Item 7. 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 plan of operations together with our financial
statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information,
this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual
results may differ materially from those discussed below. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below, and those discussed in Item 1A titled “Risk Factors” included elsewhere
in this Annual Report on Form 10-K.
Overview
We
are 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 our targeted oncology
therapies. Our portfolio of therapies consists of small molecules that others have tried, but failed, to develop into an approved
commercialized drug, as well as new compounds that we are developing with the assistance of our proprietary A.I. platform and
our biomarker driven approach. Our A.I. platform, known as RADR® , currently includes more than 1.2 billion data
points, and 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 to rapidly uncover
biologically relevant genomic signatures correlated to drug response, and then identify the cancer patients that we believe may
benefit most from our compounds. This data-driven, genomically-targeted and biomarker-driven approach allows us to pursue a transformational
drug development strategy that identifies, rescues or develops, and advances potential small molecule drug candidates at what
we believe is a fraction of the time and cost associated with traditional cancer drug development.
Our
strategy is to both develop new drug candidates using our RADR® platform, and other machine learning driven methodologies,
and to pursue the development of drug candidates that have undergone previous clinical trial testing or that may have been halted
in development or deprioritized because of insufficient clinical trial efficacy (i.e., a meaningful treatment benefit relevant
for the disease or condition under study as measured against the comparator treatment used in the relevant clinical testing) or
for strategic reasons by the owner or development team responsible for the compound. Importantly, these historical drug candidates
appear to have been well-tolerated in many instances, and often have considerable data from previous toxicity, tolerability and
ADME (absorption, distribution, metabolism, and excretion) studies that have been completed. Additionally, these drug candidates
may also have a body of existing data supporting the potential mechanism(s) by which they achieve their intended biologic effect,
but often require more targeted trials in a stratified group of patients to demonstrate statistically meaningful results. Our
dual approach to both develop de-novo, biomarker-guided drug candidates and “rescue” historical drug-candidates by
leveraging A.I., recent advances in genomics, computational biology and cloud computing is emblematic of a new era in drug development
that is being driven by data-intensive approaches meant to de-risk development and accelerate the clinical trial process. In this
context, we intend to create a diverse portfolio of oncology drug candidates for further development towards regulatory and marketing
approval with the objective of establishing a leading A.I.-driven, methodology for treating the right patient with the right oncology
therapy.
A
key component of our strategy is to target specific cancer patient populations and treatment indications identified by leveraging
our RADR®platform, a proprietary A.I. enabled engine created and owned by us. We believe the combination of our
therapeutic area expertise, our A.I. expertise, and our ability to identify and develop promising drug candidates through our
collaborative relationships with research institutions in selected areas of oncology gives us a significant competitive advantage.
Our RADR® platform was developed and refined over the last four years and integrates millions of data points immediately
relevant for oncology drug development and patient response prediction using artificial intelligence and proprietary machine learning
algorithms. By identifying clinical candidates, together with relevant genomic and phenotypic data, we believe our approach will
help us design more efficient pre-clinical studies, and more targeted clinical trials, thereby accelerating our drug candidates’
time to approval and eventually to market. Although we have not yet applied for or received regulatory or marketing approval for
any of our drug candidates, we believe our RADR® platform has the ability to reduce the cost and time to bring
drug candidates to specifically targeted patient groups. We believe we have developed a sustainable and scalable biopharma business
model by combining a unique, oncology-focused big-data platform that leverages artificial intelligence along with active clinical
and preclinical programs that are being advanced in targeted cancer therapeutic areas to address today’s treatment needs.
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Our
current portfolio consists of four compounds in active development: two drug candidates in clinical phases, one in preclinical
studies and one in research optimization. All of these drug candidates are leveraging precision oncology, A.I. and genomic driven
approaches to accelerate and direct development efforts. We currently have two drug candidates in clinical development, LP-100
and LP-300, where we are leveraging data from prior preclinical studies and clinical trials, along with insights generated from
our A.I. platform, to target the types of tumors and patient groups that would be most responsive to the drug. Both LP-100 and
LP-300 showed promise in important patient subgroups, but failed pivotal Phase III trials when the overall results did not meet
the predefined clinical endpoints. We believe that this was due to a lack of biomarker-driven patient stratification. Additionally,
we have one new drug candidate, LP-184, in preclinical development for two potentially distinct indications where we are leveraging
machine learning and genomic data to streamline the drug development process and to identify the patients and cancer subtypes that
will best benefit from the drug, if approved. As part of our antibody drug conjugate (ADC) program commenced in early 2021, we
have initiated the optimization and evaluation of an antibody drug conjugate aimed at leveraging our LP-184 molecule in combination
with an antibody for select solid tumors.
