What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-24 compared with 2022-03-11 · 206 added, 231 removed, 776 unchanged (36% of the section changed)

7 unchanged sentences

This Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).

principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including the individuals serving as our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 Framework).

1 unchanged sentence

Attestation Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed under the JOBS Act for emerging growth companies.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed under the JOBS Act.

Changes in Internal Control Over Financial Reporting

21 unchanged sentences

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

5 unchanged sentences

EXHIBIT INDEX

Merger Agreement, dated January 17, 2023, by and among Leap Therapeutics, Inc., Fire Merger Sub, Inc., Flame Biosciences LLC, Flame Biosciences, Inc., and the Stockholder Representative named therein (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2023).

Fourth Amended and Restated Certificate of Incorporation of Leap Therapeutics, Inc.

2 unchanged sentences

(incorporated by reference to Exhibit 3.4 to the Company’s registration statement on Form S-4, as filed on September 26, 2016 and attached as Annex D to the prospectus which forms part of such registration statement).

Certificate of Designation of Preferences, Rights and Limitations of Series X Non-Voting Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 17, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2023).

Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Amendment No.

52 unchanged sentences

dated as of October 1, 2021.

Third Amendment to Lease by and between Bulfinch Square Limited Partnership and Leap Therapeutics, Inc.

dated as of May 16, 2022 (incorporated by reference to Exhibit 10.1 to the Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, as filed on August 12, 2022).

Support Agreement by and between Leap Therapeutics, Inc.

and HealthCare Ventures IX L.P., dated January 17, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2023).

Support Agreement by and between Leap Therapeutics, Inc.

and HealthCare Ventures VIII Liquidating Trust, dated January 17, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2023).

Registration Rights Agreement, dated January 17, 2023, by and among the Company and the Holders (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2023).

Leap Therapeutics, Inc.

2022 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s registration statement on Form S-8, as filed on August 17, 2022).

Subsidiaries of Leap Therapeutics, Inc.

29 unchanged sentences

Mirabelli, Ph.D.

/s/ MONICA M.

BERTAGNOLLI, M.D.

March 11, 2022

Bertagnolli, M.D.

/s/ JAMES CAVANAUGH, PH.D.

10 unchanged sentences

Joseph Loscalzo, M.D., Ph.D.

/s/ PATRICIA MARTIN

March 24, 2023

Patricia Martin

/s/ NISSIM MASHIACH

1 unchanged sentence

Nissim Mashiach

/s/ CHRISTIAN RICHARD

March 24, 2023

Christian Richard

/s/ RICHARD L.

SCHILSKY, M.D.

March 24, 2023

Richard L Schilsky, M.D

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Leap Therapeutics, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficiency), 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, 2021 and 2020, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, 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 financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their 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

12 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accruals for Clinical Trial Expenses

As described in Note 2 to the consolidated financial statements, at each balance sheet date, the Company estimates its accrued clinical trial expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants in connection with performing research and development activities, and in making that estimate, may depend on factors such as successful enrollment of certain numbers of patients, site initiation, and the completion of contract milestones.

The Company accounts for research and development expenses based on services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when an invoice has not been received or the Company has not otherwise been notified of the actual cost.

The Company estimates the time period over which services will be performed and the level of effort to be expended in each period.

The Company’s accrual for clinical trial expenses of $2,093,000 is included in accrued expenses on the December 31, 2022 consolidated balance sheet.

The amounts recorded for clinical trial expenses represent the Company’s estimate of the unpaid clinical trial expenses based on the information available to the Company at that time.

We identified the accrual for clinical trial expenses as a critical audit matter due to the significant judgment and estimation required by management in determining progress or state of completion of trials or services completed.

This in turn led to a high degree of auditor subjectivity and significant audit effort was required in performing our procedures and evaluating audit evidence relating to estimates made by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

We obtained an understanding and evaluated the design of controls over the Company’s estimation process, including the process of estimating the expenses incurred to date based on the status of the clinical trials.

Our procedures also included, among others, reading agreements and contract amendments entered into with vendors in connection with conducting clinical trials, evaluating the significant assumptions described above and the methods used in developing the clinical trial estimates and calculating the amounts that were unpaid at the balance sheet date.

We confirmed selected liabilities recorded directly with the third parties involved in performing the research and development services on behalf of the Company.

We also made direct inquiries of financial and clinical trial client personnel regarding status and progress towards completion of clinical trials and description of future commitments.

We compared the current estimate of expenses incurred to estimates previously made by management and assessed the historical accuracy of management’s previous estimates.

We also examined invoices issued and payments made to service providers after the consolidated balance sheet date.

