NOTES
TO FINANCIAL STATEMENTS
Note
1. Organization, Principal Activities, and Basis of Presentation
Lantern
Pharma Inc., and Subsidiary (the “Company”) is a clinical stage biotechnology company, focused on leveraging artificial
intelligence (“A.I.”), machine learning and genomic data to streamline the drug development process and to identify
the patients that will benefit from its targeted oncology therapies. The Company’s portfolio of therapies consists of small
molecule drug candidates that others have tried, but failed, to develop into an approved commercialized drug, as well as new compounds
that it is developing with the assistance of its A.I. platform and its biomarker driven approach. The Company’s A.I. platform,
known as RADR®, uses big data analytics (combining molecular data, drug efficacy data, data from historical studies, data
from scientific literature, phenotypic data from trials and publications, and mechanistic pathway data) and machine learning.
The Company’s data-driven, genomically-targeted and biomarker-driven approach allows it to pursue a transformational
drug development strategy that identifies, rescues or develops, and advances potential small molecule drug candidates.
Lantern
Pharma Inc. was incorporated under the laws of the state of Texas on November 7, 2013, and thereafter reincorporated in the
state of Delaware on January 15, 2020. The Company’s principal operations are located in Texas. The Company formed
a wholly owned subsidiary, Lantern Pharma Limited, in the United Kingdom in July 2017. All intercompany balances and transactions
have been eliminated in consolidation.
Since
inception, the Company has devoted substantially all its activity to advancing research and development, including efforts in
connection with preclinical studies, clinical trials and development of its RADR platform. This includes research and development
for three drug candidates in development in targeted areas identified with the assistance of the RADR platform:
|
●
|
LP-100 (irofulven), out-licensed to Oncology
Venture, in phase II trial for the treatment of prostate cancer;
|
|
●
|
LP-300 (Tavocept) in planning stages for phase II
trial for the treatment of non-small cell lung cancer; and
|
|
●
|
LP-184 in preclinical studies for treatment of solid
tumors including prostate, ovarian, and liver cancers.
|
In
connection with the Company’s reincorporation in the state of Delaware on January 15, 2020, the par value of the Company’s
Common Stock and Series A Preferred Stock was changed from $0.01 per share to $0.0001 per share. The change in the par value has
been retroactively reflected in the accompanying condensed consolidated financial statements. Additional funds have been reclassified
from Common Stock and Series A Preferred Stock to additional paid-in capital to reflect the change in par value associated
with the reincorporation.
The
Company’s fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial
statements are unaudited and have been prepared on substantially the same basis as the Company’s annual consolidated financial
statements for the fiscal year ended December 31, 2019. In the opinion of the Company’s management, these interim condensed
consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary
for a fair statement of the Company’s financial position, results of operations and cash flows for the periods presented.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) 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 condensed consolidated financial statements and the reported
amounts of expenses during the reporting periods. Actual results could differ from these estimates.
The
December 31, 2019 year-end condensed consolidated balance sheet data in the accompanying interim condensed consolidated financial
statements was derived from audited consolidated financial statements. These condensed consolidated financial statements and notes
do not include all disclosures required by U.S. generally accepted accounting principles and should be read in conjunction with
the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019 and the notes thereto
included in the Company’s final prospectus, dated June 10, 2020, for the Company’s initial public offering, on file
with the Securities and Exchange Commission.
The
results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are
not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
Any
reference in these notes to applicable guidance refers to Accounting Standards Codification (“ASC”) and Accounting
Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). To date, the Company has
operated its business as one segment. The Company’s condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Lantern Pharma Limited. All intercompany balances and transactions have been eliminated
in consolidation.
Effective June 11,
2020, in connection with the Company’s initial public offering (“IPO”), the Company completed a forward stock
split of its common stock at a ratio of 1.74 for 1 shares. In addition, all of the Company’s preferred stock converted into
common stock effective June 15, 2020 in connection with the IPO. All data on common stock and equivalents in the accompanying condensed
consolidated financial statements and in these notes are shown herein reflective of this stock split and the conversion of the
preferred stock. In addition, the number of shares of preferred stock in the accompanying condensed consolidated financial statements
and in these notes is presented to reflect the number of shares into which the preferred stock would convert as a result of the
forward stock split.