Our
development strategy is to pursue an increasing number of oncology focused, molecularly targeted therapies where artificial intelligence
and genomic data can help us provide biological insights, reduce the risk associated with development efforts and help clarify
potential patient response. We plan on strategically evaluating these on a program-by-program basis as they advance into clinical
development, either to be done entirely by us or with our licensing partners to maximize the commercial opportunity and reduce
the time it takes to bring the right drug to the right patient
To
date, except for a research grant in 2017, we have not generated any revenue, we have incurred net losses and our operations have
been financed primarily by sales of our equity securities. Our net losses were approximately $5,908,000 and $2,428,000 for the
years ended December 31, 2020 and 2019, respectively.
Our
net losses have primarily resulted from costs incurred in licensing and developing the drug candidates in our pipeline, planning,
preparing and conducting preclinical studies, early stage clinical testing and general and administrative activities associated
with our operations. We expect to continue to incur significant expenses and corresponding increased operating losses for the
foreseeable future as we continue to develop our pipeline. Our costs may further increase as we conduct preclinical studies and
clinical trials and potentially seek regulatory clearance for and prepare to commercialize our drug candidates. We expect to incur
significant expenses to continue to build the infrastructure necessary to support our expanded operations, preclinical studies,
clinical trials, commercialization, including manufacturing, marketing, sales and distribution functions. We have experienced
and will continue to experience increased costs associated with operating as a public company.
Our
operations, including the development of our drug candidates, could be disrupted and materially adversely affected in the future
by a pandemic, epidemic or outbreak of an infectious disease like the outbreak of COVID-19. For example, as a result of measures
imposed by the governments in regions affected by COVID-19, businesses and schools have been suspended due to quarantines or “stay
at home” orders intended to contain this outbreak. The spread of COVID-19 from China to other countries has resulted in the
Director General of the World Health Organization declaring the outbreak of COVID-19 as a Public Health Emergency of International
Concern (PHEIC), based on the advice of the Emergency Committee under the International Health Regulations (2005). On March 12,
2020, the President of the United States imposed international travel restrictions between the U.S. and Europe to supplement the
existing international travel restrictions between the US and certain Asian countries and, on March 13, 2020, declared a national
emergency in response to the likely spread of COVID-19. COVID-19 continues to spread globally and, as of December 31, 2020, has
spread to over 150 countries, including the United States. U.S. and international stock markets continue to experience fluctuations
and to be impacted from time to time by uncertainty associated with the impact of COVID-19 on the U.S., Chinese, European and other
economies and the reduced levels of international travel experienced since early 2020. The Dow Industrial Average and other domestic
and international stock indices experienced substantial fluctuations during 2020 largely attributed to assessments and expectations
regarding the adverse effects of the pandemic on the world’s economies. We are continuing to assess our business plans and
the impact COVID-19 may have on our operations and plans, including the ability to advance the development of our drug candidates,
but no assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19
or its consequences, including downturns in business sentiment generally or in our sector in particular. The extent to which COVID-19
impacts our operations and plans will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
including the duration of the outbreak, new information which may emerge concerning the severity and treatment of COVID-19, and
preventative or protective actions that governments, businesses, and organizations performing research and clinical trials may
take in respect of COVID-19, among others. The existence and spread of an infectious disease, including COVID-19, may also result
in the inability of our suppliers to deliver components or raw materials on a timely basis or materially and adversely affect our
collaborators and out-license partner’s ability to perform and advance preclinical and nonclinical studies and clinical trials.
For example, Allarity Therapeutics (formerly known as Oncology Venture) has informed us that continuing enrollment in the Phase
II clinical trial for LP-100 (Irofulven) has slowed during the pandemic. The timing of non-clinical research studies for our drug
candidates by collaborators and service providers also slowed during the second and third quarters of 2020 in connection with the
pandemic.
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Components of Our Results of Operations
Revenues
We
did not recognize revenues for the years ended December 31, 2020 and 2019.