/s/ EisnerAmper LLP

1 unchanged sentence

EISNERAMPER LLP

Philadelphia, Pennsylvania

Iselin, New Jersey

March 23, 2023

10 unchanged sentences

Right of use assets, net

Deferred tax assets

Deferred tax assets, net

Deferred costs

4 unchanged sentences

Accrued expenses

Deferred revenue - current portion

Lease liability - current portion

1 unchanged sentence

Non current liabilities:

Restricted stock liability

Lease liability, net of current portion

5 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

16 unchanged sentences

Australian research and development incentives

Foreign currency gains(losses)

Foreign currency loss

Loss before income taxes

Dividend attributable to down round feature of warrants

Dividend attributable to Series A & B convertible preferred stock

Series A & B convertible preferred stock - beneficial conversion feature

Benefit from (provision for) income taxes

Net loss attributable to common stockholders

Net loss per share

Basic & diluted

Weighted average common shares outstanding

Basic & diluted

See notes to consolidated financial statements

4 unchanged sentences

Year Ended December 31,

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustments

3 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2021

(In thousands, except share amounts)

Convertible Preferred Stock,

Comprehensive

Stockholders'

Income (Loss)

Equity (Deficiency)

Balances at December 31, 2020

Issuance of Series A & B Convertible Preferred Stock, net of underwriting discounts

Series A & B Convertible Preferred Stock discount - benefical conversion feature

Series A & B Convertible Preferred Stock accrued dividends

Conversion of Series A & B Convertible Preferred Stock dividends to prefunded warrants and common stock

Conversion of Series A Convertible Preferred Stock to prefunded warrants

( 1,421,801 )

Conversion of Series B Convertible Preferred Stock to common stock

( 1,137,442 )

Issuance of common stock in connection with June 2020 Public Offering, net of issuance costs of $ 3,472

Issuance of common stock upon exercise of stock options

Issuance of common stock upon exercise of warrants

Dividend attributable to the down round feature of 2017 Warrants

Issuance of common stock upon exercise of prefunded warrants

Issuance of common stock upon exercise of stock options

Issuance of common stock in connection with September 2021 Public Offering, net of issuance costs of $ 6,733

Foreign currency translation adjustment

9 unchanged sentences

Stockholders’

Income (Loss)

Balances at December 31, 2021

Issuance of common stock upon exercise of warrants

Issuance of common stock upon exercise of prefunded warrants

Issuance of common stock upon exercise of stock options

Issuance of common stock in connection with September 2021 Public Offering, net of issuance costs of $ 6,733

Foreign currency translation adjustment

Issuance of common stock upon exercise of prefunded warrants

Stock-based compensation

12 unchanged sentences

Stock-based compensation expense

Foreign currency (gain) loss

Foreign currency loss

Change in fair value of restricted stock liability

1 unchanged sentence

Prepaid expenses and other assets

Deferred tax assets

Deferred tax asset

Research and development incentive receivable

Contract acquisition costs

Deferred offering costs

Deferred costs

Accounts payable and accrued expenses

2 unchanged sentences

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of property and equipment

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock and prefunded warrants, net of offering costs - September 2021 Public Offering

Proceeds from issuance of common stock - June 2020 Public Offering

Proceeds from the issuance of Series A convertible preferred stock

Proceeds from the issuance of Series B convertible preferred stock

Proceeds from the issuance of common stock and prefunded warrants, net of offering costs - September 2021 Public Offering

Proceeds from the exercise of common stock warrants

Proceeds from the exercise of stock options

Payment of deferred offering costs

Net cash provided by financing activities

Payment of deferred costs

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of non-cash financing activities:

Offering costs in accounts payable and accrued expense - September 2021 Public Offering

Deferred costs in accounts payable and accrued expense - January 2023 Flame Merger

Deferred costs in accounts payable and accrued expense - September 2021 Public Offering

Remeasurement of right-of-use asset and lease liability

Dividend attributable to down round feature of warrants

Conversion of Series A convertible preferred stock to prefunded warrants

Conversion of Series B convertible preferred stock to common stock

Beneficial conversion feature from Series A convertible preferred stock

Beneficial conversion feature from Series B convertible preferred stock

See notes to consolidated financial statements

19 unchanged sentences

was formed and is a wholly owned subsidiary of the Company.

The Company is a biopharmaceutical company acquiring and developing novel therapeutics at the leading edge of cancer biology.

The Company’s approach is designed to target compelling tumor-promoting and immuno-oncology pathways to generate durable clinical benefit and enhanced outcomes for patients.

The Company’s programs are monoclonal antibodies that target key cellular pathways that enable cancer to grow and spread and specific mechanisms that activate the body’s immune system to identify and attack cancer.

On January 17, 2023, the Company entered into a merger agreement with Flame Biosciences, Inc., a privately held, biotechnology corporation (“Flame”), whereby Flame became a wholly owned subsidiary of the Company under the name Flame Biosciences, LLC.

The mailing address of the Company’s principal executive office is 47 Thorndike Street, Suite B1-1, Cambridge, MA 02141.

The Company’s telephone number is 617-714 -0360 and its website address is www.leaptx.com (the information contained therein or linked thereto shall not be considered incorporated by reference in this Form 10-K).

The Company is a biopharmaceutical company developing novel biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells.

The Company’s strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes.

The Company’s lead clinical stage program is DKN-01, a monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1.

The Company is currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, gynecologic cancers, or colorectal cancer.

It’s second clinical stage program is FL-301, a monoclonal antibody that targets cells that express Claudin18.2 on their cell surface.

