NOTES TO FINANCIAL STATEMENTS
Note 1. Organization, Principal Activities,
and Basis of Presentation
Lantern Pharma Inc.,
and Subsidiary (the “Company”) is a clinical stage biopharmaceutical 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:
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LP-100 (irofulven), out-licensed to Allarity Therapeutics (formerly known as Oncology Venture), in a phase II trial for the treatment of prostate cancer;
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LP-300 (Tavocept) in planning stages for phase II trial for the treatment of non-small cell lung cancer; and
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LP-184 in preclinical studies for treatment of solid tumors including prostate, liver and pancreatic cancers and glioblastoma.
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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 $3,012,186 and $1,753,018 during the nine months ended September 30, 2020 and September 30, 2019, respectively. As
of September 30, 2020, the Company had working capital of $21,660,787, 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 September 30, 2020,
and our anticipated expenditures and capital commitments for the remainder of calendar year 2020 and for 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 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 nine months
ended September 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 September 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, research study expenses, costs
for manufacturing and 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 Expenses and Other Current Assets
Prepaid expenses and
other current assets as of September 30, 2020 totaled approximately $1,673,000 and included approximately $357,000 of upfront payments
for contractor and academic research studies and services, approximately $48,000 of licensing and other fees to AF Chemicals, LLC,
approximately $6,000 associated with receivables and undeposited funds, and approximately $1,262,000 of prepaid 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 September 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 September 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 nine months ended September 30, 2020, $7,500 and $22,500
of which was expensed during the three and nine months ended September 30, 2020, respectively. The Company paid $0 and $30,000
to AF Chemicals relating to the LP-184 annual fee during the three and nine months ended September 30, 2019, $7,500 and
$22,500 of which was expensed during the three and nine months ended September 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 nine months ended September 30, 2020, the Company paid AF Chemicals $0 and $50,000, respectively, relating to the IND filing
milestone extension fee for LP-184, $12,500 and $37,500 of which were expensed during the three and nine months ended September
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, $37,500 of which was paid during the three and nine months ended September 30, 2019. Amounts
of $9,375 and $28,125 were expensed during the three and nine months ended September 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 September 30, 2020 and December 31, 2019.
Allarity Therapeutics (formerly known
as Oncology Venture)
In May 2015, the
Company licensed various rights to LP-100 to Oncology Venture (now known as Allarity Therapeutics) pursuant to a Drug License
and Development Agreement. In February 2016, the Company and Allarity Therapeutics A/S (“Allarity”) 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 “Allarity License and
Development Agreement”), Allarity 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 Allarity to AF Chemicals on
behalf of the Company are then deducted from amounts owed by Allarity 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 Allarity,
the Company is obligated to pay such unpaid amounts. In addition to the payments to be made by Allarity, 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 nine months ended September 30, 2020,
respectively, $7,500 and $22,500 of which was expensed during the three and nine months ended September 30, 2020, respectively.
The Company paid $0 and $30,000 to AF Chemicals relating to the LP-100 annual fee during the three and nine months ended September
30, 2019, respectively, $7,500 and $22,500 of which was expensed during the three and nine months ended September 30, 2019, respectively.
Such amounts are included in research and development expenses in the accompanying condensed consolidated statements of operations.
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-100. During the three and nine months ended September 30, 2020, the
Company paid AF Chemicals $25,000 relating to a one-year milestone extension fee for LP-100 commencing in August 2020, approximately
$4,000 of which was expensed during the three and nine months ended September 30, 2020 and included under research and development
expenses in the accompanying condensed consolidated statements of operations.
There is nothing accrued
or payable related to the Allarity License and Development Agreement as of September 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 September 30, 2020 and December 31, 2019. No revenue has been recognized from this grant through September 30,
2020.
Patheon API Services
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.
The Company paid approximately
$194,000 to Patheon during the three months ended September 30, 2020 pursuant to the Patheon agreement. Approximately $78,000 was
expensed with respect to the Patheon agreement during the three months ended September 30, 2020, which represents the services
received by the Company through September 30, 2020. This amount is included in research and development expenses in the accompanying
condensed consolidated statements of operations. Approximately $116,000 relating to the Patheon agreement is included under prepaid
expenses on the Company’s condensed consolidated balance sheet for the period ended September 30, 2020. The Company expects
to pay additional amounts to Patheon in future periods in accordance with specified process and manufacturing milestones under
the Patheon agreement.
Southwest Research Institute
As
part of the Company’s research and development activities, the Company has engaged Southwest Research Institute (“SwRI”)
from time to time to assist with compound synthesis and manufacturing related activities for the Company’s product candidates.
Approximately $4,000 and $21,000 was expensed with respect to SwRI during the three months ended September 30, 2020 and September
30, 2019, respectively, and approximately $5,000 and $221,000 was expensed with respect to SwRI during the nine months ended September
30, 2020 and September 30, 2019, respectively. All of such expensed amounts are included in research and development expenses in
the accompanying condensed consolidated statements of operations. Approximately $99,000 was payable to SwRI as of September 30,
2020, and approximately $21,000 was payable to SwRI as of September 30, 2019. In September 2020, the Company entered into an agreement
with SwRI for the non-GMP synthesis of LP-184 material and related analytical development to assist with preclinical studies. Approximately
$97,000 relating to the SwRI agreement is included under prepaid expenses on the Company’s condensed consolidated balance
sheet for the period ended September 30, 2020. There were no prepaid expenses relating to SwRI as of December 31, 2019. The Company
expects to pay additional amounts to SwRI in future periods as synthesis and analytical work is conducted by SwRI under the agreement.