General and Administrative
General
and administrative expenses consist of our operating expenses that are not included in the direct costs of production or cost
of goods sold which include:
● legal expenses;
● accounting expenses; and
● rent, utilities and supplies.
Research and Development
Research
and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical
candidates, which include:
For
the years ended December 31, 2020 and 2019, we incurred an aggregate of approximately $2,243,000 and $953,000, respectively, in
research and development expenses related to the development of LP-100, LP- 184, LP 300 and our RADR®platform.
We expect that our research and development expenses will increase as we plan for and commence our clinical trials of LP-184 and
LP-300.
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Our research and development costs
by project category for the year ended December 31, 2020 are as follows:
Total Research & Development Expenses $ 2,243,225
*As
a private company, we did not track our research and development costs by project category primarily because research and development
salary expenses were not further allocated to each project. As a result, our tracking of research and development costs by project
category commenced during the three months ended June 30, 2020 in connection with the Company’s IPO.
We expect that
our research and development expenses will increase as we plan for and commence our clinical trials of LP-184 and LP-300.
Because
of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and
completion costs of these or other current or future clinical trials of LP-184 and LP-300 or our other therapeutic candidates.
We may never succeed in achieving regulatory approval for LP-184 and LP-300 or any of our other drug candidates. The duration,
costs and timing of clinical trials and development of our therapeutic candidates will depend on a variety of factors, including
the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant
and changing government regulation. In addition, the probability of success for each drug candidate will depend on numerous factors,
including competition, manufacturing capability and commercial viability.
General and Administrative
General
and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration,
corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant
general and administrative expenses include accounting and legal services, the cost of various consultants, occupancy costs and
information systems costs.
We
expect that our general and administrative expenses will increase as we continue to operate as a public company. We expect increased
administrative costs resulting from our anticipated clinical trials and the potential commercialization of our drug candidates.
We believe that these increases will likely include increased costs for director and officer liability insurance, hiring additional
personnel to support future market research and future product commercialization efforts and increased fees for outside consultants,
attorneys and accountants. We also expect to continue to incur increased costs to comply with corporate governance, internal controls,
investor relations and disclosures and similar requirements applicable to a public company.
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Financial
Operations Overview and Analysis for the Years Ended December 31, 2020 and 2019
Year Ended
December 31,
Revenue - -
Expenses
Revenues
To date, except
for a research grant in 2017, we have not generated any revenue since our inception.
General and Administrative Expenses
General
and administrative expenses increased $2,189,965 or 149%, from $1,475,000 for the year ended December 31, 2019 to $3,664,965 for
the year ended December 31, 2020. The increase was primarily attributable to an increase in corporate insurance expense of approximately
$1,077,000, an increase in general and administrative related stock option compensation expense of approximately $604,000, an
increase in general and administrative labor expense of $512,000, an increase in business development expense of $128,000, increases
in NASDAQ and othering filing fees of $73,000, and an increase in other professional services of $70,000. These increases were
partially offset by a decrease in travel and relocation expense of approximately $147,000 and a decrease in legal and patent fees
of approximately $146,000.
Research and Development Expenses
Research
and development expenses increased $1,290,040, or 135%, from $953,185 for the year ended December 31, 2019 to $2,243,225 for the
year ended December 31, 2020. The increase was primarily attributable to an increase in research and development labor expense
of approximately $489,000, an increase in research and development related stock option compensation expense of approximately
$470,000, an increase in research study expenses of approximately $194,000, an increase in product candidate manufacturing expense
of approximately $70,000, and an increase in non-manufacturing consulting expense of approximately $43,000.
On
September 3, 2018, Lantern Pharma Limited, our wholly owned subsidiary, 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 our LP-184 drug candidate. Following our research and development
activities in Northern Ireland, the grant will reimburse 50% of our research and development expenses not exceeding GBP 24,215
of vouched and approved expenditures within specific categories and will remain in force for a period of five years. No revenue
has been recognized from this grant through December 31, 2020.
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Liquidity and Capital Resources
Since
our inception, our operations have been financed primarily through the sale of equity securities, and, to a lesser extent, a grant
received by us from Massachusetts Life Sciences Center in 2017. We have not yet generated any revenues from operations, other than
revenues from a research grant in 2017, and we have not yet achieved profitability. We expect that general and administrative expenses
and our research and development expenses will continue to increase and, as a result, we will need to generate significant product
revenues to achieve profitability.