The Company also has two preclinical antibody programs, FL-302 and FL-501.

In January 2020, the Company entered into an Option and License Agreement with BeiGene, Ltd., or BeiGene, which granted BeiGene an option to obtain an exclusive license from the Company that would grant to BeiGene the right to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and New Zealand.

In March 2023, BeiGene notified the Company that it did not intend to exercise its option, and the agreement is continuing as a clinical collaboration.

The Company intends to apply its extensive experience identifying and developing transformational products to build a pipeline of programs that have the potential to change the practice of cancer medicine.

Basis of Presentation

4 unchanged sentences

Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of the Company’s products.

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of December 31, 2021, the Company had cash and cash equivalents of $ 114,916 .

Additionally, the Company had an accumulated deficit of $ 263,572 at December 31, 2021, and during the year ended December 31, 2021, the Company incurred a net loss of $ 40,587 .

The Company expects to continue to generate operating losses for the foreseeable future.

LEAP THERAPEUTICS, INC.

3 unchanged sentences

Nature of Business, Basis of Presentation and Liquidity (continued)

The Company believes that its cash and cash equivalents of $ 114,916 as of December 31, 2021, will be sufficient to fund its operating expenses for at least 12 months from the issuance of these financial statements.

In addition, the Company will likely seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies.

As of December 31, 2022, the Company had cash and cash equivalents of $ 65,500 .

Additionally, the Company had an accumulated deficit of $ 318,168 at December 31, 2022, and during the year ended December 31, 2022, the Company incurred a net loss of $ 54,596 .

The Company expects to continue to generate operating losses for the foreseeable future.

In connection with the merger with Flame and pursuant to the Certificate of Designation of the Series X non-voting convertible preferred stock (the “Series X Preferred Stock”), if stockholder approval for the conversion of the Series X Preferred Stock to common stock (the “Stockholder Approval”) is not obtained from the holders of the Company’s common stock within six months from the date of issuance of the Series X Preferred Stock, the holders of Series X Preferred Stock may require the Company to settle all of the then-outstanding shares of Series X Preferred Stock for cash at fair value.

The Company fully expects the vote to pass and for the Series X Preferred Stock to convert into common stock.

However, there can be no assurance that the Stockholder Approval will be received.

If the Company fails to receive Shareholder Approval within six months from the date of issuance of the Series X Preferred Stock and the Company is required to settle then-outstanding shares of Series X Preferred Stock for cash at fair value, the Company’s financial position would be materially adversely affected and the Company would be forced to seek additional funding, which may not be available on acceptable terms or at all, or reduce or eliminate certain clinical trials, programs and operating expenses, which would adversely affect its business prospects.

The Company believes that its cash and cash equivalents of $ 65,500 as of December 31, 2022, along with the approximately $ 50,000 in cash and cash equivalents that it acquired through its merger with Flame, will be sufficient to fund its operating expenses for at least 12 months from the issuance of these financial statements.

In addition, to support its future operations, the Company will likely seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies.

If the Company does not obtain additional funding or development program cost-sharing, or exceeds its current spending forecasts or fails to receive the research and development tax incentive payment, the Company has the ability and would be forced to:

8 unchanged sentences

Actual results could differ from those estimates.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

6 unchanged sentences

Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Research and development incentive income and receivable

8 unchanged sentences

The Company has recorded a research and development incentive receivable of $ 2,099 and $ 1,189 as of December 31, 2022 and 2021, respectively, in the consolidated balance sheets and other income from Australian research and development incentives of $ 2,051 and $ 1,226 , in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively, related to refundable research and development incentive program payments in Australia.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

The following table shows the change in the research and development incentive receivable from January 1, 2021 to December 31, 2022:

4 unchanged sentences

Balance at December 31, 2021

Australian research and development incentive income, net

Cash received for 2021 eligible expenses

Australian research and development incentive income, net

Foreign currency translation

2 unchanged sentences

Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents.

All cash and cash equivalents are held in United States financial institutions and money market funds.

At times, the Company may maintain cash balances in excess of the federally insured amount.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

All cash and cash equivalents are held in United States or Australian financial institutions and money market funds.

At times, the Company may maintain cash balances in excess of the federally insured amount of $250 per depositor, per insured bank, for each account ownership category.

Although the Company currently believes that the financial institutions with whom it does business will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so.

The Company has not experienced any credit losses associated with its balances in such accounts for the years ended December 31, 2022 and 2021.

The Company accounts for income taxes using the asset and liability method.

18 unchanged sentences

Foreign currency transaction gains and losses are included in the results of operations.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Property and Equipment

6 unchanged sentences

Expenditures for repairs and maintenance are charged to expense as incurred.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

9 unchanged sentences

After consummation of the equity financing, these costs are recorded in stockholders’ equity (deficiency) as a reduction of additional paid-in capital generated as a result of the offering.

The Company also capitalizes certain contract acquisition costs.

During the year ended December 31, 2020, the Company incurred contract acquisition costs which were capitalized under ASC 340-40 as incremental costs of obtaining the contract with BeiGene.