Note
2. Liquidity
The
Company incurred a net loss of $1,310,698 and $1,083,366 during the six months ended June 30, 2020 and June 30, 2019, respectively.
As of June 30, 2020, the Company had working capital of $23,320,992, primarily as a result of the net proceeds raised in the IPO
of approximately $23,420,000 (see Note 5). The Company had working capital of $743,526 as of December 31, 2019. The Company has
received funding in the form of periodic capital raises and also plans to apply for grant funding in the future to assist in supporting
its capital needs. We may also explore the possibility of entering into commercial credit facilities as an additional source of
liquidity. As of December 31, 2019, there was substantial doubt about the Company’s ability to continue as a going concern
in the absence of additional funding. We believe that our existing cash and cash equivalents as of June 30, 2020, resulting from
the proceeds raised in the IPO, and our anticipated expenditures and capital commitments for the calendar year 2020 and the first
half of calendar year 2021, will enable us to fund our operating expenses and capital expenditure requirements for at least 12
months from the date of this quarterly report.
Note
3. Summary of Significant Accounting Policies
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. The significant areas of estimation
include determining deferred tax asset valuation allowance and the inputs in determining the fair value of equity-based awards
and warrants issued. Actual results could differ from those estimates.
Risks
and Uncertainties
The
Company operates in an industry that is subject to intense competition, government regulation and rapid technological change.
Operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory, and
other risks, including the potential risk of business failure.
The
extent of the impact and effects of the recent outbreak of the coronavirus (COVID-19) on the operation and financial performance
of the Company’s business will depend on future developments, including the duration and spread of the outbreak, related
travel advisories and restrictions, the recovery time of disrupted research services, the consequential staff shortages, and research
and development delays, or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of
which are highly uncertain and cannot be predicted. If the Company’s operations are impacted by this outbreak for an extended
period, the Company’s results of operations or liquidity may be materially adversely affected.
Deferred
Offering Costs
In
conjunction with the Company’s IPO, costs incurred related to the IPO were capitalized as deferred equity issuance costs
in other non-current assets until the time of completion of the IPO. Upon completion of the IPO, these costs have been offset
against proceeds received. Offering costs include direct and incremental costs related to the offering such as legal fees and
related costs associated with the IPO.
During
the six months ended June 30, 2020, the Company classified deferred offering costs of $456,437 as a reduction to additional paid-in
capital upon completion of the Company’s IPO on June 15, 2020. As of December 31, 2019, the Company recorded deferred offering
costs of $191,000 and as of June 30, 2020, there were no deferred offering costs recorded on the Company’s condensed consolidated
balance sheets.
Research
and Development
Research
and development costs are expensed as incurred. These expenses primarily consist of payroll, contractor expenses, supplies, and
technical infrastructure on the cloud for the purposes of developing the Company’s RADR platform and identifying, developing,
and testing drug candidates. Development costs incurred by third parties are expensed as the work is performed. Costs to acquire
technologies, including licenses, that are utilized in research and development and that have no alternative future use are expensed
when incurred.
Prepaid
Expense
Prepaid
expense as of June 30, 2020 totaled approximately $71,000 and included approximately $9,000 of upfront contractor fees, $55,000
of licensing and other fees to AF Chemicals, LLC, and approximately $7,000 of annual insurance fees.
Loan
Pursuant to Paycheck Protection Program
The
Company received $108,500 in aggregate loan proceeds (the “PPP Loan”) from JPMorgan Chase Bank (the “Lender”)
pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP Loan
is evidenced by a loan application and payment agreement (the “PPP Loan Agreement”) by and between the Company and
the Lender. This amount is recorded as a loan payable on the Company’s condensed consolidated balance sheet at June 30,
2020.
Note
4: Commitments and Contingencies
BioNumerik
Pharmaceuticals.
In
January 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with BioNumerik Pharmaceuticals,
Inc. (“BioNumerik”), pursuant to which the Company acquired rights to domestic and international patents, trademarks
and related technology and data relating to LP-300 (Tavocept) for human therapeutic treatment indications. The Assignment
Agreement replaced a License Agreement that was entered into between the Company and BioNumerik in May 2016. The Company made
upfront payments totaling $25,000 in connection with entry into the Assignment Agreement.
