Annual Report for Fiscal Year Ending 12-31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biotechnology company focused on developing new drugs by reformulating the active agents in existing generic drugs and optimizing these reformulations for new applications. We believe that this strategy combines many of the cost efficiencies and risk abatements derived from using existing generic drugs with potential patent protections for our proprietary formulations; this strategy allows us to expedite, protect, and monetize our product candidates. Additionally, we maintain a therapeutic focus on diseases with significant, unaddressed morbidity and mortality where no approved drug therapy currently exists. We believe that this focus can potentially help reduce the cost, time and risk associated with obtaining marketing approval.

Consistent with our strategy, we are currently addressing two indications via development of our product candidates, LP-10 for HC, and LP-310 for OLP. HC is chronic, uncontrolled urinary blood loss that results from certain chemotherapies (such as alkylating agents) or pelvic radiation therapy (also called "radiation cystitis"). Many radiation cystitis patients experience severe morbidity (and in some cases, mortality), and currently, there is no therapy for their condition approved by the FDA, or, to our knowledge, any other regulatory body.

LP-310 employs a formulation similar to LP-10, for the treatment of OLP. OLP is a chronic, T-cell-mediated, autoimmune oral mucosal disease, and LP-310 contains tacrolimus which inhibits T-lymphocyte activation. Symptoms of OLP include painful burning sensations, bleeding and irritation with tooth brushing, painful, thickened patches on the tongue, and discomfort when speaking, chewing or swallowing. These symptoms frequently cause weight loss, nutritional deficiency, anxiety, depression, and scarring from erosive lesions. OLP can also be a precursor to cancer, predominately squamous cell carcinoma, with a malignant transformation rate of approximately one percent.

LP-10 is the development name of our reformulation of tacrolimus (an approved generic active agent) specifically optimized for topical deposition to the internal surface of the urinary bladder lumen using a proprietary drug delivery platform that we have developed and that we refer to as our metastable liposome drug delivery platform (our "Platform"). We are developing LP-10 and our Platform to be, to our knowledge, the first drug candidate and drug delivery technology that could be successful in treating cancer survivors who acquire HC.

LP-310 is the development name of our oral, liposomal formulation of tacrolimus (the same approved generic active agent in LP-10) specifically optimized for local delivery to oral mucosa. We believe that our approach of using metastable liposomal tacrolimus as a treatment for OLP is novel. To date, upon review of relevant FDA public data resources on approved drugs and biologics, we are not aware of any other liposomal products developed to treat such disease. In the fourth quarter of 2024, we announced the completion of dosing for the first cohort in its multi-center Phase 2a clinical trial of LP-310. No product-related serious adverse events were reported. Pharmacokinetic data demonstrated that whole blood tacrolimus levels in all patients were either undetectable or minimal, highlighting LP-310's potential to deliver localized therapeutic effects while minimizing systemic exposure. Additionally, all patients tolerated LP-310 without significant adverse reactions. The trial is expected to be completed in the second quarter of 2025. The top line data from the first two dose cohorts of this trial has been selected for podium presentation at the 2025 American Association of Oral Medicine and European Association of Oral Medicine Joint Meeting that will be held in Las Vegas, NV on May 15, 2025.

Additionally, the Company is developing an oral, liposomal formulation of tacrolimus, LP-410, for the treatment of oral GVHD. GVHD is a clinical syndrome where donor-derived immunocompetent T cells react against patient tissues directly or through exaggerated inflammatory responses following HCT. GVHD remains a major cause of morbidity and mortality for patients who undergo HCT treatment, with chronic GVHD being the leading cause of nonmalignant fatality for such patients who receive such HCT treatment. Topical and local management of symptomatic oral GVHD can reduce oral symptoms that can interfere with oral function and quality of life and can reduce the need for more intensive immunosuppressive systemic therapies. However, there is currently no FDA approved local drug treatment of oral GVHD. On November 11, 2023, we received "orphan drug" designation from the FDA for LP-410 for oral GVHD. We received IND approval from the FDA for LP-410's treatment of oral GVHD on March 5, 2024.