This cost is amortized on a straight-line basis over the performance period of the research and development services.

As of December 31, 2022 there was $ 576 of deferred costs.

4 unchanged sentences

The value of the effect of the down round feature will be treated as a dividend and a reduction to income available to common stockholders in the basic EPS calculation.

In connection with the private placement of common stock completed in January 2020 (the “January 2020 Private Placement”), when the 2017 Warrants were repriced from $ 1.75 to $ 1.055 as a result of a down round, the Company recorded a dividend of $ 303 during the year ended December 31, 2020.

LEAP THERAPEUTICS, INC.

14 unchanged sentences

There were no transfers within the hierarchy during the years ended December 31, 2022 and 2021.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows (in thousands):

3 unchanged sentences

Cash equivalents

Restricted stock liability

Total liabilities

Cash equivalents of $ 62,074 and $ 112,726 as of December 31, 2022 and 2021, respectively, consisted of overnight investments and money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

The carrying value of the research and development incentive receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present.

10 unchanged sentences

Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Although separation of lease and non-lease components is required, certain practical expedients are available.

13 unchanged sentences

Stock-based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

6 unchanged sentences

Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Revenue Recognition

24 unchanged sentences

Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Customer Options.

4 unchanged sentences

Amounts allocated to a material right are not recognized as revenue until (1) the option is exercised and the additional goods or services are transferred or (2) the option expires.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

Milestone Payments.

38 unchanged sentences

The updated guidance is effective for the Company for annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

The Company is evaluating the impact of the adoption of this update on its consolidated financial statements and disclosures.

The Company adopted ASU 2021-04 in the first quarter of fiscal 2022 and the Company’s adoption of this standard did not have an effect on the Company’s financial statements.

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options, or ASC 470 and Derivatives and Hedging—Contracts in Entity’s Own Equity, or ASC 815.

1 unchanged sentence

The updated guidance is effective for the Company for annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

The Company is evaluating the impact of the adoption of this update on its consolidated financial statements and disclosures.

The Company adopted ASC 470 in the first quarter of fiscal 2022 and the Company’s adoption of this standard did not have an effect on the Company’s financial statements.

BeiGene Exclusive Option and License Agreement

1 unchanged sentence

On January 3, 2020, the Company entered into an exclusive option and license agreement (the “BeiGene Agreement”) with BeiGene, Ltd.

(“BeiGene”) for the clinical development and commercialization of DKN-01, in Asia (excluding Japan), Australia, and New Zealand.

The Company retains exclusive rights for the development, manufacturing, and commercialization of DKN-01 for the rest of the world.

Pursuant to the BeiGene Agreement, the Company received an upfront cash payment of $ 3,000 from BeiGene in exchange for granting BeiGene an option to an exclusive license to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

The Company is eligible to receive up to $ 132,000 in future option exercise and milestone payments, based upon the achievement of certain development, regulatory, and sales milestones, as well as tiered royalties on any product sales of DKN-01 in the licensed territory.

The Company is responsible for conducting development activities prior to the exercise of the option.

After the option is exercised, BeiGene is solely responsible for the development and commercialization of DKN-01 in the licensed territory.

The BeiGene Agreement continues in effect until the earlier of:

(i) 120 days after the end of the option period, if BeiGene has not exercised the option by such date;

and (ii) on a country-by country and Licensed Product-by-Licensed Product (as defined in the BeiGene Agreement) basis, the expiration of the Royalty Term (as defined in the BeiGene Agreement) applicable to such licensed product in such country.

At any time, BeiGene may terminate the BeiGene Agreement by providing at least 60 days written notice of termination to the Company.

Upon termination of the License Agreement, all rights granted by the Company to BeiGene terminate.

(“BeiGene”) pursuant to which BeiGene was granted an option to obtain an exclusive license from the Company for the clinical development and commercialization of DKN-01, in Asia (excluding Japan), Australia, and New Zealand.

The Company retained exclusive rights for the development, manufacturing, and commercialization of DKN-01 for the rest of the world.

In March 2023, BeiGene notified the Company that it did not intend to exercise its option under the BeiGene Agreement.

LEAP THERAPEUTICS, INC.

18 unchanged sentences

As such, for the purposes of ASC 606, the Company determined that these four material promises, described above, should be combined into a single performance obligation.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

BeiGene Exclusive Option and License Agreement (Continued)

The Company determined the transaction price is equal to the up-front fee of $ 3,000 .

The transaction price was fully allocated to the single performance obligation and is recognized as revenue on a straight-line basis over the performance period of the research and development services.

During each the years ended December 31, 2021 and 2020, the Company recognized $ 1,500 of license revenue related to the up-front fee received from BeiGene.

During the year ended December 31, 2021, the Company recognized $ 1,500 of license revenue related to the up-front fee received from BeiGene.

During the year ended December 31, 2022, the Company did no t recognize any such revenue as the upfront payment was fully recognized as of December 31, 2021.

Cost of Contract Acquisition

1 unchanged sentence

This cost is amortized on a straight-line basis over the performance period of the research and development services.