In
the event the Company develops and commercializes LP-300 internally, the Company is required to pay to the BioNumerik-related payment
recipients designated in the Assignment Agreement a percentage royalty in the low double digits on cumulative net revenue up to
$100 million, with incremental increases in the percentage royalty for net cumulative revenue between $100 million and $250 million,
$250 million and $500 million, and $500 million and $1 billion, with a percentage royalty payment that could exceed $200 million
for net cumulative revenue in excess of $1 billion. The Company has the right to first recover certain designated portions of
patent costs and development and regulatory costs before the payment of royalties described above.
If
the Company enters into a third party transaction for LP-300, the Company is required to pay the BioNumerik-related payment recipients
a specified percentage of any upfront, milestone, and royalty amounts received by the Company from the transaction, after first
recovering specified direct costs incurred by the Company for the development of LP-300 that are not otherwise reimbursed
from such third party transaction.
In
addition, the Assignment Agreement provides that the Company will use commercially diligent efforts to develop LP-300 and
make specified regulatory filings and pay specified development and regulatory costs related to LP-300. The Assignment Agreement
also provides that the Company will provide TriviumVet DAC (“TriviumVet”) with (i) specified data and information
generated by the Company with respect to LP-300, and (ii) an exclusive license to use specified LP-300-related patent rights,
trademark rights and related intellectual property to support LP-300 development in non-human (animal) treatment indications.
The
Company is also required to pay all patent costs on covered patents related to LP-300. These patent costs are fully recoverable
at the time of any net revenue from LP-300, with up to 50% of net revenue amounts to be applied towards repayment of patent costs
until such costs are fully recovered.
In
addition to the recovery of patent costs, the Company has the right to recover the $25,000 upfront payments made in connection
with entry into the Assignment Agreement, which payments are recoverable prior to making any royalty or third party transaction
sharing payments. The Company also has the right to recover previously incurred LP-300 development and regulatory costs,
with up to a mid-single digit percentage of net revenue amounts to be applied towards repayment of development and regulatory
costs until such costs are fully recovered.
There
is approximately $11,000 payable to BioNumerik as of June 30, 2020 and December 31, 2019.
AF
Chemicals.
In
January 2015, the Company entered into a Technology License Agreement to exclusively license domestic and international patent
rights from AF Chemicals, LLC (“AF Chemicals”) for the treatment of cancer in humans for the compounds LP-100 (Irofulven)
and LP-184. In February 2016, the Company and AF Chemicals entered into an Addendum providing for additions and amendments to
the Technology License Agreement.
Pursuant
to the Technology License Agreement and Addendum (collectively, the “AFC License Agreement”) the Company is obligated
to make annual licensing fee payments to AF Chemicals in the amount of $30,000 per year relating to LP-184. The Company paid $0
and $30,000 to AF Chemicals relating to the LP-184 annual fee during the three and six months ended June 30, 2020, $7,500
and $15,000 of which was expensed during the three and six months ended June 30, 2020, respectively. The Company paid $0 and $30,000
to AF Chemicals relating to the LP-184 annual fee during the three and six months ended June 30, 2019, $7,500 and $15,000
of which was expensed during the three and six months ended June 30, 2019, respectively. Such amounts are included in research
and development expenses in the accompanying condensed consolidated statements of operations. In addition, the Company is obligated
to make milestone payments to AF Chemicals at the time of an Investigational New Drug Application (“IND”) filing relating
to LP-184 and also upon reaching additional specified milestones in connection with the development and potential marketing
approval of LP-184 in the United States, specified countries in Europe, and other countries.
In
the event of a sublicense of the LP-184 rights, the Company is obligated to pay AF Chemicals (a) a low double digit percentage
of the gross income and fees received by the Company with respect to the United States in connection with such sublicense, and
(b) a lower double digit percentage of the gross income and fees received by the Company with respect to Europe and Japan in connection
with such sublicense.