Lipella is also developing an intravesical formulation of immunoglobulins including checkpoint inhibitors, LP-50, for the treatment of NMIBC, offering the potential for increasing efficacy while minimizing systemic toxicity. Additional information regarding this preclinical program is included in the International Journal of Molecular Sciences 2024, 25(9), 4945, titled "Enhancing Therapeutic Efficacy and Safety of Immune Checkpoint Inhibition for Bladder Cancer: A Comparative Analysis of Injectable vs. Intravesical Administration," as well as in US patent publication number 2024/0115503 titled "Intravesical Delivery of Hydrophilic Therapeutic Agents Using Liposomes."

Our Platform includes proprietary drug delivery technologies optimized for use with epithelial tissues that coat lumenal surfaces, such as the colon, the various tissues lining the mouth and esophagus and the tissues lining the bladder and urethra. The Company has two issued patents in the United States that should exclude competitors from making, selling or using our LP-10 and LP-310 formulations in the United States until July 11, 2035. We also have issued patents in Australia, Canada, and Europe that do not expire until October 22, 2034. Corresponding patent applications are pending in the United States Patent Offices. We also have a pending United States patent application on an improvement to the technology. In some jurisdictions, such as the US, Europe, Canada, and some Asian countries, such patents may be extendable for regulatory delay. Market data exclusivity may also be available for the approved products.

Since our inception in 2005, we have focused primarily on business planning, progressing our lead product candidates, including progressing LP-10 through clinical development, raising capital, organizing and staffing our company.

On December 22, 2022, we completed our IPO and issued and sold 1,217,391 shares of Common Stock at a price to the public of $5.75 per share, which when accounting for the reverse split stock split that occurred on November 7, 2024, converts to 152,173 shares at a price of $46.00 per share. The aggregate net proceeds from the IPO were approximately $5.0 million after deducting underwriting discounts and commissions of approximately $630,000 and offering expenses of approximately $1.16 million.

Recent Developments of the Company

Offering of Series B Preferred Stock

On March 14, 2025, the Company completed a best efforts private placement offering of an aggregate of 72,000 shares of Series B non-voting convertible preferred stock, par value $0.0001 per share, of the Company (the "Series B Preferred Stock"), inclusive of 12,000 shares of Series B Preferred Stock pursuant to exercise of the placement agent's over-allotment option (the "Over-allotment Option") (the "Offering"), with Spartan Capital Securities, LLC ("Spartan") providing placement agent and consulting services in connection therewith. The Series B Preferred Stock were sold to the investors for a purchase price of $100 per share, with such shares of Series B Preferred Stock convertible into an aggregate of 2,560,315 shares of Common Stock. The Company received net proceeds of $5,906,000 in connection with the Offering, after deducting placement agent fees and expenses.

In connection with the Offering, the Company and Spartan entered into that certain (i) placement agent agreement, dated December 5, 2024 (the "Placement Agent Agreement") as amended by that certain amendment to consulting agreement and placement agent agreement, made as of December 10, 2024, between the Company and Spartan (the "Amendment"), as further amended by that certain second amendment to placement agent agreement, dated February 23, 2025, by and between the Company and Spartan (the "Placement Agent Agreement Amendment") and (ii) consulting agreement and advisory agreement, made as of December 5, 2024 (the "Consulting Agreement"), as amended by the Amendment, as further amended by that certain second amendment to consulting agreement and advisory agreement, dated February 28, 2025, by and between the Company and Spartan (the "Consulting Agreement Amendment"), pursuant to which the Company paid Spartan an aggregate of $1,224,000 in placement agent and consulting fees and issued to Spartan and its designee (i) an aggregate of 840,000 shares of the Company's Series C voting convertible preferred stock, par value $0.0001 per share ("Series C Preferred Stock"), and (ii) placement agent warrants to purchase up to 256,031 shares of Common Stock in connection with the Offering. Pursuant to the Placement Agent Agreement Amendment, Spartan and the Company agreed to, among other things, (i) remove restrictions on the Company's ability to conduct at-the-market transactions and modify certain variable rate transaction provisions, (ii) modify the Company's tail fee obligation to apply only to investors who were participants in the Offering and (iii) clarify the Company's obligations with respect to filing a registration statement in connection with a potential subsequent "best efforts" offering of up to an additional $6,000,000 of shares of Series B Preferred Stock at the same terms offered to investors in the Offering (the "Mirror Offering"). Pursuant to the Consulting Agreement Amendment, Spartan and the Company agreed to modify certain terms of the Consulting Agreement, as amended by the Amendment, to require the Company to compensate Spartan with additional cash fees and stock compensation on a pro rata basis in the event that shares of Series B Preferred Stock are sold pursuant to Spartan's exercise of the Over-allotment Option and the $1,200,000 over-allotment option for the Mirror Offering.

