Inhibitor Therapeutics Inc

1. Corporate Overview

Overview

The accompanying audited financial statements of Inhibitor Therapeutics, Inc., a Delaware corporation (the “Company”, “INTI”, “we”, “us” or similar terminology) have been prepared by the Company as a going concern, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). As used herein, the term “common stock” means the Company’s common stock, $0.0001 par value per share.

Nature of the Business

The Company is a pharmaceutical development company that is focused on developing and ultimately commercializing innovative therapeutics based on already approved active pharmaceuticals that have patent-protected methods of use and/or methods of delivery for patients with certain cancers and certain non-cancerous proliferation disorders. We also have explored and expect to continue to explore acquiring or licensing other innovative pre-clinical and clinical stage therapeutics addressing unmet needs for the treatment of cancer and other diseases based on repurposing active ingredients of already approved drugs.

Our current primary focus is on the development of therapies initially for basal cell carcinoma (“BCC”), prostate and lung cancers in the United States utilizing itraconazole, a drug currently approved by the FDA to treat fungal infections, and which has an extensive history of safe and effective use in humans. The Company has developed intellectual property and know-how related to the treatment of cancer patients using itraconazole. In particular, on December 12, 2023, the Company entered into an Exclusive License Agreement (the “Agreement”) with Johns Hopkins University (“JHU”). Pursuant to the Agreement, JHU granted to the Company the exclusive worldwide patent rights to a Granted US Patent, No. 8,980,930 entitled “New Angiogenesis Inhibitors” (the “Patent”). The Patent relates to the treatment of prostate cancer, BCC including basal cell carcinoma nevus syndrome (“BCCNS”), and lung cancer.

2. Liquidity and Management’s Plans

The Company is presently focused on its business plan of developing and ultimately commercializing innovative therapeutics based on already approved active pharmaceuticals that have patent-protected methods of use and/or methods of delivery. The Company expects to progress with the FDA in 2024 to reach a conclusion on whether any additional clinical trials are required before submitting a New Drug Application (NDA). The current cash on hand, approximately $8.8 million on December 31, 2023, is sufficient to continue to execute the Company’s business plan as currently anticipated, without another required clinical trial. Based on the current operational plan and budget, the Company expects to have sufficient cash to manage its business and continue to pursue clinical trials and acquire other drug development opportunities, as needed. As capital requirements for additional opportunities are determined, the Company will consider raising additional capital in the public market.

3. Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Management has considered all other recent accounting pronouncements that are issued, but not effective, and it does not believe that they will have a significant impact on the Company’s results of operations or financial position.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Revenue Recognition

The Company currently has no ongoing source of revenue. Miscellaneous income, including interest, is recognized when earned by the Company. Deferred revenue represents cash received for royalties in advance of being earned. Such payments are reflected as deferred revenue until recognized under the Company’s revenue recognition policy. Deferred revenue would be classified as current if management believes the Company will be able to recognize the deferred amount as revenue within twelve months of the balance sheet date. Deferred revenue will be recognized when the product is sold and the royalty is earned. Since all deferred revenue is related to the BCCNS product, which is yet to be approved by FDA, the Company has determined that 100% of the advances of the royalty received from Mayne Pharma should be classified as non-current. As of December 31, 2023 and 2022, deferred revenue consisted of $3.0 million of royalties advanced by Mayne Pharma under the Third Amended Supply and License Agreement (“SLA”).

Legal Settlement

Gain on legal settlement includes a legal settlement awarded to and received by the Company in accordance with a Settlement Agreement, along with various other items, including legal costs incurred relating to the litigation and forgiveness of certain balances due to the Defendants.

Forgiveness of Legal Fees

Gain on forgiveness of legal fees includes the forgiveness of legal fees previously incurred and owed to external legal counsel.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At times, the Company may maintain cash balances in bank accounts in excess of Federal Deposit Insurance Corporation insured amounts. The Company continues to monitor the third-party depository institutions that hold the Company’s cash and limits its cash deposits to financial institutions with high credit standing.

Research and Development Expenses

Research and development (“R&D”) costs are expensed in the period in which they are incurred and include salaries, benefits and other related costs to support the Company’s R&D operations, amounts paid to third parties who conduct research and development activities on behalf of the Company, as well as the costs of discovery research, preclinical and clinical development, drug formulation and licensing payments. Upfront and advanced licensing payments for future use in R&D activities are recorded as prepaid expenses and are expensed as the related services are performed.

