligations and commitments for the next five fiscal years as of
June 30, 2016 aggregating $347,135, of which $60,980 is included in current liabilities in the Company’s condensed consolidated
balance sheet at June 30, 2016. Amounts included in the 2016 column represent amounts due at June 30, 2016 for the remainder of
the 2016 fiscal year ending December 31, 2016.
|
|
|
|
|
Payments Due By Year
|
|
|
|
Total
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development contracts
|
|
$
|
20,937
|
|
|
$
|
20,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Clinical trial agreements
|
|
|
163,198
|
|
|
|
163,198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consulting agreements
|
|
|
163,000
|
|
|
|
73,000
|
|
|
|
90,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
347,135
|
|
|
$
|
257,135
|
|
|
$
|
90,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
10.
Subsequent Events
The
Company performed an evaluation of subsequent events through the date of filing of these financial statements with the SEC, noting
no items requiring disclosure.