Offering of Warrants to Purchase Series B Preferred Stock

On March 17, 2025, the Company entered into an additional placement agent agreement with Spartan (the "Subsequent Placement Agent Agreement"), pursuant to which Spartan agreed to serve as exclusive placement agent for the private offer and sale (the "Subsequent Offering") of warrants (the "Warrants") to purchase up to 72,000 shares of Series B Preferred Stock at a price per Warrant equal to $0.125 in order to comply with applicable Nasdaq rules, with each Warrant exercisable for shares of Series B Preferred Stock at $100 per share, and such share of Series B Preferred Stock convertible into shares of Common Stock at a conversion price equal to $2.16 per share, which was the Minimum Price of the Common Stock immediately prior to the execution of the Subsequent Subscription Agreements (as defined below). On March 17, 2025 and in connection with the Subsequent Offering, the Company entered into subscription agreements (each, a "Subsequent Subscription Agreement") and registration rights agreements with investors in the Subsequent Offering, who were also participants in the Offering, for the purchase and sale of an aggregate of 72,000 Warrants. In connection with the Subsequent Offering, the Company and Spartan entered into (i) the Subsequent Placement Agent Agreement and (ii) an additional consulting agreement and advisory agreement, dated March 17, 2025, pursuant to which Spartan agreed to provide placement agent and consulting services in connection with the Subsequent Offering and will receive certain compensation in consideration for such services, including, but not limited to, purchase warrants to purchase a number of shares of Common Stock equal to ten percent (10%) of the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock that may be issued upon the Warrant exercises, (ii) a 2% non-accountable fee based on the aggregate number of proceeds received from Warrant exercises and (iii) shares of Series C Preferred Stock to be issued on a pro rata basis at the time of and based upon the amount of such proceeds received from Warrant exercises. Additionally, in connection with the Subsequent Offering, Dr. Kaufman and Spartan entered into another irrevocable proxy and power of attorney, effective as of March 17, 2025 (the "Subsequent Irrevocable Proxy"), pursuant to which, among other things, Spartan agreed to grant to Dr. Kaufman all voting power over and power of attorney with respect to all shares of Series C Preferred Stock, and all shares of Common Stock issuable upon conversion of shares of Series C Preferred Stock and upon exercise of Common Stock purchase warrants issued or issuable to Spartan or its Attribution Parties (as defined in the Subsequent Irrevocable Proxy) in connection with the Warrant exercises.

Nasdaq Notifications

On April 17, 2024 and on August 21, 2024, the Company received letters from the Staff stating that it was not in compliance with the Minimum Bid Price Requirement and the Stockholders' Equity Requirement, respectively. On October 16, 2024, the Company received a letter from the Staff stating that although the Company submitted a plan to regain compliance with the Stockholders' Equity Requirement on October 4, 2024, the Common Stock would be delisted from the Nasdaq Capital Market unless such determination is appealed to the Panel by October 23, 2024. On October 17, 2024, the Company requested a hearing before the Panel to appeal such determination and the hearing occurred on December 12, 2024.

On January 10, 2025, the Company received the January Letter from the Panel granting the Company's request for continued listing on Nasdaq, subject to the Company demonstrating compliance with the Stockholders' Equity Requirement, including the achievement of interim milestones as follows: (i) on or before April 14, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase its equity and providing an indication of its equity following those transactions; and (ii) on or before April 14, 2025, the Company must provide the Staff with an update on its fundraising plans, updated income projections for the next 12 months, with all underlying assumptions clearly stated, and a description of how the Company intends to achieve, if necessary, and maintain compliance with the Minimum Bid Price Requirement.