General and Administrative Expenses

General and administrative (“G&A”) expenses are expensed in the period in which they are incurred and include operating expenses not classified as R&D expenses, such as salaries, benefits, insurance, board of directors’ fees, travel costs, as well as fees for professional services related to accounting, tax and legal matters. Penalties and interest assessed as a result of unresolved tax liabilities are also classified as G&A expenses.

Stock-Based Compensation

The Company accounts for stock-based awards to employees and non-employees using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 – Accounting for Share-Based Payments, which provides for the use of the fair value-based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Fair values of restricted stock units issued are determined by the Company based predominantly on the trading price of the common stock on the date of grant. Fair value of each common stock option is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatility is based on historical volatility of a peer group’s common stock and other factors estimated over the expected term of the options. The expected term of the options granted is derived using the “simplified method” which computes the expected term as the average of the weighted-average vesting term and the contract term. The risk-free rate is based on the U.S. Treasury yield. During the year ended December 31, 2023, we granted 230,411 shares of restricted common stock that are restricted as to trading for a period of one year from the date of grant. No stock-based awards were issued during the year ended December 31, 2022.

Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that are expected to apply to the differences in the periods that they are expected to reverse. Management has evaluated the guidance relating to accounting for uncertainty in income taxes and has determined that the Company had no uncertain income tax positions that could have a significant effect on the financial statements for the years ended December 31, 2023 or 2022.

Effective January 1, 2022, a provision of the Tax Cuts and Jobs Act (TCJA) took effect creating a significant change to the treatment of research and experimental expenditures under Section 174 of the Internal Revenue Code (Sec. 174 expenses). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the United States to be capitalized and amortized over a five-year period.

4. Notes Payable

On December 12, 2020, the Company and Mayne Pharma entered into a letter agreement for a term debt facility (the “Loan Agreement”) pursuant to which Mayne Pharma provided an aggregate $231,000 credit facility to the Company (the “Facility”). The Facility would bear interest at the rate equal to the interest rate tied to the US Bank Prime Rate plus 5.00% (the “Interest Rate”) with a maturity date of twenty-four (24) months from the date of the first drawdown (the “Maturity Date”). The Interest Rate would be adjusted for each drawdown on the Facility in accordance with changes in the monthly average of the US Bank Prime Rate, as reported in the Federal Reserve Statistical Release H.15 for the month preceding the week in which the Company shall make a drawdown against the Facility. Proceeds drawn from the Facility were used by the Company for general working capital and corporate purposes.

The Facility was available to the Company as follows: (i) $81,000 may be drawn upon request at any time in the first annual quarter of the Facility starting December 14, 2020 and (ii) so long as there is no event of default and Mayne Pharma does not give notice in its discretion 30 days before the start of a quarter that it is discontinuing the funding, $75,000 may be drawn in the second and third annual quarters of the Facility, respectively. Any drawdown by the Company must equal or exceed $25,000. The Company had one twelve-month repayment free advance period from its first drawdown on the Facility. Each other advance on the Facility would be amortized over twelve equal monthly payments of principal plus interest. No premium was payable in the event that the Company pays all principal, interest and other outstanding amounts due to Mayne Pharma prior to the Maturity Date.

The Facility was unsecured, contained no financial covenants, required no guarantees and was not accompanied by any equity component. The Loan Agreement included certain limited representations and warranties and negative covenants of the Company.

The Loan Agreement was negotiated and approved on behalf of the Company by a special committee of disinterested, independent members of the Company’s Board of Directors which was formed on November 17, 2020 for such purpose. The special Board committee consisted of W. Mark Watson, R. Dana Ono and Debra Peattie, who were each disinterested with respect to Mayne Pharma. The balance at December 31, 2021 was $231,000.

During 2022, the Company executed several agreements with Mayne Pharma to amend the Loan Agreement and the Facility (the “Loan Amendments”). Under the terms of the Loan Amendments: (i) the amount of the Facility was increased several times, ultimately to $411,000, (ii) the maturity date of the Facility was extended several times and the outstanding balance was ultimately agreed to be repaid per the settlement relating to the Company’s litigation proceedings described in Note 8. Except as modified by the Loan Amendment, the terms and conditions of the Loan Agreement and the Facility remained in full force and effect. The proceeds of the expanded Facility were used by the Company for general working capital purposes, including the payment of a portion of previously deferred employee compensation to allow the Company to continue to operate until the proceeds from the legal settlement were received. Proceeds of $180,000 related to this letter agreement were received during the year ended December 31, 2022. The balance outstanding at December 31, 2022 was $411,000 and was repaid in February 2023.