The total amount of amortization expense during each of the years ended December 31, 2021 and 2020 was $ 135 .

The total amount of amortization expense during the year ended December 31, 2021 was $ 135 .

During the year ended December 31, 2022, the Company did no t recognize any such amortization expense as the contract acquisition costs were fully amortized as of December 31, 2021.

As the license is deemed to be the predominant item to which sales-based royalties relate, the Company will recognize revenue when the related sales occur.

No royalty revenue was recognized during the years ended December 31, 2022 and 2021.

The following table presents a summary of the activity in the Company’s contract liabilities, related to the upfront cash payment received of $ 3,000 , from January 1, 2020 through December 31, 2021 (in thousands):

Balance at January 1, 2020

Balance at December 31, 2020

Balance at December 31, 2021

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Property and equipment, net

7 unchanged sentences

Depreciation expense was $ 16 and $ 29 for the years ended December 31, 2022 and 2021, respectively.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Accrued Expenses

14 unchanged sentences

common area maintenance, maintenance, consumables, etc.) are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred.

During the year ended December 31, 2022, the Company extended the term of its operating lease and recorded an additional right-of-use asset and lease liability of $ 609 .

As of December 31, 2022, a right-of-use asset of $ 669 and lease liability of $ 678 are reflected on the consolidated balance sheets.

The Company recorded rent expense of $ 451 and $ 423 , respectively, during the years ended December 31, 2022 and 2021

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Leases (continued)

Future lease payments under non-cancelable operating leases as of December 31, 2022 are detailed as follows:

3 unchanged sentences

Total operating lease liabilities

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

As of December 31, 2022, outstanding warrants to purchase common stock, all of which are classified as equity warrants, consisted of the following:

16 unchanged sentences

The value of the effect of the down round feature will be treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation.

In connection with the January 2020 Private Placement, when the 2017 Warrants were repriced from $ 1.75 to $ 1.055 , the Company recorded a dividend of $ 303 during the year ended December 31, 2020.

During the year ended December 31, 2021, 47,458 of the 2017 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 50 and during the year ended December 31, 2020, 208,254 of the 2017 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 220 .

During the year ended December 31, 2021, 47,458 of the 2017 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 50 .

2019 Warrants

2 unchanged sentences

The 2019 Warrants qualify for equity classification.

During the year ended December 31, 2021, 483,185 of the 2019 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 943 and during the year ended December 31, 2020, 65,700 of the 2019 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 128 .

March 2020 Warrants

On January 3, 2020, the Company entered into a Securities Purchase Agreement with investors, pursuant to which the Company issued and sold 1,421,801 shares of its Series A Preferred Stock, at a purchase price of $ 10.54 per share, 1,137,442 shares of its Series B Preferred Stock at a purchase price of $ 10.55 per share, and one (1) share of the Company’s Special Voting Stock entitling the purchaser of Series A Preferred Stock to elect one member of the Company’s board of directors.

During the year ended December 31, 2021, 483,185 of the 2019 Warrants were exercised for cash resulting in gross proceeds to the Company of $ 943 .

LEAP THERAPEUTICS, INC.

3 unchanged sentences

Warrants (continued)

March 2020 Warrants

On March 5, 2020, the Company’s stockholders approved the conversion of the Series A Preferred Stock into a pre-funded warrant to purchase 14,413,902 shares of common stock at an exercise price of $ 0.001 (the “March 2020 Pre-funded Warrants”) and the conversion of the Series B Preferred Stock into 11,531,133 shares of common stock.

1 unchanged sentence

The March 2020 Pre-funded Warrants and the Coverage Warrants qualify for equity classification.

During the year ended December 31, 2022, there were cashless exercises of 6,166,732 of the March 2020 Pre-funded Warrants, at an exercise price of $ 0.001 per share, resulting in the issuance of 6,161,000 shares of the Company’s common stock.

June 2020 Warrants

2 unchanged sentences

During the year ended December 31, 2021, 559,863 of the June 2020 Pre-Funded Warrants were exercised on cashless basis resulting in the issuance of 559,705 shares of common stock.

During the year ended December 31, 2022, there were cashless exercises of 1,690,137 of the June 2020 Pre-funded Warrants, at an exercise price of $ 0.001 per share, resulting in the issuance of 1,688,571 shares of the Company’s common stock.

As of December 31, 2022, there were no June 2020 Warrants outstanding.

September 2021 Warrants

1 unchanged sentence

The September 2021 Pre-funded Warrants have an exercise price of $ 0.001 per share and qualify for equity classification.

During the year ended December 31, 2022, there were cashless exercises of 2,855,898 of the September 2021 Pre-funded Warrants, at an exercise price of $ 0.001 per share, resulting in the issuance of 2,853,351 shares of the Company’s common stock.

LEAP THERAPEUTICS, INC.

5 unchanged sentences

Through December 31, 2022, no dividends have been declared for shares of common stock.