Results of Operations

Comparison of the Fiscal Years Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the fiscal years ended December 31, 2024 and 2023 (in thousands):

		2024				2023				Increase (Decrease)
										(in thousands)
Revenue		$	536				450				86
Operating expenses:
R&D			3,613				3,039				574
General and administrative			2,004				2,157				(153)
Total operating expenses			5,617				5,196				421
Loss from operations			(5,081	)			(4,746	)			(335	)
Other income (expense)			64				127				(63	)
Net loss		$	(5,016	)			(4,619	)			(397	)

Grants and Other Revenue

We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for several years. We recognize revenue from grants when the related costs are incurred and the right to payment is realized. For the year ended December 31, 2023, we derived revenue from a grant awarded by the NIH on September 15, 2022 of approximately $673,000 (the "NIH Grant"). The NIH approved an additional year of funding under the NIH Grant in June 2023, increasing the total funding provided under the NIH Grant to $1,353,000.

For the year ended December 31, 2024, we received approximately $536,000 in connection with the NIH Grant, recognized as revenue, compared to a total of $450,000 in connection with the NIH Grant recognized as revenue in the year ended December 31, 2023. The increase in annual grant revenue from 2024 to 2023 is related to the time devoted to the grant work and subcontractor costs.

Operating Expenses

Our operating expenses consist of (i) R&D expenses and (ii) general and administrative expenses.

Research and Development Expenses

R&D costs primarily consist of direct costs associated with consultants and materials, biologic storage, third party CRO costs and contract development and manufacturing expenses, salaries and other personnel-related expenses. R&D costs are expensed as incurred. More specifically, these costs include:

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costs of funding research performed by third parties that conduct R&D and nonclinical and clinical activities on our behalf;

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costs of manufacturing drug supply and drug product;

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costs of conducting nonclinical studies and clinical trials of our product candidates;

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consulting and professional fees related to R&D activities, including equity-based compensation to non-employees;

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costs related to compliance with clinical regulatory requirements; and

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employee-related expenses, including salaries, benefits and stock-based compensation expense for our R&D personnel.

Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data, such as information provided to us by our vendors, and analyzing the progress of our nonclinical and clinical studies or other services performed. Significant judgments and estimates are made in determining the accrued expense balances at the end of any reporting period. Advance payments that we make for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

We expect that our R&D expenses will increase substantially in connection with our clinical development activities for our LP-10 program. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of, or obtain regulatory approval for, any of our current or future product candidates. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the specific factors set forth in the section titled "Risk Factors." If any events described in the applicable risk factors included in the section titled "Risk Factors" occur, then the costs and timing associated with the development of any of our product candidates could significantly change. We may never succeed in obtaining regulatory approval for, of commercialization of, LP-10 or any of our other product candidates.

The following table summarizes our R&D expenses for the years ended December 31, 2024 and 2023 (in thousands):

		Years Ended								Increase
		December 31,								(Decrease)
		2024				2023				(in thousands)
Direct R&D expenses for the LP-10 and LP-310 product candidates program:
Employee-related costs		$	504			$	488			$	16
Employee stock option expense			432				616				(184	)
Outsourced R&D			1,276				477				799
Facility-related costs			289				262				27
Platform development, early-stage research and unallocated expenses:
Employee-related costs			396				317				79
Employee stock option expense			192				400				(208	)
Outsourced R&D			312				288				24
Facility-related costs			212				191				21
Total research and development expenses		$	3,613			$	3,039			$	574

R&D expenses increased by approximately $574,000, to approximately $3,613,000 for the year ended December 31, 2024, from approximately $3,039,000 for year ended December 31, 2023. The increase in R&D expenses was primarily attributable to an increase in outside services of $823,000, the majority of which was for our current clinical trial for LP-310, offset by reduction in employee stock option expense of $392,000. There was also an increase in personnel and facility costs of $143,000.

General and Administrative Expenses

General and administrative expenses consist primarily of management, overhead costs, outside services fees and other related costs, including stock-based compensation. General and administrative expenses also include board of directors' expenses and professional fees for legal, patent, consulting, accounting, auditing, tax services and insurance costs.

General and administrative expenses were $2,004,000 for the year ended December 31, 2024, compared to $2,157,000 for the year ended December 31, 2023, a decrease of approximately $153,000. Stock option expense decreased by $215,000 for the year ended December 31, 2024 compared to the year ended December 31, 2023, correlating with changes to the share price. Insurance expense also decreased by $17,000 year over year, and personnel costs for G&A decreased by $69,000. There was a net increase in outside and professional services, including investor relations, accounting and tax, and legal services, of $111,000. Additionally, for the year ended December 31, 2024, rent increased approximately $17,000, related to additional space added to our lease.