5. Income Taxes

The components of the income tax expense for the years ended December 31, 2023 and 2022 were as follows:

The difference between expected income tax expense (benefit) and income tax expense (benefit) recorded in the financial statements is explained below:

The significant components of deferred income tax assets and liabilities consist of the following:

In accordance with GAAP, it is required that a deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. At December 31, 2023 and 2022, the Company recorded a 100% valuation allowance against its deferred tax assets as it has determined such amounts will not be currently realizable.

The Company has historically generated federal and state net operating loss (“NOLs”). Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the NOLs and other deductions which are available to the Company. Although the NOLs are available to be used to offset the taxable income generated from the Settlement Agreement, otherwise the NOLs incurred prior to December 13, 2022 are subject to this limitation. As such, the use of these NOLs to offset taxable income was limited to approximately $37,000 in 2022 subsequent to the Effective Date of the Settlement Agreement and approximately $0.7 million per year in 2023 and future periods. As of December 31, 2023 and 2022, the Company’s federal and state NOLs are approximately $14 million and $15 million, respectively.

Penalties and interest incurred by the Company as a result of unresolved tax liabilities during the year ended December 31, 2023 totaled approximately $17,000. These costs are included in General and administrative expenses within the Statement of Operations and are accrued within Accrued expenses and other liabilities on the balance sheet as of December 31, 2023.

The Company follows the provisions of ASC 740-10 “Uncertainty in Income Taxes” wherein certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of December 31, 2023 and 2022, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.

6. Stockholders’ Equity

Employee Stock Plans

A 2009 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders of CBI, the Company’s predecessor company. There are no options outstanding under this plan. On July 18, 2014, the Equity Incentive Plan (“EIP”) was adopted by the Company’s Board of Directors. On September 30, 2014, the EIP was approved by the majority of stockholders. The 2014 EIP initially authorized the issuance of up to 32,583,475 shares of the Company’s common stock. An additional 11 million shares were added to the 2014 EIP for a total of 43,583,475 shares pursuant to the agreement entered into by the Company and Mayne Pharma in December 2018.

Pursuant to the Settlement Agreement, Mayne Pharma agreed to surrender for cancellation 205,065,189 shares of common stock and 5,797,102 shares of preferred stock, which were convertible to 17,391,306 shares of common stock. Additionally,4,347,827 warrants held by Mayne Pharma and 10,773,815 options held by former officers and directors named as Individual Defendants were cancelled pursuant to the Settlement Agreement.

Stock option activity for the years ended December 31, 2023 and 2022 is as follows:

Options outstanding (all are exercisable) at December 31, 2023 are as follows:

There wereno options issued during the years ended December 31, 2023 and 2022. As of December 31, 2023, there was no unamortized stock-based compensation.

Incentive awards may be in the form of stock options, restricted stock, restricted stock units and performance and other awards. In the case of incentive stock options, the exercise price will not be less than 100% of the fair market value of shares covered at the time of the grant, or 110% for incentive stock options granted to persons who own more than 10% of the Company’s voting stock. Options granted will generally vest over athree-year period from the date of grant and will be exercisable forten years, except that the term may not exceed five years for incentive stock options granted to persons who own more than 10% of the Company’s outstanding common stock. Stock-based compensation expense is determined based on the fair value of the stock-based awards and recognized over the vesting period. Fair values of restricted stock units issued are determined by the Company based predominantly on the trading price of the common stock on the date of grant.

During the year ended December 31, 2023, the Company granted 230,411 restricted common shares with an aggregate grant date fair value of approximately $0.01 million to the members of our Board of Directors under the equity incentive plan. The common shares are fully vested upon issuance but are restricted to trading for a period of one year from the date of grant. There was no stock-based compensation for the year ended December 31, 2022.

7. Related Party Transactions

The Company had significant contractual agreements with Mayne Pharma, a majority stockholder prior to the Settlement Agreement discussed in Note 8. There were amounts due to Mayne Pharma at December 31, 2022 as discussed in Note 4, which were repaid in February 2023. Following the resolution of the litigation in December 2022 and the resulting Settlement Agreement that resulted in Mayne Pharma surrendering all equity securities in the Company for cancellation, Mayne Pharma is no longer considered a related party of the Company.