January 2020 Private Placement

On January 3, 2020, the Company issued and sold 1,421,801 shares of its Series A Preferred Stock at a purchase price of $ 10.54 per share, 1,137,442 shares of its Series B Preferred Stock at a purchase price of $ 10.55 per share, and one (1) share of its Special Voting Stock, entitling the purchaser of Series A Preferred Stock to elect one member of the Company’s board of directors, for aggregate net proceeds to the Company of approximately $ 25,322 .

On March 5, 2020, the Company’s stockholders approved the conversion of the Series A Preferred Stock into a pre-funded warrant to purchase 14,413,902 shares of common stock at an exercise price of $ 0.001 per share and the conversion of the Series B Preferred Stock into 11,531,133 shares of its common stock, par value $ 0.001 per share.

Each investor also received the Coverage Warrants to purchase an equal number of shares at an exercise price of $ 2.11 per share.

In connection with the January 2020 Private Placement, Series A Preferred Stock holders and Series B Preferred Stock holders were entitled to cash dividends at a fixed cumulative percentage of 8 % per annum plus any dividends declared on outstanding common stock on an as-converted basis, effective on the issuance date of the Series A Preferred Stock and Series B Preferred Stock.

The cash dividends were converted to shares of common stock upon the conversion of the Series A Preferred Stock to pre-funded warrants and Series B Preferred Stock to common stock.

During the year ended December 31, 2020, the Company recorded $ 372 of Series A Preferred Stock and Series B Preferred Stock dividends, which qualify as cumulative dividends, and in the calculation of EPS are subtracted from net income in arriving at income attributable to common stockholders.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Common Stock (continued)

The Company determined that the embedded conversion features of the Series A Preferred Stock and Series B Preferred Stock to receive the Coverage Warrants each met the definition of a contingent beneficial conversion feature and should be accounted for separately as a derivative.

The recognition of the beneficial conversion feature occurred upon the conversion of the Series A Preferred Stock into the March 2020 Pre-funded warrants and Series B Preferred Stock into common stock and the issuance of the Coverage Warrants.

The Company measured the contingent beneficial conversion features’ intrinsic values on January 3, 2020 and determined that the beneficial conversion features were valued at $ 5,226 for Series A and $ 4,173 for Series B, respectively.

Upon conversion, the discount originated by the contingent beneficial conversion feature, at its intrinsic value for Series A Preferred Stock and Series B Preferred Stock, was immediately recognized as a dividend.

The dividend is reflected as an adjustment to basic and diluted net loss per share attributable to common stockholders.

Public Offering of Common Stock—June 2020

On June 22, 2020, the Company completed the 2020 Public Offering, whereby the Company issued 20,250,000 shares of its common stock at $ 2.00 per share and, in lieu of common stock, issued certain investors 2,250,000 of its June 2020 Pre-funded Warrants.

The June 2020 Pre-funded Warrants have an exercise price of $ 0.001 per share and qualify for equity classification.

The underwriters exercised their right to purchase 3,375,000 additional shares of the Company’s common stock at the public offering price per share of common stock, less underwriting discounts and commissions.

The aggregate net proceeds received by the Company from the 2020 Public Offering were approximately $ 48,276 , net of underwriting discounts and commissions and offering expenses payable by the Company.

Public Offering of Common Stock - September 2021

5 unchanged sentences

Equity Incentive Plans

In September 2012, the Company adopted the 2012 Equity Incentive Plan, as amended, which provides designated employees of the Company and its affiliates, certain consultants and advisors who perform services for the Company and its affiliates, and nonemployee members of the Board of Directors of the Company and its affiliates with the opportunity to receive grants of incentive stock options, nonqualified stock options and stock awards.

In September 2012, the Company adopted the 2012 Equity Incentive Plan (the “2012 Plan”), as amended, which provides designated employees of the Company and its affiliates, certain consultants and advisors who perform services for the Company and its affiliates, and nonemployee members of the Board of Directors of the Company and its affiliates with the opportunity to receive grants of incentive stock options, nonqualified stock options and stock awards.

During the year ended December 31, 2022, the 2012 Equity Plan expired.

On January 20, 2017, the Company’s stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”).

1 unchanged sentence

During the year ended December 31, 2019, the compensation committee of the board of directors authorized an additional 3,000,000 shares of common stock to be added to the shares authorized for issuance under the 2016 Plan.

On June 16, 2022, the Company’s stockholders approved the 2022 Equity Incentive Plan (the “2022 Plan”), which provides for a total of 7,500,000 new shares of the Company’s common stock to be granted.

As of December 31, 2022, there were 5,400,921 shares available for grant under the Company’s Equity Incentive Plans, which excludes the 2012 Plan which expired during the year ended December 31, 2022.

LEAP THERAPEUTICS, INC.

3 unchanged sentences

Stock-Based Compensation (continued)

As of December 31, 2021, there were 409,896 shares available for grant under the Company’s Equity Incentive Plans.

A summary of stock option activity under the Company’s Equity Incentive Plans is as follows:

21 unchanged sentences

Expected term (in years)

Stock options generally vest over a three or four year period, as determined by the compensation committee of the board of directors at the time of grant.

The options expire ten years from the grant date.

As of December 31, 2022, there was approximately $ 4,644 of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a remaining weighted-average period of approximately 2.21 years.