We expect that our general and administrative expenses will increase as our organization and personnel needs grow to support continued R&D activities and the potential commercialization of our product candidates, including, but not limited to LP-10. We believe that these increases will likely include increased costs related to the hiring of additional personnel and fees to consultants, attorneys and accountants, among other expenses. Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense)

Other Income for the year ended December 31, 2024 was $64,000, compared to an other income of $127,000 in the year ended December 31, 2023. The decrease was due primarily to a $75,000 decrease in interest income on our liquid investments. This was offset by a savings of $11,000 in interest expense on notes payable in the year ended December 31, 2024 versus the prior year.

Liquidity and Capital Resources

Sources of Liquidity

We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for several years, if at all. Cash and cash equivalents totaled $2.2 million as of December 31, 2024. We consider all highly liquid investments that mature in 90 days or less when purchased to be cash equivalents.

We have incurred operating losses and experienced negative operating cash flows for the years ended December 31, 2024 and 2023, and we anticipate that we will continue to incur losses for the foreseeable future. Our net loss totaled $5,016,264 for the year ended December 31, 2024 and $4,618,965 for the year ended December 31, 2023.

From inception through December 31, 2024, we have funded our operations primarily through (i) private equity financings (from which we have raised an aggregate of approximately $11 million), (ii) grants received from the U.S. government (from which we have received an aggregate of approximately $10.5 million since inception), (iii) the IPO (from which we raised net proceeds of approximately $5.0 million), (iv) a private placement transaction in October 2023 in which we raised net proceeds of approximately $1.0 million, (v) a registered direct offering in July 2024 (from which we raised net proceeds of approximately $1.3 million, and (vi) additional issuances of equity through a private placement in 2024 netting approximately $1.8 million. Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements.

Cash Flows

The following table provides information regarding our cash flows for each of the periods presented (in thousands):

		Fiscal Years Ended
		December 31,
Dollars in thousands		2024				2023
Net cash (used) provided in operating activities		$	(3,951	)			(3,150	)
Net cash (used) provided in investing activities			-				(14	)
Net cash provided in financing activities			2,842				1,336
Net increase(decrease) in cash and cash equivalents		$	(1,109	)			(1,828	)

Net Cash (Used) Provided in Operating Activities

Net Cash used in operating activities for the year ended December 31, 2024 was approximately $3,951,000. This comprised a net loss of $5,016,000 for the year, offset by non-cash stock option expense of $749,000 and shares issued for services expense of $200,000. Changes in operating assets and liabilities provided in net cash inflows of $113,000.

Net cash used in operating activities for the year ended December 31, 2023 was approximately $3,150,000. This was composed of a net loss of $4,619,000 for the year, offset by non-cash stock option expense of $1,355,000 and shares issued for services of $122,000 expenses. There were changes in operating assets and liabilities that increased cash by $30,000.

Net Cash (Used) Provided in Investing Activities

There were no cash flows from investing activities in the year ended December 31, 2024. Net cash used in investing activities was $14,000 for the year ended December 31, 2023, related to the purchase of laboratory equipment.

Net Cash Provided by Financing Activities

For the year ended December 31, 2024, net cash provided by financing activities was $2,842,000, representing proceeds from issuance of preferred stock, common stock, and pre-funded warrants.

Net cash provided by financing activities for the year ended December 31, 2023 was $1,336,000, comprising primarily $1,612,000 in proceeds received from the issuance warrants through the October 2023 private placement, net of issuance costs. These were offset by $275,000 in debt repayments.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing R&D activities, particularly as we continue R&D, advance clinical trials of LP-10 and LP-310, and advance the preclinical development of our other programs. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.

Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our operations and capital expenses into 2024. However, we have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of LP-10, LP-310, and our other and future product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including, but not limited to, those referenced above in "- Results of Operations - Operating Expenses - Research and Development Expenses".

Going Concern

The financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. We have generated losses from operations since inception. The Company expects operating losses to continue in the foreseeable future because of additional costs and expenses related to research and development activities, plans to expand its product portfolio, and increasing its market share. The Company's ability to transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business.