8. Commitments and Contingencies

Exclusive License Agreement with Johns Hopkins University

On December 12, 2023, the Company entered into an Exclusive License Agreement (the “Agreement”) with Johns Hopkins University (“JHU”). Pursuant to the Agreement, JHU granted to the Company the exclusive worldwide patent rights to a Granted US Patent, No 8,980,930 entitled “New Angiogenesis Inhibitors” (the “Patent”). The Patent relates to the treatment of prostate cancer, basal cell carcinoma including basal cell carcinoma nevus syndrome, and lung cancer.

Pursuant to the Agreement: (i) the Company has received an exclusive worldwide license to the Patent; (ii) the Company paid JHU an upfront license fee in December 2023, (iii) the Company shall be required to make certain Minimum Annual Royalty (“MAR”) payments to JHU no later than January 1st of each calendar year in accordance with an agreed upon schedule, (iv) the Company shall be required to pay to JHU a royalty on cumulative net sales, with an additional supplement due where a licensed product is given exclusivity in the U.S. by patent rights, (v) if the Company enters into any sublicense they will pay to JHU a certain percentage of all consideration received from sublicensee but excluding (i) any consideration received by Licensee for Royalties on Sublicensee Sales (Royalties on Sales by Sublicensees will be treated as if Licensee made the Sale), and (ii) any payment of Past Patent Costs or Patent Costs made by Sublicensee to License), (vi) should the Company receive compensation in the form of a voucher, the Company will pay a certain percentage of the sale to JHU and (vii) the Company shall be required to pay to JHU certain development-related milestone payments upon the Company meeting each of a series of agreed upon milestones. The Agreement contains other customary terms and conditions.

JHU has the right to terminate the Agreement upon the occurrence of certain events, including delinquency in payments, failure to timely reach milestones, noncompliance with audit or insurance obligations, or the Company entering into voluntary bankruptcy or insolvency. The Company may terminate the Agreement without cause upon 90 days advance written notice.

In compliance with the agreement, the Company paid in December 2023 (i) the upfront license fee of $40,000, which has been recorded as a prepaid expense and will be expensed over the term of the Agreement and (ii) the first MAR of $10,000. The remaining MAR payments required to be paid by the Company no later than January 1 st of each calendar year are as follows:

By January 1, 2025: $10,000

By January 1, 2026: $15,000

By January 1, 2027 and every year thereafter until the first commercial sale of an associated licensed product: $50,000

The Company may from time to time become a party to various legal proceedings arising in the ordinary course of business. Except as discussed below, the Company is not the subject of any pending legal proceedings.

On September 15, 2022, Hedgepath, LLC (“HPLLC”), a significant minority stockholder of the Company at the time, filed a civil action in the Delaware Court of Chancery (the “Court”) captioned Hedgepath, LLC v. Magrab, et al., C.A. No. 2019-0529-JTL (the “Action”) against certain of the Company’s current and former directors, and its President and Chief Executive Officer (the “Individual Defendants”), as well as the Company’s majority stockholder, Mayne Pharma Ventures Pty Ltd. (“Mayne Pharma”, and collectively with the Individual Defendants, the “Defendants”). The Company was named as a nominal defendant given the derivative nature of the claims. On December 3, 2019, HPLLC filed its Verified Amended and Supplemental Complaint (the “Complaint”). The Complaint asserts various claims, either directly on behalf of HPLLC or derivatively on behalf of the Company, for alleged breaches of fiduciary duty, violation of Delaware statute, waste, fraudulent misrepresentation, declaratory judgment, and dilution of stockholder equity arising out of transactions previously entered into between the Company and Mayne Pharma and Mayne Pharma’s relationship with the Company generally. The Complaint seeks unspecified damages and other relief. Additionally, on March 23, 2020, a Stockholder Class Action Complaint was filed in the Court by Company stockholder and purported class representative Samuel P. Sears purportedly on behalf of a class of certain holders of the Company’s common stock. That lawsuit, captioned Sears v. Magrab et al., C.A. No. 2020-0215-JTL (the “Putative Class Action”), asserts claims against the same Defendants (with the exception of the Company), and the facts underlying the claims largely mirror those alleged in the Action. On December 10, 2020, the Court entered a stipulated Order coordinating the Action and the Putative Class Action (together, the “Coordinated Actions”).

On September 9, 2022, HPLLC, Sears, the Company, the Individual Defendants and Mayne Pharma entered into a Stipulation and Agreement of Compromise, Settlement, and Release, dated and filed with the Court (together with the exhibits thereto, the “Settlement Agreement”), which the Court approved, and the Settlement Agreement went into effect on December 13, 2022 (the “Effective Date”).