We
incurred net losses of $5,908,190 and $2,428,185 for the years ended December 31, 2020 and 2019, respectively. As of December 31,
2020 and 2019, we had working capital of approximately $19,685,000 and $744,000, respectively.
On
May 1, 2020 (the “Origination Date”), we 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. As of December 31, 2020, we expect to meet the requirements of loan forgiveness under the stipulations
of the program. We plan to file for forgiveness under this loan within the first half of 2021. In the event we do not meet the
requirements of loan forgiveness, the PPP Loan bears interest at a fixed rate of 1.0% per annum. Payments of principal and interest
were deferred for the first six months following the Origination Date, with the PPP Loan to mature two years after the Origination
Date. The guidance under the Paycheck Protection Program was later updated so that deferral of payments of principal and interest
were extended to ten months after completion of the covered period of 24 weeks and maturity was extended past two years. We continue
to monitor further development and guidance related to the Paycheck Protection Program terms.
On
June 15, 2020, we completed an initial public offering of 1,750,000 shares of our common stock at $15.00 per share, for gross proceeds
of $26,250,000, before deducting underwriting discounts, commissions and offering expenses, which substantially contributed to
our liquidity.
As
of the years ended December 31, 2020 and 2019, we had cash and cash equivalents of approximately $19,229,000 and $1,232,000, respectively.
In January of 2021, we completed an additional offering with gross proceeds of approximately $69,000,000. We believe that proceeds
from this offering, based on the sale of 4,928,571 shares of common stock at the public offering price of $14.00 per share, together
with our existing cash and cash equivalents as of December 31, 2020, and our anticipated expenditures and capital commitments
for the calendar year 2021 and the first half of 2022, will enable us to fund our operating expenses and capital expenditure requirements
for at least 12 months from the date of this report.
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Cash Flows
The following
table summarizes our cash flow for the periods indicated:
Year Ended December 31,
Net cash flows used in operating activities $ (5,651,621 ) $ (2,127,923 )
Net cash flows (used in) provided by investing activities (16,137 ) (5,717 )
Operating Activities
For
the year ended December 31, 2020, net cash used in operating activities was $5,651,621 compared to $2,127,923 for the year ended
December 31, 2019. The increase in net cash used in operating activities was primarily the result of the increase in the net loss
together with increases in prepaid expenses.
Investing Activities
For
the year ended December 31, 2020, net cash used in investing activities was $16,137, compared to $5,717 used in investing activities
during the year ended December 31, 2019.
Financing Activities
Net
cash provided by financing activities was $23,664,960 during the year ended December 31, 2020, attributable primarily to net proceeds
from our initial public offering. Net cash provided by financing activities during the year ended December 31, 2019 was $2,920,507,
attributable to the sale of 658,571 shares of Series A preferred stock and warrants to purchase Series A preferred stock for proceeds
of approximately $3,455,000, of which approximately $2,920,000 consisted of cash and $535,000 consisted of the conversion of Simple
Agreement for Future Equity (“SAFE”) agreements to Series A Preferred Stock.
Operating Capital and Capital Expenditure
Requirements
We
expect to continue to incur significant and increasing operating losses at least for the next several years as we commence our
clinical trials of LP-184 and LP-300, pursue development of our other drug candidates, and seek potential future marketing approval
for our drug candidates which could be several years in the future, if at all. We do not expect to generate revenue, other than
possible license revenue, unless and until we successfully complete development and obtain regulatory approval for our therapeutic
candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our
planned clinical trials and our expenditures on other research and development activities.
We
have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all
of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research,
development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital
requirements. We anticipate that our expenses will increase substantially as we:
● continue the development of our drug candidates;
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● hire additional clinical, regulatory, scientific and accounting personnel;
● continue to develop, maintain, and expand our RADR® platform.
We
expect that we will need to obtain substantial additional funding in order to complete our clinical trials. To the extent that
we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership
interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or
other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available,
would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our
ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that
could adversely impact our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms,
we could be forced to significantly delay, scale back or discontinue the development or commercialization of LP-184 and LP-300
and/or other drug candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less
favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to LP-184
and LP-300 or other drug candidates that we otherwise would seek to develop or commercialize ourselves.