Management of the Company may raise additional funds through the issuance of equity securities or debt. There can be no assurance that such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations and raise additional capital could have a material adverse effect on the Company's ability to achieve its intended business objectives. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Off-Balance Sheet Arrangements

We did not have for the years ended December 31, 2024 or 2023, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Contractual Obligations

We did not have during the years ended December 31, 2024 and 2023, and we do not currently have, any material contractual obligations, such as license agreements or similar arrangements, other than as described below and in the financial notes.

Employment Agreements

We are party to employment agreements with each of Drs. Kaufman and Chancellor and Mr. Johnston, executive officers of the Company, the material terms of each of which are described in the section entitled "Executive Compensation - Employment Agreements".

Lease Agreement

We are party to a lease agreement, dated June 1, 2019, with Bridgeway Development Corporation, as amended, for the lease of 2,690 square feet of office and lab and manufacturing space in Pittsburgh, Pennsylvania commencing on July 1, 2020 (the "Lease"). The current lease term expires on June 30, 2025 and we have the right to exercise a one-time option to extend the term of the lease for an additional five-year term. The annual base rent under the lease is approximately $67,000. On July 26, 2023, the Company entered into a second lease for additional space in the same building (the "Additional Lease"), commencing August 1, 2023 and co-terminating with the existing Lease on June 30, 2025. Annual rent under the Additional Lease was approximately $28,000. As space became available in the immediate proximity to our existing offices at the beginning of 2024, we terminated the Fourth Floor Lease upon mutual agreement with the landlord and replaced it with a lease for Suite 504 ("the Suite 504 Lease"). The Suite 504 Lease became effective January 1, 2024, and the term co-terminates with the Lease. The annual base rent for the current year for the Suite 504 Lease is approximately $29,000. See Note 13 of the notes to our audited financial statements included in this Report.

Service Agreements

We enter into service agreements in the normal course of business with CROs and for clinical trials, preclinical research studies and testing, manufacturing, and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. The expense we incurred pursuant to these agreements for the year ended December 31, 2024 was approximately $1,359,000, compared to approximately $675,000 for the year ended December 31, 2023. The increase was due to our current phase 2a clinical trial for LP-310 that started in 2024.

Critical Accounting Policies and Significant Judgments and Estimates

This management's discussion and analysis is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates.

While our accounting policies are described in more detail in the notes to our financial statements included in this Report, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates. See Note 3 to our audited financial statements included elsewhere in this Report for a description of our other significant accounting policies.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued third-party R&D expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued R&D expenses include the costs incurred for services performed by our vendors in connection with R&D activities for which we have not yet been invoiced.

We base our expenses related to R&D activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct R&D activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the R&D expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts incurred.

Stock-Based Compensation

We measure stock-based compensation based on the grant date fair value of the stock-based awards and recognize stock-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period of the respective award. For non-employee awards, compensation expense is recognized as the services are provided, which is generally ratably over the vesting period. We account for forfeitures as they occur. On January 1, 2018, we adopted, using the modified retroactive approach, the guidance of Accounting Standard Update 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), and account for awards to non-employees using the grant date fair value without subsequent periodic remeasurement. The adoption of ASU 2018-07 did not have a material effect on our financial statements.

We classify stock-based compensation expense in our statements of operations in the same manner in which the award recipient's salary and related costs are classified or in which the award recipient's service payments are classified. In future periods, we expect stock-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain our employees.

We determine the fair value of restricted common stock awards granted based on the fair value of our Common Stock. We have historically determined the fair value of the underlying Common Stock based on input from management and the board of directors and the Company's enterprise value determined utilizing various methods, including the "back-solve" method. The total enterprise value, determined from the back-solve method, is historically then allocated to the various outstanding equity instruments, including the underlying Common Stock, utilizing the option pricing method ("OPM") or a hybrid of the probability-weighted expected return method ("PWERM") and the OPM.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. As the public market for our Common Stock has been limited and prior to the IPO there was no such public market, we have historically determined the volatility for awards granted based on an analysis of reported data for a group of guideline companies that issued options with substantially similar terms. The expected volatility has been determined using a weighted-average of the historical volatility measures of this group of guideline companies. We expect to continue estimating expected volatility based on the group of guideline companies until we have adequate historical data regarding the volatility of our own traded stock price. The expected term of our stock options granted to employees and non-employees has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. We have not paid, and do not anticipate paying, dividends on our Common Stock; therefore, the expected dividend yield is assumed to be zero.