LEAP THERAPEUTICS, INC.

3 unchanged sentences

Stock-Based Compensation (continued)

Stock options generally vest over a three or four year period, as determined by the compensation committee of the board of directors at the time of grant.

The options expire ten years from the grant date.

As of December 31, 2021, there was approximately $ 3,921 of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a remaining weighted-average period of approximately 1.93 years.

Restricted Stock Units

During the year ended December 31, 2020, the Company issued 92,500 restricted stock units (“RSUs”) to employees under the 2016 Plan.

Upon vesting of the RSUs, the Company had the option to settle the award by either issuing shares of the Company’s common stock or paying an amount of cash equal to the fair value of the Company’s common stock on the settlement date.

In January 2021, the Company cash settled 92,500 RSUs.

As of December 31, 2020, these RSUs were classified as restricted stock liability in the consolidated balance sheets of $ 204 , as they contained a cash settlement option.

During the years ended December 31, 2022 and 2021, the Company granted 2,650,000 and 275,000 , respectively, RSUs to executive officers that will cliff vest and will be settled after three years of continuous service, or upon a change of control of the Company, whichever is earlier, pursuant to the 2016 Plan.

During the years ended December 31, 2021 and 2020, the Company recognized $ 530 and $ 248 , respectively, of stock based compensation expense related to these equity classified RSUs, as they do not contain a cash settlement option.

During the years ended December 31, 2022 and 2021, the Company recognized $ 2,086 and $ 530 , respectively, of stock based compensation expense related to these equity classified RSUs.

The following table presents RSU activity under the 2016 Plan as of December 31, 2022:

Average Grant

Date Fair Value

Outstanding at December 31, 2020

1 unchanged sentence

Outstanding at December 31, 2021

Settled in cash

Outstanding at December 31, 2022

2 unchanged sentences

The Company recognized stock-based compensation expense related to the issuance of stock option awards and RSUs to employees and non-employees in the consolidated statements of operations during the years ended December 31, 2022 and 2021 as follows:

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Stock-Based Compensation (continued)

Stock Based Compensation Expense

1 unchanged sentence

General and administrative

During the year end December 31, 2020, the Company’s Israeli operations were dissolved and as a result, the Company wrote off all existing deferred tax assets related to the Israeli operations which consisted primarily of net operating loss carryforwards.

The write off of the deferred tax assets was offset by an equal reduction in the valuation allowance.

As of December 31, 2021, the Company had federal and state net operating loss carryforwards of approximately $ 196,224 and $ 177,951 , respectively, which begin to expire in 2030 for federal and state purposes.

As of December 31, 2022, the Company had federal, state and foreign net operating loss carryforwards of approximately $ 210,487 , $ 191,524 and $ 393 , respectively, which begin to expire in 2030 for federal and state purposes, while the foreign net operating losses carryforward indefinitely.

The Company’s federal net operating losses include $ 129,179 which can be also carried forward indefinitely.

1 unchanged sentence

However, these net operating losses are subject to various limitations under Internal Revenue Code (“IRC”) section 382, which limit the use of net operating loss carryforwards to the extent there has been an ownership change of more than 50 percentage points.

In addition, the net operating loss carryforwards are subject to examination by taxing authorities and could be adjusted or disallowed due to such exams.

Although the Company has not undergone an IRC section 382 analysis, it is possible that the utilization of the Company’s net operating loss carryforwards may be limited.

In addition, the Company has federal and state research and development tax credits of approximately $ 6,166 and $ 1,273 , respectively, that begin to expire in 2030 for federal and state tax purposes.

There is no provision for income taxes in the United States because the Company has historically incurred operating losses and maintains a full valuation allowance against its deferred tax assets in these jurisdictions.

The deferred tax asset recorded in the consolidated balance sheet relates to its Australian operations.

Income (loss) before income taxes consisted of the following:

Loss before income taxes

In addition, the net operating loss carryforwards are subject to examination by taxing authorities and could be adjusted or disallowed due

LEAP THERAPEUTICS, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts)

to such exams.

Although the Company has not undergone an IRC section 382 analysis, it is possible that the utilization of the Company’s net operating loss carryforwards may be limited.

Income Taxes (continued)

In addition, the Company has federal and state research and development tax credits of approximately $ 7,903 and $ 1,841 , respectively, that begin to expire in 2030 for federal and state tax purposes.

Income (loss) before income taxes consisted of the following:

Loss before income taxes

A summary of the Company’s current and deferred expense for income tax is as follows:

8 unchanged sentences

Permanent differences

Research and development credits

Foreign rate differential

Israel DTA write-off

Valuation Allowance

Change in valuation allowance

LEAP THERAPEUTICS, INC.