Off-Balance Sheet Arrangements
We did not have
during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Critical Accounting Policies
We
prepare our consolidated financial statements in accordance with generally accepted accounting standards in the United States of
America. Our significant accounting policies are described in Note 3 to our consolidated financial statements included as part
of this report. We believe the following critical accounting policies involve the most significant judgments and estimates used
in the preparation of the consolidated financial statements.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Significant areas of estimation include determining the 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 these estimates.
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Research and Development
Research
and development expenses are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research
and development and that have no alternative future use are expensed when incurred.
Stock-based Compensation
We
have granted stock options to our employees under our equity incentive plan. Stock-based compensation expense from awards granted
under our plan is allocated over the required service period over which those stock option awards vest.
The
stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service
period. The estimated fair value of these stock option awards was determined using the Black Scholes option pricing model on the
date of grant. Some of these grants occurred at a time when we were not a public company. Significant judgment and estimates were
used to estimate the fair value of these awards, as they occurred when our stock was not publicly traded.
Our
estimation of fair value of the awards considered our recent transactions, relevant industry and comparable public company data.
Since, at the time of many of the grants, we were a non-public entity, the majority of the inputs used to estimate the fair value
of the common stock option awards are considered level 3 due to their unobservable nature. Each option award is subject to specified
vesting schedules and requirements. Compensation expense is charged to us over the required service period to earn the award which
is expected to be up to four years, subject to the achievement of time and event-based vesting requirements. For the years ended
December 31, 2020 and 2019, we have incurred share-based compensation expense related to equity awards totaling approximately
$1,192,000 and $118,000, respectively.
Accounting Pronouncements
New Accounting Pronouncements Not
Yet Adopted
Current Expected Credit Loss
In June 2016 the FASB
issued Accounting Standard Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This introduces
new methodology for recognition of credit losses - the current expected credit loss (“CECL”) method. The CECL method
requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument,
unless the company elects to recognize such instruments at fair value with changes in profit and loss. CECL is effective for the
Company on January 1, 2023. The Company does not anticipate a material impact from the adoption of this new standard on its financial
statements.
Income Taxes
In
December 2019, the FASB issued ASU 2019-12: Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. This
ASU simplifies accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation
when there is a loss from continuing operations and income or gain for other items, the exception to the requirement to recognize
a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, exception
to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes
a subsidiary, and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date
loss exceeds the anticipated loss for the year. This ASU also includes other requirements related to franchise tax, goodwill as
part of a business combination, consolidations, changes in tax laws, and affordable housing projects. ASU 2019-12 is effective
for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted
for periods in which financial statements have not yet been issued. We do not anticipate a material impact from the adoption of
this new standard on our financial statements.
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Recently Adopted Accounting Standards
Leases
In
February 2016 the FASB issued ASU 2016-02: Leases. The ASU introduces a lessee model that results in most leases impacting the
balance sheet. The ASU addresses other concerns related to the current lease model. Under ASU 2016-02, lessees will be required
to recognize for all leases with terms longer than 12 months, at the commencement date of the lease, a lease liability, which
is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use
(ROU) asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the
lease term. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition.
In
July 2018, the FASB issued ASU 2018-10 “Codification Improvements to Topic 842, Leases.” This ASU affects narrow aspects
of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in
the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease
payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts
previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified
as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or
sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the
lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback
transactions.
We
adopted ASC 2018-10 Topic 842 effective January 1, 2019 and elected the short-term lease recognition exemption for all leases
that qualify. For those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes
not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. This practical expedient
was elected to not separate lease and non-lease components for its office space leases. The adoption of this new standard did
not have a material impact on the Company’s financial statements as the Company did not have any leases that have terms
of longer than 12 months.
Compensation – Stock Compensation
In
June 2018, the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-
Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods
and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially
aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal
year, early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. We do not believe there has
been a material impact from the adoption of this new accounting guidance on our consolidated financial statements and related footnote
disclosures.
Quantitative and Qualitative Disclosure
About Market Risk
Our
primary exposure to market risk is interest expense sensitivity, which is affected by changes in the general level of U.S. interest
rates. Historically, we have raised capital through the issuance of equity securities. As of December 31, 2020 and 2019, we had
no long-term debt outstanding, other than our PPP Loan Agreement entered into in May 2020.
We
do not believe that our cash has significant risk of default or illiquidity. While we believe our cash does not contain excessive
risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market
value. In addition, we maintain significant amounts of cash at one or more financial institutions that are in excess of federally
insured limits.
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We
do not participate in any foreign currency hedging activities and we do not have any other derivative financial instruments.
Inflation
generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material
effect on our results of operations during the periods presented.
JOBS Act
On
April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides
that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies.
We
have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying
with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition
periods for complying with new or revised accounting standards is irrevocable.
Subject
to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we have elected to rely on the other
exemptions available under the JOBS Act, including without limitation, (i) providing an auditor’s attestation report on
our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying
with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.
We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we
have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary
of the date of the completion of our initial public offering, or December 31, 2025; (iii) the date on which we have issued more
than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large
accelerated filer under the rules of the SEC.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.
As a Smaller Reporting Company
we are exempt from the requirements of Item 7A.
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Item 8. Financial Statements
and Supplementary Data.
LANTERN PHARMA
INC.
INDEX TO FINANCIAL
STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets – December 31, 2020 and 2019 F-3
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Lantern Pharma Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Lantern Pharma Inc. and Subsidiary (the “Company”) as of December 31, 2020 and
2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years
then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the consolidated financial position of the Company as of
December 31, 2020 and 2019 and the consolidated results of its operations and its cash flows for each of the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company’s auditor
since 2019.
EISNERAMPER LLP
Iselin, New Jersey
March 10, 2021
F-2
Lantern Pharma
Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
CURRENT ASSETS
Prepaid expenses & other current assets 1,007,690 788
CURRENT LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS’ EQUITY
See accompanying
Notes to Consolidated Financial Statements
F-3
Lantern Pharma
Inc. and Subsidiary
Consolidated Statements
of Operations
For the Year Ended December 31,
Operating expenses:
Net loss per share of common shares, basic and diluted (1.37 ) (1.23 )
See accompanying
Notes to Consolidated Financial Statements
F-4
Lantern Pharma
Inc. and Subsidiary
Consolidated Statements
of Stockholders’ Equity (Deficit)
Cashless exercise of warrant - - 3,350 - - - -
See accompanying
Notes to Consolidated Financial Statements
F-5
Lantern Pharma
Inc. and Subsidiary
Consolidated Statements
of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 3,388 1,627
Changes in assets and liabilities:
Accounts receivable - -
Prepaid expenses & other current assets (1,006,902 ) (788 )
INVESTING ACTIVITIES
(Purchase) sale of property and equipment (16,137 ) (5,717 )
Net cash flows (used in) provided by investing activities (16,137 ) (5,717 )
FINANCING ACTIVITIES
Proceeds from stock option exercise 52,000 -
Borrowings on notes payable 169,049 -
Payments on notes payable (169,049 ) -
Borrowings on PPP loan payable 108,500 -
Non-cash financing activities
Conversion of SAFE agreements to Series A preferred stock $ - $ 535,000
Deferred offering costs applied to net offering proceeds $ (85,000 ) $ -
Deferred offering costs recorded in AP and accrued expenses $ 51,880
See accompanying Notes to Consolidated
Financial Statements
F-6
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.
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:
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 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 accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position,
results of operations, and cash flows for each period presented. 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 consolidated financial statements and the reported amounts of expenses
during the reporting periods. Actual results could differ from these estimates.
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 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.
F-7
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
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 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 approximately $5,908,000 and $2,428,000 during the years ended December 31, 2020 and 2019, respectively. As of December
31, 2020, the Company had working capital of approximately $19,685,000, primarily as a result of the net proceeds raised in the
IPO of approximately $23,420,000 (see Note 6). As of December 31, 2019, the Company had working capital of approximately $744,000.
On January 20, 2021,
the Company closed a public offering of 4,928,571 shares of its common stock at a public offering price of $14.00 per share, which
amount included 642,856 shares sold upon full exercise of the underwriter’s over-allotment option. Total gross proceeds from
the offering were $68,999,994, and net proceeds from the offering were approximately $64,200,000.
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.
We believe that our
existing cash and cash equivalents as of December 31, 2020, and our anticipated expenditures and capital commitments for the calendar
year 2021 and the first half of 2022, will enable us to fund our operating expenses and capital expenditure requirements for at
least 12 months from the date of filing this Form 10-K for the year ended December 31, 2020.
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