As there was no public market for our Common Stock prior to the IPO, the estimated fair value of our Common Stock prior to our IPO had been approved by our board of directors, with input from management, as of the date of each award grant, considering our most recently available independent third-party valuations of our Common Stock and any additional objective and subjective factors that we believed were relevant and which may have changed from the date of the most recent valuation through the date of each award grant. We estimated the value of our equity using the market approach and a precedent transaction method which "back-solves" the equity value that yields a specific value for our Series A Preferred Stock. We allocated the equity value to our Common Stock and shares of our Series A Preferred Stock using either an OPM or a hybrid method, which is a hybrid between the OPM and the PWERM. The hybrid method we have historically utilized estimates the probability-weighted value across multiple scenarios but uses the OPM to estimate the allocation of value within at least one of the scenarios. In addition to the OPM, the hybrid method considered the IPO scenario in which the shares of our Series A Preferred Stock converted to Common Stock. The future value of the Common Stock in the IPO scenario is discounted back to the valuation date at an appropriate risk adjusted discount rate. In the hybrid method, the present value indicated for each scenario is probability weighted to arrive at an indication of value for our Common Stock.

In addition to considering the results of the valuations, management considered various objective and subjective factors to determine the fair value of our Common Stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:

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the prices of our Series A Preferred Stock sold to or exchanged between outside investors in arm's length transactions, if any, and the rights, preferences and privileges of our Series A Preferred Stock as compared to those of our Common Stock, including the liquidation preferences of our Series A Preferred Stock;

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the progress of our R&D efforts, including the status of preclinical studies;

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the lack of liquidity of our equity as a private company;

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our stage of development and business strategy and the material risks related to our business and industry;

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the achievement of enterprise milestones;

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the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

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any external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

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the likelihood of achieving a liquidity event for the holders of our Series A Preferred Stock and Common Stock, such as an IPO, or a sale of the Company, given prevailing market conditions; and

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the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

There are significant judgments and estimates inherent in these valuations. These judgments and estimates include assumptions regarding our future operating performance, the stage of development of our programs, the timing of a potential offering, or other liquidity event, and the determination of the appropriate valuation methodology at each valuation date. The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. Subsequent to the completion of the IPO, the fair value of our Common Stock will be determined based on the market price of our Common Stock on Nasdaq.

The following table sets forth by grant date, after giving effect to the reverse stock splits of the Company's outstanding shares of Common Stock, the stock options granted during the years ended December 31, 2024 and December 31, 2023, including the (i) number of shares of our Common Stock issuable upon exercise of such stock options, (ii) per share exercise price of such options and (iii) estimated fair value per share of our Common Stock on each such date. We did not grant any shares of restricted Common Stock during this period.

Grant date		Number of shares of Common Stock issuable upon exercise of stock options granted				Exercise price per share of Common Stock				Estimated fair value per share of Common Stock at grant date
03/15/2024			55,000			$	6.16			$	4.40
06/16/2023			53,000			$	17.52			$	12.00

The per share values at each such grant date, which we applied to determine the per share estimated fair value of the respective awards for accounting purposes, were based upon (a) the calculations described above used to determine the fair value of our Common Stock as of each grant date if pre-IPO, or (b) the closing trading price of the Common Stock on the date of issuance.

Emerging Growth Company Status

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include, among other things:

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reduced disclosure about the compensation paid to our executive officers;

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not being required to submit to our stockholders' advisory votes on executive compensation or golden parachute arrangements;

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an exemption from the auditor attestation requirement in the pursuant to the Sarbanes-Oxley Act of 2002; and

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an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company.

We would cease to be an emerging growth company upon the earliest of:

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the last day of the fiscal year on which we have $1.235 billion or more in annual revenue,

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the date on which we become a "large accelerated filer" (i.e., as of our fiscal year end, the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30),

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the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period, or

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the last day of our fiscal year following the fifth anniversary of the date of the completion of the IPO.

We may choose to take advantage of some but not all of these exemptions.

Recent Accounting Pronouncements

We have reviewed all recently issued accounting pronouncements and have determined that, other than as disclosed in Note 3 to our audited financial statements included in this Report, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.