The
AFC License Agreement also provides that the Company will pay AF Chemicals a royalty of at least a very small single digit percentage
of specified net sales of LP-184 and other analogs. In addition, the AFC License Agreement contains specified time requirements
for the Company to file an IND, enroll patients in clinical trials, and file a potential NDA with respect to LP-184, with the
ability for the Company to pay AF Chemicals additional amounts ranging from $25,000 to $50,000 for each one, two, and three year
extension to such development time requirements, with additional extensions beyond three years to be negotiated by the Company
and AF Chemicals. During the three and six months ended June 30, 2020, the Company paid AF Chemicals $25,000 and $50,000, respectively,
relating to the IND filing milestone extension fee for LP-184, $12,500 and $25,000 of which were expensed during the three and
six months ended June 30, 2020, respectively, and included under research and development expenses in the accompanying condensed
consolidated statements of operations. The Company paid AF Chemicals $37,500 during the year ended December 31, 2019 in connection
with extension of the IND filing milestone for LP-184, none of which was paid during the three and six months ended June 30, 2019.
Amounts of $9,375 and $18,750 were expensed during the three and six months ended June 30, 2019, respectively, related to this
extension payment, and included under research and development expenses in the accompanying condensed consolidated statements
of operations. The Company is also obligated to make annual licensing fee payments to AF Chemicals relating to LP-100 as
described below under “Oncology Venture.”
Nothing
was accrued or payable to AF Chemicals as of June 30, 2020 and December 31, 2019.
Oncology
Venture.
In
May 2015, the Company licensed various rights to LP-100 to Oncology Venture pursuant to a Drug License and Development Agreement.
In February 2016, the Company and Oncology Venture entered into an addendum and an amendment providing for additions and amendments
to the Drug License and Development Agreement. In connection with the Drug License and Development Agreement, as amended (collectively,
the “OV License and Development Agreement”), Oncology Venture agreed to directly pay to AF Chemicals on behalf of
the Company amounts owed to AF Chemicals with respect to LP-100 under the AFC License Agreement. Amounts paid by Oncology
Venture to AF Chemicals on behalf of the Company are then deducted from amounts owed by Oncology Venture to the Company.
The
amounts owed to AF Chemicals with respect to LP-100 are in many ways similar to the amounts owed with respect to LP-184 as
described above under “AF Chemicals”. In the event any such amounts relating to LP-100 are not paid to AF Chemicals
by Oncology Venture, the Company is obligated to pay such unpaid amounts. In addition to the payments to be made by Oncology Venture,
the Company is obligated to make annual licensing fee payments to AF Chemicals in the amount of $30,000 per year relating
to LP-100. The Company paid $0 and $30,000 to AF Chemicals relating to the LP-100 annual fee during the three and six months
ended June 30, 2020, respectively, $7,500 and $15,000 of which was expensed during the three and six months ended June 30, 2020,
respectively. The Company paid $0 and $30,000 to AF Chemicals relating to the LP-100 annual fee during the three and six
months ended June 30, 2019, respectively, $7,500 and $15,000 of which was expensed during the three and six months ended June
30, 2019, respectively. Such amounts are included in research and development expenses in the accompanying condensed consolidated
statements of operations. There is nothing accrued or payable related to the OV License and Development Agreement as of June 30,
2020 and December 31, 2019.
EU
Grant
In
September 2018, Lantern Pharma Limited, a wholly owned subsidiary of Lantern Pharma Inc., was awarded a grant by the UK government
in the form of state aid under the Commission Regulations (EU) No. 651/2014 of 17 June 2014 (the “General Block Exemption”),
Article 25 Aid for research and development projects, state aid notification no. SA.40154. The grant was awarded to conduct research
and development activities for the prostate cancer biomarker analysis of the LP-184 drug candidate. Following the Company’s
research and development activities in Northern Ireland, the grant will reimburse the Company 50% of its research and development
expenses not exceeding GBP 24,215 of vouched and approved expenditures within specific categories. The grant contains some reporting
and consent requirements. The grant will remain in force for a period of five years. No payments to the Company have been made
under the grant as of June 30, 2020 and December 31, 2019. No revenue has been recognized from this grant through June 30, 2020.
Operating
Lease
The
Company leased office space in Dallas, Texas under month-to-month lease arrangements during the six months ended June 30, 2020
and the year ended December 31, 2019.