Pursuant to the Settlement Agreement, (i) the Defendants will cause $14,250,000 in cash (to be funded via Mayne Pharma’s director and officer insurance) to be paid to the Company (the “Cash Consideration”); (ii) Mayne Pharma will surrender all equity securities in the Company for cancellation, and will forgive certain debts it is owed by the Company; (iii) stock options and warrants held by the Individual Defendants will be cancelled; (iv) certain intellectual property licenses to and from the Company, on one hand, and Mayne Pharma, on the other, will be converted or terminated, with only certain obligations remaining in place; (v) each of the Individual Defendants will retire from their positions with the Company, including as members of the Company’s Board of Directors and management; (vi) the Third Amended and Restated Supply and License Agreement, dated December 17, 2018, between the Company and Mayne will be cancelled, with the Company retaining a royalty on future net sales of SUBA-Itraconazole BCCNS in the United States subject to certain contingent payment obligations; and (vii) various releases will be exchanged among the parties to the Coordinated Actions. After the Effective Date, Mayne Pharma has also agreed it will remain amenable to discussing with the Company, in good faith, the potential licensing and/or sub- licensing of the JHU Patents (as defined in the Settlement Agreement), for a commercially reasonable licensing fee, to the extent the Company seeks to engage in such discussions and that it will not take the position that the Company or persons affiliated with the Company, including Dr. Francis E. O’Donnell, Jr., are prohibited from developing or commercializing Non-SUBA Formulations of Itraconazole for any cancer or non-cancer indications. Nor shall Mayne Pharma take any action intended to restrict or limit the Company’s ability or efforts to develop or commercialize Non- SUBA Formulations of Itraconazole for any cancer or non-cancer indications. Upon approval by the Court, the Coordinate Actions were deemed fully resolved and all asserted claims were dismissed with prejudice on the Effective Date.

The Cash Consideration received by the Company pursuant to the Settlement Agreement in the amount of $14.25 million is reflected as a Gain on legal settlement within the Statement of Operations along with various other items stipulated within the Settlement Agreement, including (i) legal costs incurred by the Company relating to the litigations of $2.0 million, (ii) forgiveness of certain balances due to Mayne Pharma of approximately $0.3 million and (iii) various compensation-related items owed to the Individual Defendants of approximately $0.04 million. As discussed in Note 5, the potential income taxes generated from the taxable income resulting from this settlement is mitigated substantially from the utilization of federal and state NOLs, resulting in a cash tax liability for 2022 of approximately $55,000.

On December 10, 2022, and in furtherance of the transactions contemplated by the Settlement Agreement, W. Mark Watson, Stefan J. Cross, Dr. R. Dana Ono, and Robert D. Martin (collectively, the “Resigning Directors”) gave notice of the Company of their resignation from the Board to be effective on December 13, 2022. The purpose of resignation of the Resigning Directors is in relation to the Settlement Agreement and not based on any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. Pursuant to the Settlement Agreement, the stock options and warrants held by the Resigning Directors were cancelled.

On December 10, 2022, and in furtherance of the transactions contemplated by the Settlement Agreement, Nicholas J. Virca and Garrison J. Hasara (collectively, the “Resigning Officers”) gave notice of the Company of their resignation from their officer positions to be effective on December 13, 2022. The purpose of resignation of the Resigning Officers is in relation to the Settlement Agreement and not based on any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. Pursuant to the Settlement Agreement, the stock options and warrants held by the Resigning Officers were cancelled.

Office Lease

The company leases office space under a non-cancelable operating lease with an expiration date of May 31, 2024. Due to the short-term nature of the agreement, the Company has elected not to apply the recognition requirements of ASC Topic 842 -Leases for this lease agreement in accordance with ASC 842-20-25-2. The rent expense associated with the lease agreement is recognized on a straight-line basis over the lease term within General and administrative expenses within the Statement of Operations. Rent expense for the years ended December 31, 2023 and 2022 totaled approximately $25,000 and $0, respectively.

9. Subsequent Events

In February 2024, the Company approved a proposal with Avior Bio, Inc. (“Avior”) for the creation of a new patentable formulation of itraconazole. Avior will develop, manufacture and release the formulation and assist with the regulatory process. The Company expects to pay fees of approximately $0.3 million for these services, all of which are expected to be incurred in 2024. The Chief Executive Officer of Avior is a member of the Company’s Board of Directors, and as a result Avior is deemed to be a related party of the Company.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.