Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our President and Chief Executive Officer, who is also serving as our Chief Financial Officer and therefore currently serves as both our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2022, our management, with the participation of our Chief Executive Officer, who is also serving as our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial and accounting officer has concluded based upon the evaluation described above that, as of December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
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). 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). Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on those criteria.
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.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information .
Not applicable.
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is set forth in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, and is incorporated into this Annual Report on Form 10-K by reference.
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Item 11. Executive Compensation.
The information required by this Item is set forth in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, and is incorporated into this Annual Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is set forth in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, and is incorporated into this Annual Report on Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is set forth in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, and is incorporated into this Annual Report on Form 10-K by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is set forth in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, and is incorporated into this Annual Report on Form 10-K by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
The financial statements listed below are filed as part of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 274 )
F-1
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-2
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
F-3
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021
F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
F-7
Notes to Consolidated Financial Statements
F-8
(a)(2) Financial Statement Schedules
All financial schedules have been omitted because the required information is either presented in the Consolidated Financial Statements or the Notes thereto or is not applicable or required.
(a)(3) Exhibits
The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the exhibits and are incorporated herein by reference.
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EXHIBIT INDEX
Exhibit No.
Description
2.1
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).
3.1
Fourth Amended and Restated Certificate of Incorporation of Leap Therapeutics, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, as filed on September 10, 2020).
3.2
Amended and Restated By-laws of Leap Therapeutics, Inc. (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).
3.3
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).
4.1
Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s registration statement on Form S-4, as filed on November 16, 2016).
4.2
Registration Rights Agreement, by and among Leap and certain stockholders, dated as of January 23, 2017 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed on January 26, 2017).
4.3
Registration Rights Agreement dated as of July 10, 2019, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed on July 11, 2019).
4.4
Registration Rights Agreement dated as of January 3, 2020, by and between the Company and the persons listed on the attached Schedule A thereto (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
4.5
Registration Rights Agreement dated as of January 3, 2020, by and between the Company and the persons listed on the attached Schedule A thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
4.6
Form of Warrant, dated as of November 14, 2017 by and among Leap Therapeutics, Inc. and the Holders identified on the schedule thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed on November 17, 2017).
4.7
Form of Warrant, dated as of February 5, 2019 by and between Leap Therapeutics, Inc. and each of the purchasers in the Registrant’s 2019 Public Offering (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed on February 1, 2019).
4.8
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
4.9
Form of Series A Coverage Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
4.10
Form of Series B Coverage Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
4.11
Amendment No. 2 to Warrant, by and among Macrocure, the Registrant and certain warrant holders, dated as of January 23, 2017 (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed on March 31, 2017).
4.12
Description of the Registrant’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed on March 16, 2020).
10.1#
Exclusive Option and License Agreement dated as of January 3, 2020, by and between the Company and BeiGene, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as filed on May 14, 2020).
10.2**
License Agreement, between Eli Lilly and Company and Dekkun Corporation, effective as of January 3, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s registration statement on Form S-4, as filed on September 26, 2016).
10.3**
License Agreement, by and between Lonza Sales AG and Healthcare Pharmaceuticals, Inc., dated as of May 28, 2015 (incorporated by reference to Exhibit 10.5 to the Company’s registration statement on Form S-4, as filed on September 26, 2016).
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10.4
Royalty Agreement, between Leap Therapeutics, Inc. and Leap Shareholder Royalty Vehicle, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on January 26, 2017).
10.5
Letter Agreement, between Leap Shareholder Royalty Vehicle, Inc. and certain Leap stockholders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on January 26, 2017).
10.6
Form of Purchase Agreement, dated as of November 14, 2017, by and among Leap Therapeutics, Inc. and the purchasers identified on the schedule thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on November 17, 2017).
10.7
Purchase Agreement dated as of July 11, 2019, by and between the Company and Lincoln Park Capital Fund, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on July 11, 2019).
10.8
Purchase Agreement dated as of July 10, 2019, by and between the Company and Lincoln Park Capital Fund, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on July 11, 2019).
10.9
Securities Purchase Agreement, dated January 3, 2020, by and among the Company and the institutional investors named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on January 7, 2020).
10.10
Form of Indemnification Agreement (filed as Exhibit 10.10 to Amendment No. 1 to the Registrant’s registration statement on Form S-4, as filed on November 2, 2016).