In
August 2019, the Company entered into a leasing agreement for office space in New Jersey. Monthly rent is $2,106, plus electrical
utilities and the lease expires on July 31, 2020.
Public
Company Director and Officer Liability Insurance
In
connection with becoming a public company, the Company obtained director and officer liability insurance at a premium cost of
approximately $1,810,000, with approximately $104,000 of such insurance premiums expensed during the six months ended June 30,
2020, all of which is accrued as of June 30, 2020. The remaining balance of approximately $1,706,000 was included under other
current asset and insurance payable on the Company’s condensed consolidated balance sheet at June 30, 2020.
Note
5. Shareholders’ Equity
Preferred
Stock
In
March 2019, the Company sold 590,643 shares of Series A preferred stock for aggregate proceeds of approximately $1,850,000.
The Company also issued 213,510 shares of Series A preferred stock in March 2019, in connection with the conversion of the
Simple Agreement for Future Equity (SAFE) agreements. See Note 6. In connection with the sale and issuance of the Series A preferred
stock in March 2019, the Company issued warrants to purchase an aggregate of 96,499 shares of Series A preferred stock at an initial
exercise price of $3.13 per share.
As
of December 31, 2019, the Company had 3,480,000 authorized shares of preferred stock, of which 2,438,866 shares designated
as Series A Preferred Stock were issued and outstanding. The holders of Series A Preferred Stock were entitled to receive dividends
when, as and if declared by the Company’s Board of Directors, payable in preference and priority to any declaration or payment
of dividends on Common Stock.
Effective
January 15, 2020, as a result of the reincorporation in the state of Delaware, the par value of the Company’s preferred
stock was changed from $0.01 to $0.0001 per share, and all data on preferred stock was retroactively adjusted to be shown herein
as reflective of this change
Upon
the Company’s IPO, all shares of the Company’s Series A preferred stock were converted into 2,438,851 shares of common
stock effective June 15, 2020, with fractional share adjustments made in connection with the conversion as discussed below. As
of June 30, 2020, the Company had 1,000,000 authorized share of preferred stock, with zero shares of preferred stock issued and
outstanding.
Common
Stock
On
June 15, 2020, the Company received net proceeds of $23,419,721 in its IPO, after deducting underwriting discounts and commissions
of $1,968,750 and other offering expenses of $861,529 borne by the Company. The Company issued and sold 1,750,000 shares of common
stock in its IPO at a price of $15.00 per share. In connection with the IPO, all shares of the Company’s Series A Preferred
Stock were converted into 2,438,851 shares of common stock, after giving effect to the 1.74 for 1 forward stock split of the common
stock and net of the fractional shares adjustments that occurred in connection with the IPO.
The
Company is to make payments of approximately $261 in the aggregate in connection with fractional shares resulting from the stock
split and the conversion of the preferred stock that took place in connection with the IPO.
During
the three and six months ended June 30, 2020, the Company issued zero and 50,460 shares of common stock relating to the exercise
of stock options. The shares were issued at a purchase price of $1.03 for total proceeds of $52,000.
As
of June 30, 2020, the Company had 25,000,000 authorized shares of Common Stock, of which 6,217,577 shares were issued and outstanding.
As of December 31, 2019, the Company had 12,180,000 authorized shares of Common Stock, of which 1,978,269 shares were issued and
outstanding.
Warrants
The
Company had warrants to purchase 332,014 shares of common stock outstanding and exercisable as of June 30, 2020 at a weighted
average exercise price of $6.42 per share. The Company had warrants to purchase 232,885 shares of Series A Preferred Stock outstanding
and exercisable as of June 30, 2019 at a weighted average exercise price of $3.13 per share.
In
connection with the IPO and the conversion of the Series A Preferred Stock into common stock, all outstanding warrants to purchase
Series A Preferred Stock converted into warrants to purchase common stock.
In
connection with the IPO, the Company granted the underwriters warrants (the “Underwriters’ Warrants”) to purchase
an aggregate of 70,000 shares of common stock at an exercise price of $18.75 per share, which is 125% of the initial public offering
price. The Underwriters’ Warrants have a five-year term and are not exercisable prior to December 7, 2020. All of the Underwriters’
Warrants were outstanding at June 30, 2020.