4 unchanged sentences

The significant components of the Company’s deferred tax assets as of December 31, 2022 and 2021 were as follows:

Accrued expenses

Stock Options

State net operating loss carryforwards

State research tax credits

Federal net operating loss carryforwards

Federal research tax credits

State net operating loss carryforwards

Foreign net operating loss carryforwards

Research and development (R&D) tax credits

Capitalized R&D expenses

Stock based compensation

Accrued expenses

Total Deferred tax assets

Valuation Allowance

Net deferred tax asset (liability)

As of December 31, 2021 and 2020, the Company had provided a full valuation allowance against its net deferred tax assets, except for its Australian deferred tax assets, because realization of any future tax benefit cannot be reasonably assured.

The valuation allowance decreased during the year ended December 31, 2020 by $ 10,068 and increased during the year ended December 31, 2021 by $ 12,413 .

Net deferred tax assets

As of December 31, 2022, the Company has provided a full valuation allowance against its overall net deferred tax assets, as realization of any associated tax benefit in the future is not more likely than not.

As of December 31, 2021, the Company had provided a full valuation allowance against its net US deferred tax assets, but had recorded a deferred tax asset with no offsetting valuation allowance for its foreign subsidiary.

Under applicable accounting requirements, as of December 31, 2022, the Company has established a full valuation allowance against its Australia deferred tax assets based on negative evidence associated with a three-year cumulative loss position.

The valuation allowance, inclusive of the adjustment for the Australia deferred tax asset, increased during the years ended December 31, 2022 and 2021 by $ 14,886 and $ 12,413 , respectively.

The Tax Cuts and Jobs Act (“TCJA”) resulted in significant changes to the treatment of research and developmental expenditures under Section 174.

For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all research and development expenditures that are paid or incurred in connection with their trade or business.

Specifically, costs for U.S.-based research and development activities must be amortized over five years and costs for foreign research and development activities must be amortized over 15 years, both using a midyear convention.

During the year ended December 31, 2022, the Company capitalized $ 37,873 million of research and development expenses.

The Company follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position.

4 unchanged sentences

There are currently no pending tax examinations.

The Company’s U.S.

federal and state net operating losses have occurred since its inception and as such, tax years subject to potential tax examination could apply from 2010, the earliest year with a net operating loss carryover, because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities.

The earliest tax years that may be subject to examination by jurisdiction are 2019 for both federal and state purposes.

The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision.

7 unchanged sentences

Year Ended December 31,

Dividend attributable to down round feature of warrants

Dividend attributable to Series A & B convertible preferred stock

Series A & B convertible preferred stock - beneficial conversion feature

Net loss attributable to common stockholders for basic and diluted loss per share

1 unchanged sentence

Net loss per share attributable to common stockholders - basic and diluted

Included within weighted average common shares outstanding are 24,930,483 common shares issuable upon the exercise of the pre-funded warrants and penny warrants, as the warrants are exercisable at any time for nominal consideration, and as such, the shares are considered outstanding for the purpose of calculating basic and diluted net loss per share attributable to common stockholders.

Included within weighted average common shares outstanding for the years ended December 31, 2022 and 2021, are 14,217,716 and 24,930,483 , respectively, common shares issuable upon the exercise of the pre-funded warrants and penny warrants, as the warrants are exercisable at any time for nominal consideration, and as such, the shares are considered outstanding for the purpose of calculating basic and diluted net loss per share attributable to common stockholders.

The Company’s potentially dilutive securities include RSUs, stock options and warrants.

19 unchanged sentences

However, there can be no assurance that clinical or commercialization success will occur, and no royalties have been paid or accrued through December 31, 2022.

Legal Proceedings— At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

Legal Proceedings— At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

The Company expenses as incurred the costs related to its legal proceedings.

As of the date of this report, the Company is not currently a party to any material legal proceedings.

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Commitments and Contingencies (continuedJ)

Indemnification Agreements— In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties.

11 unchanged sentences

The Company has a license agreement with a stockholder (See Note 12).

LEAP THERAPEUTICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

Subsequent Events

In January 2022, the Company issued 2,575,000 RSUs to employees and 620,000 stock options to employees and directors under the 2016 Plan.

The RSUs will cliff vest and be settled after three years of continuous service or upon a change of control of the Company, whichever is earlier.

The stock options have a ten year life and generally vest over a period of three years .

Acquisition of Flame

On January 17, 2023, the Company acquired 100 percent of the outstanding equity of Flame Biosciences, Inc.

Pursuant to the terms of the agreement and plan of merger, the Company issued an aggregate of 19,794,373 shares of its common stock, par value $ 0.001 per share, and 136,833 shares of Series X non-voting convertible preferred stock, par value $ 0.001 per share (the “Series X Preferred Stock”).

Subject to and upon the requisite approval of the stockholders of Leap, each share of Series X Preferred Stock shall convert into 1,000 shares of common stock.

Under the terms of the merger agreement, the Company held back approximately 15,662 shares out of the aggregate number of shares of Series X Preferred Stock that the common stockholders of Flame otherwise would be entitled to receive pursuant to the Merger so that the Company can have recourse to these shares for purposes of satisfying certain claims for indemnification that the Company may have against the sellers in connection with the merger.

The Company will account for the transaction as an asset acquisition.

Expiration of BeiGene Option

In March 2023, BeiGene notified the Company that it would not exercise its option under the BeiGene Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures