10-Q 1 ef20029692_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
☒
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2024
 
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                    

Commission File No. 001-31791
 
 
GALECTIN THERAPEUTICS INC.
 
 
Nevada
04-3562325
(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)
 
4960 Peachtree Industrial Blvd.,
Suite 240, Norcross, GA
30071
(Address of Principal Executive Offices)
(Zip Code)

(678) 620 -3186
(Registrant’s Telephone Number, Including Area Code)
 
 
Securities registered or to be 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
GALT
The Nasdaq Stock Market

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, or 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

The number of shares outstanding of the registrant’s common stock as of August 9, 2024 was 62,278,125.
 
GALECTIN THERAPEUTICS INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024

  PART I — FINANCIAL INFORMATION PAGE
ITEM 1.
Unaudited Condensed Consolidated Financial Statements (unaudited)
 
     
 
3
     
 
4
     
 
5
     
 
 6
 


 
8
     
ITEM 2.
17
     
ITEM 3.
24
     
ITEM 4.
25
     
  PART II — OTHER INFORMATION  
     
ITEM 1.
25
     
ITEM 1A.
25
     
ITEM 2.
25
     
ITEM 3.
25
     
ITEM 4.
25
     
ITEM 5.
25
     
ITEM 6.
25
     
27

GALECTIN THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
  
June 30,
2024
    
December 31,
2023
  
 
  
(in thousands)
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
25,598
    
$
25,660
  
Prepaid expenses and other current assets
    
1,689
      
2,050
  
Total current assets
    
27,287
      
27,710
  
Other assets
    
368
      
490
  
Total assets
  
$
27,655
    
$
28,200
  
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
                
Current liabilities:
                
Accounts payable
  
$
3,698
    
$
6,431
  
Accrued expenses and other
    
10,856
      
9,182
  
Accrued dividends payable
    
63
      
63
  
Total current liabilities
    
14,617
      
15,676
  
Convertible notes payable and accrued interest, net of discounts – related party (Note 3)
   
31,375
      
30,902
  
Derivative liabilities (Note 4)    
1,764
      
1,004
  
Borrowing and accrued interest under convertible line of credit, net of debt discount – related party (Notes 9 and 10)
     62,046       40,839  
Other liabilities
    
—
      
20
  
Total liabilities
    
109,802
      
88,441
  
Commitments and contingencies (Note 11)
            
Series C super dividend redeemable convertible preferred stock; 1,000 shares authorized, 176 shares issued and outstanding at June 30, 2024 and December 31, 2023, redemption value: $8,124,000, liquidation value: $1,760,000 at June 30, 2024
    
1,723
      
1,723
  
Stockholders’ equity (deficit):
                
Undesignated stock, $0.01 par value; 20,000,000 shares authorized, 20,000,000 designated at June 30, 2024 and December 31, 2023 respectively
   
—
      
—
  
Series A 12% convertible preferred stock; 1,742,500 shares authorized, 1,235,000 issued and outstanding at June 30, 2024 and December 31, 2023, liquidation value $1,235,000 at June 30, 2024
    
500
      
500
  
Common stock, $0.001 par value; 150,000,000 shares authorized at June 30, 2024 and December 31, 2023, 62,278,125 and 61,852,914 issued and outstanding at June 30, 2024 and December 31, 2023, respectively
    
62
      
61
  
Additional paid-in capital
    
293,872
      
291,847
  
Retained deficit
    
(378,304
)
    
(354,372
)
Total stockholders’ equity (deficit)
    
(83,870
)
    
(61,964
)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
  
$
27,655
    
$
28,200
  

See notes to unaudited condensed consolidated financial statements.

3
GALECTIN THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
  
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
 
  
(in thousands, except per share
data)
    
(in thousands, except per share
data)
  
Operating expenses:
                        
Research and development
  
$
9,813
    
$
7,371
    
$
17,867
    
$
16,170
  
General and administrative
    
1,478
      
1,632
      
3,072
      
3,175
  
Total operating expenses
    
11,291
      
9,003
      
20,939
      
19,345
  
Total operating loss
    
(11,291
)
    
(9,003
)
    
(20,939
)
    
(19,345
)
Other income (expense):
                                
Interest income
    
80
      
50
      
160
      
93
  
Interest expense
    
(1,269
)
    
(650
)
    
(2,321
)
    
(1,110
)
Change in fair value of derivative
    
109
      
489
      
(760
)
    
(279
)
Total other income (expense)
    
(1,080
)
    
(111
)
    
(2,921
)
    
(1,296
)
Net loss
  
$
(12,371
)
  
$
(9,114
)
  
$
(23,860
)
  
$
(20,641
)
Preferred stock dividends
    
(64
)
    
(63
)
    
(72
)
    
(63
)
Net loss applicable to common stockholders
  
$
(12,435
)
  
$
(9,177
)
  
$
(23,932
)
  
$
(20,704
)
Net loss per common share — basic and diluted
  
$
(0.20
)
  
$
(0.15
)
  
$
(0.39
)
  
$
(0.35
)
Weighted average common shares outstanding — basic and diluted
    
62,233
      
59,582
      
62,104
      
59,531
  

See notes to unaudited condensed consolidated financial statements.

4
GALECTIN THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
  
Six Months Ended
June 30,
  
 
  
2024
    
2023
  
 
  
(in thousands)
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss
  
$
(23,860
)
  
$
(20,641
)
Adjustments to reconcile net loss to net cash flows from operating activities:
                
Stock-based compensation expense
    
1,342
      
1,178
  
Amortization of right to use lease asset
    
18
      
16
  
Non-cash interest expense
    
457
      
313
  
Change in fair value of derivative liabilities
    
760
      
279
  
Changes in operating assets and liabilities:
                
Prepaid expenses and other assets
    
361
      
458
  
Accounts payable, accrued expenses and other liabilities
    
(1,380
)
    
(3,027
)
Accrued interest on convertible debt - related party
     1,864       798  
Net cash from operating activities
    
(20,438
)
    
(20,626
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net proceeds from convertible line of credit – related party
     20,000       20,000  
Net proceeds from exercise of common stock warrants
    376
          
Net cash flows from financing activities
    
20,376
      
20,000
  
NET DECREASE IN CASH AND CASH EQUIVALENTS
    
(62
)
    
(626
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
25,660
      
18,592
  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
25,598
    
$
17,966
  
NONCASH FINANCING ACTIVITIES:
                
Payment of preferred stock dividends in common stock
   $ 72     $ 62  
Reclassification of accrued bonus to additional paid in capital
    
—
      
210
  
Common stock purchase warrants issued in connection with related party line of credit
     537       477  

See notes to unaudited condensed consolidated financial statements.
 
5
GALECTIN THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)  (UNAUDITED)
(amounts in thousands except share data)
 
 
  
Series C Super
Dividend Redeemable
Convertible
Preferred Stock
  
 
  
Number of
Shares
    
Amount
  
Balance at December 31, 2022
    
176
    
$
1,723
  
Balance at June 30, 2023
    
176
    
$
1,723
  
Balance at December 31, 2023
    
176
    
$
1,723
  
Balance at June 30, 2024
    
176
    
$
1,723
  

 
  
Series A 12%
Convertible
Preferred Stock
    
Common Stock
                  
 
  
Number
of
Shares
    
Amount
    
Number
of
Shares
    
Amount
    
Additional
Paid-In
Capital
    
Retained
Deficit
    
Total
Stockholders’
Equity
(Deficit)
  
Balance at March 31, 2023
    
1,260,000
    
$
510
      
59,582,253
    
$
59
    
$
276,156
    
$
(321,094
)
  
$
(44,369
)
Series A 12% convertible preferred stock dividend
                                            
(37
)
    
(37
)
Series C super dividend redeemable convertible preferred
stock dividend
                                            
(26
)
    
(26
)
Common stock purchase warrants issued in connection
with related party line of credit
                                    180               180  
Stock-based compensation expense
                                    
516
              
516
  
Net loss
                                            
(9,114
)
    
(9,114
)
Balance at June 30, 2023
    
1,260,000
    
$
510
      
59,582,253
    
$
59
    
$
276,852
    
$
(330,271
)
  
$
(52,850
)
Balance at March 31, 2024
    
1,235,000
    
$
500
      
62,148,134
    
$
61
    
$
292,499
    
$
(365,869
)
  
$
(72,809
)
Series A 12% convertible preferred stock dividend
                                            
(38
)
    
(38
)
Series C super dividend redeemable convertible preferred
stock dividend
                                            
(26
)
    
(26
)
Common stock purchase warrants issued in connection
with related party line of credit
                                    260
               260
  
Exercise of common stock options
                    4,898                                  
Exercise of common stock purchase warrants                     125,093
       1
       375               376  
Stock-based compensation expense
                                    
738
              
738
  
Net loss
                                            
(12,371
)
    
(12,371
)
Balance at June 30, 2024
    
1,235,000
    
$
500
      
62,278,125
    
$
62
    
$
293,872
    
$
(378,304
)
  
$
(83,870
)
 
See notes to unaudited condensed consolidated financial statements.

6
GALECTIN THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)
For the Six Months Ended June 30, 2023 and 2024
(amounts in thousands except share data)
 
 
  
Series A 12%
Convertible
Preferred Stock
    
Common Stock
                  
 
  
Number
of
Shares
    
Amount
    
Number
of
Shares
    
Amount
    
Additional
Paid-In
Capital
    
Retained
Deficit
    
Total
Stockholders’
Equity
(Deficit)
  
Balance at December 31, 2022
    
1,260,000
    
$
510
      
59,426,005
    
$
59
    
$
275,081
    
$
(309,567
)
  
$
(33,917
)
Series A 12% convertible preferred stock dividend
                    
12,600
              
26
      
(26
)
        
Series C super dividend redeemable convertible preferred
stock dividend
                    
17,600
              
36
      
(37
)
     (1 )
Common stock purchase warrants issued in connection with related party line of credit
                                     477
               477
  
Stock-based compensation expense
                    
126,048
              
1,232
              
1,232
  
Net loss
                                            
(20,641
)
    
(20,641
)
Balance at June 30, 2023
    
1,260,000
    
$
510
      
59,582,253
    
$
59
    
$
276,852
    
$
(330,271
)
  
$
(52,850
)
Balance at December 31, 2023
    
1,235,000
    
$
500
      
61,852,914
    
$
61
    
$
291,847
    
$
(354,372
)
  
$
(61,964
)
Series A 12% convertible preferred stock dividend
                    
12,350
              
30
      
(30
)
        
Series C super dividend redeemable convertible preferred stock dividend
                    
17,600
              
42
      
(42
)
        
Exercise of common stock options
                     19,620
                                  
Exercise of common stock purchase warrants
                     125,093
       1
       375
               376
  
Common stock purchase warrants issued in connection with related party line of credit
                                     537               537  
Stock-based compensation expense, net of shares forfeited to cover tax withholding
                    
250,548
              
1,041
              
1,041
  
Net loss
                                            
(23,860
)
    
(23,860
)
Balance at June 30, 2024
    
1,235,000
    
$
500
      
62,278,125
    
$
62
    
$
293,872
    
$
(378,304
)
  
$
(83,870
)

See notes to consolidated financial statements.
 
7
GALECTIN THERAPEUTICS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation, Liquidity and Going Concern



Galectin Therapeutics Inc. and subsidiaries (the “Company”) is a clinical stage biopharmaceutical company that is applying its leadership in galectin science and drug development to create new therapies for fibrotic disease and cancer. These candidates are based on the Company’s targeting of galectin proteins which are key mediators of biologic and pathologic function. These compounds also may have application for drugs to treat other diseases and chronic health conditions.



The unaudited condensed consolidated financial statements as reported in this Quarterly Report on Form 10-Q reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company as of June 30, 2024 and the results of its operations for the three and six months ended June 30, 2024 and 2023 and its cash flows for the six months ended June 30, 2024 and 2023. All adjustments made to the interim financial statements include all those of a normal and recurring nature. Amounts presented in the condensed consolidated balance sheet as of December 31, 2023 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date these financial statements are available to be issued. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The unaudited condensed consolidated financial statements of the Company should be read in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2023.



The Company has operated at a loss since its inception and has had no revenues. The Company anticipates that losses will continue for the foreseeable future. At June 30, 2024, the company had $25,598,000 of unrestricted cash and cash equivalents available to fund future operations. In July 2022, the Company entered into a $60 million unsecured line of credit financing, which has been fully drawn at June 30, 2024, with its chairman, Richard E. Uihlein (See Note 9). Additionally, on March 29, 2024, the Company entered into a supplemental unsecured $10 million line of credit financing also provided by our chairman (See Note 10). The Company believes there is sufficient cash, including availability of the line of credit, to fund currently planned operations approximately through May 15, 2025. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the issuance date of these financial statements. The ability of the Company to continue as a going concern is likely dependent on the results of the Interim Analysis of the Company’s NAVIGATE clinical trial expected in December 2024 and its ability to raise capital; however, the Company’s cash position may not be sufficient to support its daily operations in May 2025. To meet its future capital needs, the Company intends to raise additional capital through debt or equity financings, collaborations, partnerships or other strategic transactions. However, there can be no assurance that the Company will be able to complete any such transactions on acceptable terms or otherwise. The inability of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has the ability to delay certain research activities and related clinical expenses if necessary due to liquidity concerns until a date when those concerns are relieved.



The Company was founded in July 2000, was incorporated in the State of Nevada in January 2001 under the name “Pro-Pharmaceuticals, Inc.,” and changed its name to “Galectin Therapeutics Inc.” on May 26, 2011.

2. Accrued Expenses and Other


Accrued expenses consist of the following:
 
 
  
June 30,
2024
    
December 31,
 2023
  
 
  
(in thousands)
  
Legal and accounting fees
  
$
65
    
$
40
  
Accrued compensation
    
865
      
1,129
  
Lease liability
    
44
      
46
  
Accrued research and development costs and other
    
9,882
      
7,967
  
Total
  
$
10,856
    
$
9,182
  



Research and development expenses, including personnel costs, allocated facility costs, lab supplies, outside services, contract laboratory costs related to manufacturing drug product, clinical trials and preclinical studies are charged to research and development expense as incurred. The Company accounts for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. Our current NAVIGATE clinical trial is being supported by third-party contract research organizations, or CROs, and other vendors. We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses and related expenses associated with the conduct of clinical trials, the significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration for which the patients have been enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. We monitor patient enrollment levels and related activities to the extent possible through discussions with CRO personnel and based our estimates of clinical trial costs on the best information available at the time. However, additional information may become available to us which will allow us to make a more accurate estimate in future periods. In that event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain.

8

3. Convertible Notes Payable – Related Party


On April 16, 2021, the Company and Richard E. Uihlein entered into a debt financing arrangement whereby Mr. Uihlein loaned $10,000,000 to the Company. In consideration for the loan, the Company issued a convertible promissory note (the “April 2021 Note”) in the principal amount of ten million dollars.


The April 2021 Note has a maturity date of April 16, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible into the Company’s common stock at a conversion price equal to $5.00 per share at the option of the noteholder. The April 2021 Note bears interest at the rate of two percent (2%) per annum, compounded annually with an effective interest rate of approximately 3%. For the three months ended June 30, 2024 and 2023, approximately $53,000 and $52,000, respectively, of interest expense was accrued and included with the principal in the financial statements. For the six months ended June 30, 2024 and 2023, approximately $104,000 and $102,000, respectively, of interest expense was accrued and included with the principal in the financial statements.


The April 2021 Note also includes a contingent interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such payment is only required if and only if the noteholder elects to convert the entire balance of the April 2021 Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the April 2021 Note at its inception. The fair value of the contingent interest derivative liability was $420,000 at note inception (April 16, 2021). The fair value of the contingent interest derivative liability was $789,000 and $366,000 at June 30, 2024 and December 31, 2023, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative liability for the three months ended June 30, 2024 and 2023 of $(89,000) and $(221,000), respectively, was charged to other expense/(income) for the three months ended June 30, 2024 and 2023. The change in the fair value of the derivative liability for the six months ended June 30, 2024 and 2023 of $358,000 and $117,000, respectively, was charged to other expense/(income) for the six months ended June 30, 2023 and 2022. The amortization of the original $420,000 debt discount of $26,000 and $26,000 was recorded as additional interest expense for the three months ended June 30, 2024 and 2023, respectively. The amortization of the original $420,000 debt discount of $52,000 and $52,000 was recorded as additional interest expense for the six months ended June 30, 2024 and 2023, respectively.


On May 14, 2024, Mr. Uihlein, as holder of the April 2021 Note irrevocably elected to convert the entire principal amount of such note, plus accrued and unpaid interest, into shares of common stock of the Company at a price of $5.00 per share, effective as of April 16, 2025, which is the maturity date of the April 2021 Note.  The April 2021 Note will remain outstanding and accrue interest until maturity and no shares of common stock will be issued as a result of this election until April 16, 2025.

The September 2021 Note has a maturity date of September 17, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible into the Company’s common stock at a conversion price equal to $8.64 per share at the option of the noteholder. The September 2021 Note bears interest at the rate of two percent (2%) per annum, compounded annually with an effective interest rate of approximately 3%. For the three months ended June 30, 2024 and 2023, approximately $52,000 and $51,000, respectively, of interest expense was accrued and included with the principal in the financial statements. For the six months ended June 30, 2024 and 2023, approximately $104,000 and $101,000, respectively, of interest expense was accrued and included with the principal in the financial statements.


The September 2021 Note also includes a contingent interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such payment is only required if and only if the noteholder elects to convert the entire balance of the September 2021 Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the September Note at its inception. The fair value of the contingent interest derivative liability was $433,000 at note inception (September 17, 2021). The fair value of the contingent interest derivative liability was $309,000 and $169,000 and June 30, 2024 and December 31, 2023, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative liability for three months ended June 30, 2024 and 2023 of $2,000 and ($116,000), respectively, was recorded to other expense/(income) for three months ended June 30, 2024 and 2023. The change in the fair value of the derivative liability for six months ended June 30, 2024 and 2023 of $140,000 and $50,000, respectively, was recorded to other expense/(income) for six months ended June 30, 2024 and 2023. The amortization of the original $433,000 debt discount of $27,000 and $27,000 was recorded as additional interest expense for the three months ended June 30, 2024 and 2023. The amortization of the original $433,000 debt discount of $54,000 and $54,000 was recorded as additional interest expense for the six months ended June 30, 2024 and 2023.

9

On December 20, 2021, the second of the two promissory notes under the Loan Agreement was executed and delivered, (the “December 2021 Note”) to evidence the second loan in the principal amount of $10,000,000. The December 2021 Note has a maturity date of December 20, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible into the Company’s common stock at a conversion price equal to $5.43 per share at the option of the noteholder. The December Note bears interest at the rate of two percent (2%) per annum, compounded annually with an effective interest rate of approximately 3%. For three months ended June 30, 2024 and 2023, approximately $52,000 and $51,000, respectively, of interest expense was accrued and included with the principal in the financial statements. For six months ended June 30, 2024 and 2023, approximately $104,000 and $101,000, respectively, of interest expense was accrued and included with the principal in the financial statements.


The December 2021 Note also includes a contingent interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such payment is only required if and only if the noteholder elects to convert the entire balance of the December 2021 Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the December Note at its inception. The fair value of the contingent interest derivative liability was $415,000 at note inception (December 20, 2021). The fair value of the contingent interest derivative liability was $666,000 and $404,000 at June 30, 2024 and December 31, 2023, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative liability for three months ended June 30, 2024 and 2023 of $(21,000) and ($152,000), respectively was recorded to other expense/(income) for three months ended June 30, 2024 and 2023. The change in the fair value of the derivative liability for six months ended June 30, 2024 and 2023 of  $262,000 and $112,000, respectively was recorded to other expense/(income) for six months ended June 30, 2024 and 2023. The amortization of the original $415,000 debt discount of $26,000 and $26,000 was recorded as additional interest expense for three months ended June 30, 2024 and 2023, respectively. The amortization of the original $415,000 debt discount of $52,000 and $52,000 was recorded as additional interest expense for six months ended June 30, 2024 and 2023, respectively.



The Company’s contractual cash obligations related to the outstanding convertible notes payable is a repayment of the September 2021 Note of the $10,000,000 plus accrued interest on September 17, 2025 and a repayment of the December 2021 Note of the $10,000,000 plus accrued interest on December 30, 2025, unless converted at the option of the noteholder.
 
4. Fair Value of Financial Instruments


The Company has certain financial assets and liabilities recorded at fair value. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amounts reflected in the consolidated balance sheets for cash equivalents, accounts payable and accrued expenses approximate their carrying value due to their short-term nature. There were no level 1 or 2 assets or liabilities at June 30, 2024 or December 31, 2023. See below for Fair Value of Derivatives related to Convertible Notes Payable at June 30, 2024 and December 31, 2023, which are level 3 liabilities.


Level 3 assets and liabilities measured and recorded at fair value on a recurring basis at June 30, 2024 and December 31, 2023 were as follows:

 
June 30,
2024
    
December 31,
2023
  
Derivative Liability – Contingent Interest April Note
 
$
789,000
    
$
431,000
  
Derivative Liability – Contingent Interest September Note   $ 309,000     $ 169,000  
Derivative Liability – Contingent Interest December Note   $ 666,000     $ 404,000  


The April Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at June 30, 2024 and December 31, 2023 are as follows:
 

 
June 30,
2024
    
December 31,
2023
  
Stock Price
  
$
2.26
    
$
1.66
  
Conversion Price of conversion feature
  
$
5.00
    
$
5.00
  
Term
  
   0.79 years
   
1.29 years
  
Risk Free Interest Rate
    
5.23
%
    
4.79
%
Credit Adjusted Discount Rate
    
13.76
%
    
12.86
%
Volatility
    
70
%
    
69
%
Dividend Rate
    
0
 %
 		   
0
 %



The roll forward of the April Note derivative liability – contingent interest is as follows for the six months ended June 30, 2024 and 2023:

Balance – December 31, 2023
  
$
431,000
  
Fair Value Adjustment
    
358,000
  
Balance – June 30, 2024
  
$
789,000
  
         
Balance – December 31, 2022
 		  $
249,000  
Fair Value Adjustment     117,000
Balance – June 30, 2023
   $ 366,000  

10

The September Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at June 30, 2024 and December 31, 2023 are as follows:


 
June 30,
2024
    
December 31,
2023
  
Stock Price
  
$
2.26
    
$
1.66
  
Conversion Price of conversion feature
  
$
8.64
    
$
8.64
  
Term
  
1.22 years
   
1.72 years
  
Risk Free Interest Rate
    
5.12
%
    
4.23
%
Credit Adjusted Discount Rate
    
13.76
%
    
12.86
%
Volatility
    
84
%
    
75
%
Dividend Rate
    
0
 %    
0
 %


The roll forward of the September Note derivative liability – contingent interest is as follows:

Balance – December 31, 2023
   $ 169,000  
Fair Value Adjustment
     140,000  
Balance – June 30, 2024
   $ 309,000  
         
Balance – December 31, 2022
     109,000  
Fair Value Adjustment     50,000
Balance – June 30, 2023   $ 159,000  


The December Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at June 30, 2024 and December 31, 2023 are as follows:

   
June 30,
2024
    
December 31,
2023
  
Stock Price
  
$
2.26
    
$
1.66
  
Conversion Price of conversion feature
  
$
5.43
    
$
5.43
  
Term
   1.47 years
    
1.97 years
  
Risk Free Interest Rate
    
4.77
%
    
4.23
%
Credit Adjusted Discount Rate
    
13.76
%
    
12.86
%
Volatility
    
71
%
    
72
%
Dividend Rate
    
0
 %    
0
 %


The roll forward of the December Note derivative liability – contingent interest is as follows:

Balance – December 31, 2023
  
$
404,000
  
Fair Value Adjustment
    
262,000
  
Balance – June 30, 2024
  
$
666,000
  
         
Balance – December 31, 2022
   $ 215,000  
Fair Value Adjustment
    
112,000
Balance – June 30, 2023
  
$
327,000
  

5. Stock-Based Compensation



Following is the stock-based compensation expense related to common stock options, restricted common stock, common stock warrants and deferred stock units:
 
 
  
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
 
  
in thousands
  
Research and development
  
$
386
    
$
134
    
$
709
    
$
403
  
General and administrative
    
351
      
382
      
633
      
775
  
Total stock-based compensation expense
  
$
737
    
$
516
    
$
1,342
    
$
1,178
  


11

The following table summarizes the stock option activity in the Company’s equity incentive plans, including non-plan grants to Company executives, from December 31, 2023 through June 30, 2024:
 
 
  
Shares
    
Weighted
Average
Exercise Price
  
Outstanding, December 31, 2023
    
6,333,841
    
$
2.66
  
Granted
    
1,273,000
      
1.81
  
Exercised
     (49,583 )    
(1.22
)
Options forfeited/cancelled
    
(229,583
)
    
(8.53
)
Outstanding, June 30, 2024
    
7,369,758
    
$
2.33
  



As of June 30, 2024, there was $1,568,000 of unrecognized compensation related to 2,574,753 unvested options, which is expected to be recognized over a weighted–average period of approximately 1 year. The weighted-average grant date fair value for options granted during the six months ended June 30, 2024 was $1.23. The Company granted 1,273,000 stock options during the six months ended June 30, 2024.



The fair value of all other options granted is determined using the Black-Scholes option-pricing model. The following weighted average assumptions were used:
 
 
  
Six
Months Ended
  June 30,
    
Six
Months Ended
  June 30,
  
 
  
2024
    
2023
  
Risk-free interest rate
    
3.88
%
    
3.76
%
Expected life of the options
  
5.4 years
    
5.5 years
 
Expected volatility of the underlying stock
    
75
%
    
86
%
Expected dividend rate
    
0
 %    
0
 %


In January 2024, the Company’s board chairman elected to take restricted stock grants in lieu of cash retainers for 2024. A total of 23,256 shares of restricted stock valued at approximately $40,000 is being amortized to expense on a straight-line basis until December 31, 2024 when the stock vests in full. In January 2023, the Company’s board chairman elected to take restricted stock grants in lieu of cash retainers for 2023. A total of 36,036 shares of restricted stock valued at approximately $40,000 was being amortized to expense on a straight-line basis until December 31, 2023 when the stock vested in full.



During the six months ended June 30, 2024, the Company issued 408,000 restricted stock units to its employees valued at $734,000 at the date of grant. These restricted stock units will vest 100% if the Company publicly presents the results of the Interim Analysis of its NAVIGATE clinical trial on or before December 31, 2024. The Company believes that is probable that the vesting condition will be met and is amortizing the restricted stock unit expense ratably in 2024. The amount of expense recorded during the three and six months ended June 30, 2024 was $196,000 and $324,000 respectively.


In September 2020, the Company entered into an employment agreement with its new Chief Executive Officer whereby 20% of his base salary and performance bonuses will be paid in cash, and 80% will be paid in the form of deferred stock units (“DSUs”) through December 31, 2022 in accordance with the terms and subject to the provisions set forth in the DSU Agreement. DSUs credited to Mr. Lewis as of any date shall be fully vested and nonforfeitable at all times. Pursuant to an amendment to the DSU Agreement in July 2022, the Company shall issue the shares earned through December 31, 2022 underlying the outstanding whole number of DSUs credited to Mr. Lewis as follows: twenty five percent shall be issued on March 1, 2023, fifty percent shall be issued on March 1, 2024 and twenty five percent shall be issued on September 1, 2028. Additionally, a 2023 DSU Agreement was executed in July 2022, whereby Mr. Lewis would continue to receive 20% of salary in cash and 80% in DSUs through December 31, 2023. The shares under the 2023 DSU Agreement are to be issued fifty percent on March 1, 2025 and fifty percent on January 5, 2026.


For the three months ended March 31, 2023, approximately $112,000 of his compensation was recorded as stock compensation expense representing 72,440 shares of common stock to be issued under the DSU agreement with a weighted average grant date fair value of $1.55 per share.



On March 1, 2024, fifty percent of the DSU’s were issued to Mr. Lewis in accordance with the DSU Agreement. A total of 367,800 shares were due to be issued; however, 153,288 shares were withheld to cover income tax withholding of $300,445 resulting in 214,512 shares actually issued. On March 1, 2023, twenty five percent of the DSU’s were issued to Mr. Lewis in accordance with the DSU Agreement. A total of 183,900 shares were due to be issued; however, 75,529 shares were withheld to cover income tax withholding of $156,345 resulting in 108,371 shares actually issued.


Also, Mr. Lewis’ bonus for the year ended December 31, 2022 of $210,000 (which was included in accrued compensation at December 31, 2022) was approved in January 2023 and represents 143,836 shares of common stock to be issued under the DSU agreement with a grant date fair value of $1.46 per share. The $210,000 was reclassified from accrued compensation to additional paid in capital in January 2023.



There is no unrecognized compensation expense related to the DSUs.
 
12
6. Common Stock Warrants


The following table summarizes the common stock warrant activity from December 31, 2023 through June 30, 2024:
 
 
  
Shares
    
Weighted Average
Exercise Price
  
Outstanding, December 31, 2023
    
9,256,493
    
$
4.22
  
Granted
    
400,000
      
3.49
  
Exercised
    
(125,093
)
    
3.00
  
Forfeited/cancelled
    
(104,547
)
    
4.49
  
Outstanding, June 30, 2024
    
9,426,853
    
$
4.20
  



The weighted average expiration of the warrants outstanding as of June 30, 2024 is 2.4 years.

7. Loss Per Share


Basic net loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares and other potential common shares then outstanding. Potential common shares consist of common shares issuable upon the assumed exercise of in-the-money stock options and warrants and potential common shares related to the conversion of the preferred stock. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.



Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive are as follows:
 
 
  
June 30,
2024
   
June 30,
2023
  
    (shares)
     (shares)
  
Warrants to purchase shares of common stock
    
9,426,853
      
11,957,964
  
Options to purchase shares of common stock
    
7,369,758
      
6,286,757
  
Restricted stock units
    408,000       —  
Shares of common stock issuable upon conversion of convertible notes payable – related party
    
6,721,188
      
6,117,006
  
Shares of common stock issuable upon conversion of convertible line of credit – related party
     21,016,837       10,170,002  
Shares of common stock issuable upon conversion of preferred stock
    
499,174
      
503,340
  
 
    
45,441,810
      
35,035,069
  

8. Common Stock

2020 At Market Issuance of Common Stock


On May 11, 2020, the Company entered into an At Market Issuance Sales Agreement (the “2020 At Market Agreement”) with a sales agent under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $40.0 million from time to time through the sales agent. Sales of the Company’s common stock through the sales agent, if any, will be made by any method that is deemed an “at the market” offering as defined by the U.S. Securities and Exchange Commission. The Company will pay to the sales agent a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through the sales agent under the 2020 At Market Agreement. During the six months ended June 30, 2024 and 2023, there were no issuances of shares of common stock under the 2020 At Market Agreement.


For each of the six months ended June 30, 2024 and 2023, the Company issued a total of 29,950 and 30,200 shares of common stock, respectively, for dividends on Series A and Series C Preferred Stock.

13
9. Convertible Line of Credit – Related Party



On July 25, 2022, the Company and Richard E. Uihlein (the “Lender”) entered into a Line of Credit Letter Agreement (the “Credit Agreement”), pursuant to which the Lender shall provide the Company a line of credit of up to $60.0 million (the “Line of Credit”) to finance the Company’s working capital needs. The Company may draw upon the Line of Credit through July 31, 2024.



Each advance made pursuant to the Credit Agreement shall be evidenced by an unsecured, convertible promissory note (individually, a “Promissory Note,” and collectively, the “Promissory Notes”), and bear interest at the Applicable Federal Rate for short term loans, plus two (2%) percent. Principal and interest on the Promissory Notes are due on or before January 31, 2026. Only with the consent of the Lender, may the Promissory Notes be prepaid, in whole or in part, at any time without premium or penalty, but with interest on the amount or amounts prepaid.



At the election of Lender, the principal and accrued interest on Promissory Note(s) may be converted into the number of shares of the Company’s Common Stock equal to the amount of principal and accrued interest on such Promissory Note divided by the price equal to the closing price of the Common Stock on the date of such Promissory Note, but in no event less than $3.00 per share.



In connection with the Credit Agreement, the Company agreed to issue the Lender warrants to purchase up to an aggregate of 1,700,000 shares of the Company’s common stock, par value $0.001 per share (collectively, the “Warrants”). Upon execution of the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 500,000 shares of Company’s Common Stock at an exercise price of $5.00 per share, which Warrant is exercisable upon issuance. Further, pursuant to the Credit Agreement, the Company shall issue to the Lender additional Warrants to purchase up to the remaining 1,200,000 shares of the Company’s common stock, ratably, upon borrowings under the Credit Agreement, with exercise prices equal to 150% of the closing price of the Company’s common Stock on the date of the Promissory Note evidencing such draw, but in no event more than $10.00 per share nor less than $3.00 per share. The Warrants expire on July 31, 2029.



The fair value of the 500,000 warrants vested at closing on July 25, 2022 was $738,000 at the date of issuance based on the following assumptions: an expected life of 7 years, volatility of 92%, risk free interest rate of 3.19% and zero dividends. The fair value of the vested warrants was recorded in other assets (non-current) as a deferred financing cost and will be amortized on a straight-line basis from July 25, 2022 through January 31, 2026. Amortization for the three months ended June 30, 2024 and 2023 of $52,000 and $52,000, respectively, was recorded as interest expense. Amortization for the six months ended June 30, 2024 and 2023 of $104,000 and $104,000, respectively, was recorded as interest expense.



On December 19, 2022, the Company executed a $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 6.46% (Applicable Federal Rate for short term loans on date of draw of 4.46% plus 2%). The effective interest rate is approximately 7.1%. Accrued interest on this draw was $1,038,000 and $349,000 at June 30, 2024 and 2023, respectively. The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.00 per share, which Warrant is exercisable upon issuance.



The fair value of the 200,000 warrants vested at closing on December 19, 2022 was $160,780 at the date of issuance based on the following assumptions: an expected life of 7 years, volatility of 91%, risk free interest rate of 4.06% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal to be amortized on a straight-line basis, which is not materially different than the effective interest method, from December 19, 2022 through January 31, 2026. Amortization for the six months ended June 30, 2024 and 2023 of $26,000 in each period and was recorded as interest expense. The fair value of warrants that vest in the future based on borrowings will be computed when those borrowings occur and amortized over the remaining period through January 31, 2026.



On March 31, 2023, the Company executed an additional $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 6.41% (Applicable Federal Rate for short term loans on date of draw of 4.41% plus 2%). The effective interest rate is approximately 7.1%. Accrued interest on this draw was $832,000 and $161,000 at June 30, 2024 and 2023, respectively. The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.26 per share, which Warrant is exercisable upon issuance.


The fair value of the 200,000 warrants vested at closing on March 31, 2023 was $296,680 at the date of issuance based on the following assumptions: an expected life of 6.33 years, volatility of 88%, risk free interest rate of 3.94% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal to be amortized on a straight-line basis, which is not materially different than the effective interest method, from March 31, 2023 through January 31, 2026. Amortization for the six months ended June 30, 2024 and 2023 of $52,000 and $26,000, respectively, and was recorded as interest expense.

14

On June 30, 2023, the Company executed an additional $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 6.34% (Applicable Federal Rate for short term loans on date of draw of 4.34% plus 2%). The effective interest rate is approximately 7.1%. Accrued interest on this draw was $653,000 and $0 at June 30, 2024 and 2023, respectively. The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.00 per share, which Warrant is exercisable upon issuance.


The fair value of the 200,000 warrants vested at closing on June 30, 2023 was $179,920 at the date of issuance based on the following assumptions: an expected life of 6.08 years, volatility of 85%, risk free interest rate of 3.59% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal amortized on a straight-line basis, which is not materially different than the effective interest method, from June 30, 2023 through January 31, 2026. Amortization for the six months ended June 30, 2024 and 2023 of $34,000 and $0, respectively, and was recorded as interest expense.



On December 29, 2023, the Company executed an additional $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 7.13% (Applicable Federal Rate for short term loans on date of draw of 5.13% plus 2%). The effective interest rate is approximately 7.5%. Accrued interest on this draw was $362,000 June 30, 2024. The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.00 per share, which Warrant is exercisable upon issuance.



The fair value of the 200,000 warrants vested at closing on December 31, 2023 was $193,745 at the date of issuance based on the following assumptions: an expected life of 5.7 years, volatility of 79%, risk free interest rate of 4.49% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal amortized on a straight-line basis, which is not materially different than the effective interest method, from December 29, 2023 through January 31, 2026. Amortization for the six months ended June 30, 2024 of $47,000 and was recorded as interest expense.



On March 29, 2024, the Company executed an additional $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 6.62% (Applicable Federal Rate for short term loans on date of draw of 4.62% plus 2%). The effective interest rate is approximately 7.1%. Accrued interest on this draw was $166,000 June 30, 2024. The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.59 per share, which Warrant is exercisable upon issuance.


The fair value of the 200,000 warrants vested at closing on March 29, 2024, was $277,389 at the date of issuance based on the following assumptions: an expected life of 5.33 years, volatility of 75%, risk free interest rate of 4.19% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal amortized on a straight-line basis, which is not materially different than the effective interest method, from March 29, 2024 through January 31, 2026. Amortization for the six months ended June 30, 2024 of $38,000 and was recorded as interest expense.



On June 28, 2024, the Company executed an additional $10 million Promissory Note under the Line of Credit. The interest rate on this draw is 7.01% (Applicable Federal Rate for short term loans on date of draw of 5.01% plus 2%). The effective interest rate is approximately 7.4%.  The principal and accrued interest is convertible at the option of the Lender at $3.00 per share. In accordance with the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 200,000 shares of Company’s Common Stock at an exercise price of $3.39 per share, which Warrant is exercisable upon issuance.



The fair value of the 200,000 warrants vested at closing on June 28, 2024, was $260,000 at the date of issuance based on the following assumptions: an expected life of 5.03 years, volatility of 77%, risk free interest rate of 4.29% and zero dividends. The proceeds were allocated between the Promissory Note and the warrants issued, and the amount allocated to the warrants was recorded as a debt discount netted against principal amortized on a straight-line basis, which is not materially different than the effective interest method, from June 28, 2024 through January 31, 2026.



The fair value of warrants that vest in the future based on borrowings will be computed when those borrowings occur and amortized over the remaining period through January 31, 2026.

10. Supplemental Convertible Line of Credit – Related Party


On March 29, 2024, the Company and Richard E. Uihlein (the “Lender”) entered into a Supplemental Line of Credit Letter Agreement (the “Supplemental Credit Agreement”), pursuant to which the Lender shall provide the Company a line of credit of up to $10.0 million (the “Supplemental Line of Credit”) to finance the Company’s working capital needs. The Company may draw upon the Supplemental Line of Credit through March 31, 2025.



Each advance made pursuant to the Supplemental Credit Agreement shall be evidenced by an unsecured, convertible promissory note (individually, a “Promissory Note,” and collectively, the “Promissory Notes”), and bear interest at the Applicable Federal Rate for short term loans, plus two (2%) percent. Principal and interest on the Promissory Notes are due on or before March 31, 2026. Only with the consent of the Lender, may the Promissory Notes be prepaid, in whole or in part, at any time without premium or penalty, but with interest on the amount or amounts prepaid.


At the election of Lender, the principal and accrued interest on Promissory Note(s) may be converted into the number of shares of the Company’s Common Stock equal to the amount of principal and accrued interest on such Promissory Note divided by the price equal to the closing price of the Common Stock on the date of such Promissory Note, but in no event less than $3.00 per share.


In connection with the Supplemental Credit Agreement, the Company agreed to issue the Lender warrants to purchase up to an aggregate of 200,000 shares of the Company’s common stock, par value $0.001 per share (collectively, the “Warrants”). The Company shall issue to the Lender Warrants ratably, upon borrowings under the Supplemental Line of Credit, with exercise prices equal to 150% of the closing price of the Company’s common Stock on the date of the Promissory Note evidencing such draw, but in no event more than $10.00 per share nor less than $3.00 per share. The Warrants expire on July 31, 2029.

11. Commitments and Contingencies

Other Legal Proceedings


The Company records accruals for such contingencies to the extent that the Company concludes that their occurrence is probable, and the related damages are estimable. There are no significant pending legal proceedings.

Clinical Trial and Research Commitments


The Company has entered into agreements with contractors for research and development activities to further its product candidates. The contracts generally may be canceled at any time by providing thirty days’ notice.

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12. Leases


The Company has one operating lease for its office space which was amended effective March 1, 2022 for a term of 38 months with no residual value guarantees or material restrictive covenants. The amended lease provided for free rent for the first six and a half months of the lease and continues the security deposit of $6,000. In addition to base rental payments included in the contractual obligations table above, the Company is responsible for our pro-rata share of the operating expenses for the building. Our lease cost for the six-month periods ended June 30, 2024 and 2023 was approximately $26,000 for each period and is included in general and administrative expenses. As of June 30, 2024, the right to use lease asset consisted of $35,000 and is included in other assets. Also, at June 30, 2024, current lease liability of $44,000 is included in accrued expenses.



Maturity of operating lease as of June 30, 2024 in thousands:

2024
  

27
  
2025
     18  
Total
    
45
  
Less imputed interest
    
1
  
Present value of lease liability
  
$
44
  



The discount rate used in calculating the present value of the lease payments was 11%.

13. Galectin Sciences LLC


In January 2014, we created Galectin Sciences, LLC (the “LLC” or “Investee”), a collaborative joint venture co-owned by SBH Sciences, Inc. (“SBH”), to research and develop small organic molecule inhibitors of galectin-3 for oral administration. The LLC was initially capitalized with a $400,000 cash investment to fund future research and development activities, which was provided by the Company, and specific in-process research and development (“IPR&D”) contributed by SBH. The estimated fair value of the IPR&D contributed by SBH, on the date of contribution, was $400,000. Initially, the Company and SBH each had a 50% equity ownership interest in the LLC, with neither party having control over the LLC. Accordingly, from inception through the fourth quarter of 2014, the Company accounted for its investment in the LLC using the equity method of accounting. Under the equity method of accounting, the Company’s investment was initially recorded at cost with subsequent adjustments to the carrying value to recognize additional investments in or distributions from the Investee, as well as the Company’s share of the Investee’s earnings, losses and/or changes in capital. The estimated fair value of the IPR&D contributed to the LLC was immediately expensed upon contribution as there was no alternative future use available at the point of contribution. The operating agreement provides that if either party does not desire to contribute its equal share of funding required after the initial capitalization, then the other party, providing all of the funding, will have its ownership share increased in proportion to the total amount contributed from inception. In the fourth quarter of 2014, after the LLC had expended the $400,000 in cash, SBH decided not to contribute its share of the funding required. Cumulatively, the Company has contributed a total of $4,013,000, including $233,000 for the six months ended June 30, 2024, for expenses of the LLC. Since the end of 2014, SBH has contributed $711,000 for expenses in the LLC. As of June 30, 2024, the Company’s ownership percentage in the LLC was 85%. The Company accounts for the interest in the LLC as a consolidated, less than wholly owned subsidiary. Because the LLC’s equity is immaterial, the value of the non-controlling interest is also deemed to be immaterial.

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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements as defined under Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created therein for forward-looking statements. Such statements include, but are not limited to, statements concerning our anticipated operating results, research and development, clinical trials, regulatory proceedings, and financial resources, and can be identified by use of words such as, for example, “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and “would,” “should,” “could” or “may.” All statements, other than statements of historical facts, included herein that address activities, events, or developments that the Company expects or anticipates will or may occur in the future, are forward-looking statements, including statements regarding: plans and expectations regarding clinical trials; plans and expectations regarding regulatory approvals; our strategy and expectations for clinical development and commercialization of our products; potential s