In
connection with the Series A Preferred Stock financing transactions discussed above, during the six months ended June 30, 2019,
the Company issued warrants to purchase an aggregate of 96,498 shares of Series A Preferred Stock.
Options
The
Company recorded stock-based compensation of approximately $124,000 and $22,000 related to stock options during the six months
ended June 30, 2020 and 2019, respectively, and approximately $105,000 and $6,000 during the three months ended June 30, 2020
and 2019, respectively. These amounts are included in general and administrative expenses in the accompanying condensed consolidated
statements of operations. The Company recorded approximately $87,000 in additional stock-based compensation during the three months
ended June 30, 2020, resulting from the acceleration of the vesting conditions of stock options upon the closing of the IPO.
A
summary of stock option activity under the Lantern Pharma Inc. 2018 Equity Incentive Plan, as amended, (the “Plan”)
during the six months ended June 30, 2020 is presented below:
|
|
|
Options Outstanding
|
|
|
|
|
Number of
Shares
|
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
Outstanding December 31, 2019
|
|
|
607,491
|
|
|
$
|
1.03
|
|
Granted
|
|
|
306,743
|
|
|
|
15.00
|
|
Exercised
|
|
|
(50,460
|
)
|
|
|
1.03
|
|
Cancelled or expired
|
|
|
(43,166
|
)
|
|
|
1.03
|
|
Outstanding June 30, 2020
|
|
|
820,608
|
|
|
$
|
6.25
|
|
Options
were exercisable for 508,966 shares of Common Stock at June 30, 2020.
During
the six months ended June 30, 2019, options to purchase 1,342 shares of Common Stock were granted, no options were exercised,
and no options expired or were canceled.
Note
6. SAFE Agreements
In
December 2018, the Company entered into SAFE agreements (the “SAFE Financing”) with five investors pursuant to which
the Company received funding of $535,000 in exchange for agreement to issue the investors shares of preferred stock upon occurrence
of a subsequent financing of preferred stock.
The
number of shares to be received by the SAFE agreement investors was based on 80% of the pricing in the triggering equity financing.
In a liquidity or dissolution event, the investors’ right to receive cash out was junior to payment of outstanding indebtedness
and creditor claims, on par for other SAFEs and preferred stock, and senior to common stock. The SAFE agreements had no interest
rate or maturity date, and the SAFE investors had no voting right prior to conversion.
The
SAFE agreements were converted to equity in March 2019 and the Company issued 213,510 shares of Series A Preferred Stock in full
satisfaction of these agreements.
Note
7. Notes and Loan Payable
In
January 2020, the Company entered into a financing arrangement for commercial insurance with First Insurance Funding. The total
amount financed was approximately $66,000 with an annual interest rate of 6.64%, to be paid over a period of ten months. In June
2020, the policy was canceled, and the remaining loan balance was satisfied. As of June 30, 2020, there is no remaining loan balance
on the Company’s condensed consolidated balance sheet related to the First Insurance financing arrangement.
On
May 1, 2020 (the “Origination Date”), the Company received $108,500 in aggregate loan proceeds (the “PPP Loan”)
from JPMorgan Chase Bank (the “Lender”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief,
and Economic Security (CARES) Act. The PPP Loan is evidenced by a loan application and payment agreement (the “PPP Loan
Agreement”) by and between the Company and the Lender. Subject to the terms of the PPP Loan Agreement, the PPP Loan bears
interest at a fixed rate of one percent (1.0%) per annum. Payments of principal and interest are deferred for the first six months
following the Origination Date, and the PPP Loan will mature two years after the Origination Date. Following the deferral period,
unless the loan is forgiven, the Company will be required to make payments of principal plus interest accrued under the PPP Loan
to the Lender in monthly installments based upon an amortization schedule to be determined by the Lender based on the principal
balance of the PPP Loan outstanding following the deferral period and taking into consideration any portion of the PPP Loan that
may be forgiven prior to that time. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration.
During
the three months ended June 30, 2020, the Company received approximately $103,000 in funding resulting from a loan that was funded
incorrectly. The Company’s return of the funds was hindered due to the lending institution’s reduced staffing and
delayed responsiveness as a result of the coronavirus (COVID-19) pandemic. All of the funds from the loan were returned by the
Company in July 2020, and no loan funds were expended prior to the return.
Note
8. Related Party Transactions
The
Company has from time to time obtained preclinical services from Biological Mimetics, Inc., which is also a stockholder in the
Company. The Company recorded expenses of approximately $10,000 and $12,000 related to Biological Mimetics, Inc. during the three
and six months ended June 30, 2019, all of which is included in research and development. No expenses related to Biological Mimetics,
Inc. were recorded during the three and six months ended June 30, 2020. Approximately $2,000 was owed to Biological Mimetics,
Inc. at December 31, 2019, all of which is included in accounts payable and accrued expenses in the accompanying condensed consolidated
balance sheet. Nothing was owed to Biological Mimetics at June 30, 2020.
The
Company has previously engaged Intuition Systems (“Intuition”) to provide services relating to development of the
Company’s technology infrastructure and artificial intelligence platform, cloud computing, and computational biology. The
chief executive officer of Intuition is the brother of Arun Asaithambi, the Company’s former Chief Executive Officer, President
and Director. No expenses were recorded related to Intuition Systems during the three and six months ended June 30, 2020
or during the three and six months ended June 30, 2019. At both June 30, 2020 and December 31, 2019, approximately $9,000 remained
unpaid relating to Intuition and is included in accounts payable and accrued expenses in the accompanying condensed consolidated
balance sheet.
In
January 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with BioNumerik Pharmaceuticals,
Inc. (“BioNumerik”), pursuant to which the Company acquired rights to domestic and international patents, trademarks
and related technology and data relating to LP-300 for human therapeutic treatment indications. Mr. Margrave, the Company’s
Chief Financial Officer and Secretary, formerly served as the President, Chief Administrative Officer, General Counsel and Secretary
of BioNumerik and has a minority ownership interest in BioNumerik. The Company recorded no expense related to BioNumerik during
the three and six months ended June 30, 2020 and June 30, 2019. Amounts payable to BioNumerik as of both June 30, 2020 and December 31,
2019 totaled approximately $11,000.
Note
9. Loss Per Share of Common Shares
Basic
loss per share is derived by dividing net loss applicable to common stockholders by the weighted average number of shares of common
stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion
of securities, such as warrants and stock options, which would result in the issuance of incremental shares of common stock unless
such effect is anti-dilutive. In calculating the basic and diluted net loss per share applicable to common stockholders, the weighted
average number of shares remained the same for both calculations due to the fact that when a net loss exists, dilutive shares
are not included in the calculation. Potentially dilutive securities outstanding that have been excluded from diluted loss per
share due to being anti-dilutive include the following:
|
|
Outstanding at June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants to purchase Common Stock
|
|
|
332,014
|
|
|
|
-
|
|
Warrants to purchase Series A Preferred stock
|
|
|
-
|
|
|
|
232,885
|
|
Stock options
|
|
|
820,608
|
|
|
|
630,402
|
|
Series A preferred stock
|
|
|
-
|
|
|
|
2,097,105
|
|
|
|
|
1,152,622
|
|
|
|
2,960,392
|
|
Note
10. Subsequent Events
In
July 2020, the Company returned approximately $103,000 in funding resulting from a loan that was funded incorrectly. All of the
funds from the loan were returned by the Company and no loan funds were expended prior to the return.
In
July 2020, the Company entered into an agreement with Patheon API Services, Inc. (“Patheon”) for the manufacture and
supply of cGMP material to support the Company’s planned Phase II clinical trial for its product candidate LP-300. In addition
to producing LP-300 API (active pharmaceutical ingredient) under cGMP (current Good Manufacturing Practices) conditions, Patheon
will transfer previously validated manufacturing processes and analytical methods for LP-300 and will produce non-GMP material
that can be used to support non-clinical studies for LP-300. The agreement provides for payments in stages as specified process
and manufacturing milestones are achieved. Patheon, a part of Thermo Fisher Scientific, has previously developed and/or manufactured
more than 700 pharmaceuticals for biopharma clients and has more than 55 locations around the world, providing access to a fully
integrated global network of facilities.