The Research
Institute of Fox Chase Cancer Center
In
September 2020, the Company entered into a research agreement with the Research Institute of Fox Chase Cancer Center (“FCCC”)
as part of the Company’s research and development activities, with a focus on advancing
the targeted use of LP-184 in molecularly-defined sub-types of pancreatic cancer. Approximately $6,000 was expensed with
respect to the FCCC agreement during the three months ended September 30, 2020, which amount is included in research and development
expenses in the accompanying condensed consolidated statements of operations. As of September 30, 2020, approximately $71,000 was
payable to FCCC. Approximately $65,000 relating to the FCCC agreement is included under other current assets on the Company’s
condensed consolidated balance sheet as of September 30, 2020. The Company expects to pay additional amounts to FCCC in future
periods in accordance with the payment schedule specified under the FCCC agreement.
Other Research
and Service Provider Agreements
In
addition to the agreements described above, the Company has entered into other research and service provider agreements for the
advancement of its product candidates and research and development efforts. The Company expects to pay additional amounts in future
periods in connection with existing and future research and service provider agreements.
Operating Lease
The Company leased office
space in Dallas, Texas under month-to-month lease arrangements during the nine months ended September 30, 2020 and the year ended
December 31, 2019. In connection with the Company’s employees working remotely due to COVID-19, the Company in August 2020
reduced its monthly lease commitment and costs to minimal levels. The Company is continuing to monitor the COVID-19 conditions
and intends to increase its lease of office space following an improvement in the COVID-19 situation.
In August 2019, the
Company entered into a leasing agreement for office space in New Jersey. Monthly rent was $2,106, plus electrical utilities. The
lease expired on July 31, 2020 and was not renewed.
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.
In July 2019, the Company
sold 341,761 shares of Series A preferred stock for aggregate proceeds of approximately $1,070,000. In connection with the issuance
of the Series A preferred stock, the Company issued warrants to purchase an aggregate of 41,015 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 September 30,
2020, the Company had 1,000,000 authorized shares 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 made 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
nine months ended September 30, 2020, the Company issued zero and 50,460 shares of common stock, respectively, 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 September 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 September 30, 2020 at a weighted average exercise
price of $6.42 per share. The Company had warrants to purchase 273,900 shares of Series A Preferred Stock outstanding and exercisable
as of September 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 September 30, 2020.
In connection with the
Series A Preferred Stock financing transactions discussed above, during the nine months ended September 30, 2019, the Company issued
warrants to purchase an aggregate of 137,514 shares of Series A Preferred Stock.
Options
The Company recorded
stock-based compensation of approximately $167,000 and $54,000 related to stock options during the nine months ended September
30, 2020 and 2019, respectively, and approximately $43,000 and $32,000 of stock-based compensation during the three months ended
September 30, 2020 and 2019, respectively. These amounts are included in general and administrative expenses in the accompanying
condensed consolidated statements of operations.
A summary of stock option
activity under the Lantern Pharma Inc. 2018 Equity Incentive Plan, as amended and restated (the “Plan”) during the
nine months ended September 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 September 30, 2020
|
|
|
820,608
|
|
|
$
|
6.25
|
|
Options were exercisable
for 515,695 shares of Common Stock at September 30, 2020.
During the nine months
ended September 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 insurance
policy was canceled, and the remaining loan balance was repaid. As of September 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. The guidance under the Paycheck Protection Program was
later updated so that payments of principal and interest were extended past the current fiscal year and maturity was extended past
two years. The Company is tracking further development and guidance related to the Paycheck Protection Program terms.
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 nine months
ended September 30, 2020, the Company received approximately $103,000 in funding resulting from a loan that was funded incorrectly.
All of the funds from the loan were repaid by the Company in July 2020, and no loan funds were expended prior to the repayment.
There are no amounts outstanding under this loan as of September 30, 2020.
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 $11,000 and $23,000 related to Biological Mimetics, Inc. during the three and nine months ended
September 30, 2019, all of which is included in research and development. No expenses related to Biological Mimetics, Inc. were
recorded during the three and nine months ended September 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, Inc. at September 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 nine months ended September 30, 2020 or during the three and nine
months ended September 30, 2019. At both September 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 nine months ended
September 30, 2020 and September 30, 2019. Amounts payable to BioNumerik as of both September 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
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants to purchase Common Stock
|
|
|
332,014
|
|
|
|
-
|
|
Warrants to purchase Series A Preferred stock
|
|
|
-
|
|
|
|
273,900
|
|
Stock options
|
|
|
820,608
|
|
|
|
630,402
|
|
Series A preferred stock
|
|
|
-
|
|
|
|
2,438,866
|
|
|
|
|
1,152,622
|
|
|
|
3,343,168
|
|