10.11 ˄
Macrocure 2013 Share Incentive Plan (filed as Exhibit 10.4 to the Company’s registration statement on Form S-8, as filed on January 27, 2017).
10.12 ˄
Amendment No. 1 to Macrocure 2013 Share Incentive Plan (filed as Exhibit 10.5 to the Company’s registration statement on Form S-8, as filed on January 27, 2017).
10.13 ˄
Summary Translation of Macrocure 2008 Stock Option Plan stockholders (filed as Exhibit 10.3 to the Registrant’s registration statement on Form S-8, as filed on January 27, 2017).
10.14 ˄
Employment Agreement, by and between the Company and Douglas E. Onsi, dated as of April 10, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, as filed on April 15, 2020).
10.15 ˄
Executive Employment Agreement and accompanying Employee Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, by and between Leap and Christopher K. Mirabelli, dated as of August 29, 2016 (incorporated by reference to Exhibit 10.7 to the Company’s registration statement on Form S-4, as filed on September 26, 2016).
10.16 ˄
Executive Employment Agreement and accompanying Employee Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, by and between Leap and Augustine Lawlor, dated as of August 29, 2016 (incorporated by reference to Exhibit 10.9 to the Company’s registration statement on Form S-4, as filed on September 26, 2016).
10.17 ˄
Employment Agreement, by and between the Company and Christine Granfield, dated as of August 16, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, as filed on November 12, 2020).
10.18 ˄
Employment Agreement, by and between the Company and Cynthia Sirard, dated as of April 10, 2020 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed on March 12, 2021).
10.19 ˄
Employment Agreement, by and between the Company and John Mark O’ Mahony, dated as of April 10, 2020 (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed on March 12, 2021).
10.20 ˄
Amended and Restated 2012 Equity Incentive Plan of the Registrant (incorporated by reference to Exhibit 10.1 to the Company’s registration statement on Form S-8, as filed on January 27, 2017).
10.21 ˄
Form of Stock Option Grant Notice and Stock Option Agreement under the Registrant’s Amended and Restated 2012 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed on March 31, 2017).
10.22 ˄
2016 Equity Incentive Plan of Leap Therapeutics, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s registration statement on Form S-8, as filed on January 27, 2017).
10.23 ˄
Form of Stock Option Grant Notice and Stock Option Agreement under Leap’s 2016 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.3 to the Company’s registration statement on Form S-4, as filed on November 2, 2016).
10.24 ˄
First Amendment to the 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s registration statement on Form S-8, as filed on June 11, 2019).
10.25
Lease, dated November 13, 2018, by and between the Company and Bulfinch Square Limited Partnership (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, as filed on November 19, 2018).
10.26
First Amendment to Lease by and between Bulfinch Square Limited Partnership and Leap Therapeutics, Inc., dated as of August 17, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed on November 12, 2021).
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10.27*
Second Amendment to Lease by and between Bulfinch Square Limited Partnership and Leap Therapeutics, Inc. dated as of October 1, 2021.
10.28
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).
10.29
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).
10.30
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).
10.31
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).
10.32 ˄
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).
21.1*
Subsidiaries of Leap Therapeutics, Inc.
23.1*
Consent of EisnerAmper LLP related to Leap Therapeutics, Inc. financial statements.
31.1*
Certification of Principal Executive and Principal Financial Officer Required Under Rule 13a- 14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1* +
Principal Executive and Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following materials from Leap Therapeutics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2022 and 2021, (ii) Consolidated Statements of Operations for the year ended December 31, 2022 and December 31, 2021, (iii) Consolidated Statements of Shareholders’ Equity (Deficit) at December 31, 2022 and December 31, 2021
(iv) Consolidated Statements of Cash Flows for the year ended December 31, 2022 and December 31, 2021, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Exhibits filed herewith
˄
Indicates management contract or compensation plan
#
Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).
+
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of the Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LEAP THERAPEUTICS, INC.
March 24, 2023
By:
/s/ DOUGLAS E. ONSI
Name: Douglas E. Onsi
Title: President, Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME
TITLE
DATE
Chief Executive Officer, President, Chief
/s/ DOUGLAS E. ONSI
Financial Officer and Director (Principal
March 24, 2023
Douglas E. Onsi
Executive Officer and Principal Financial Officer)
/s/ CHRISTOPHER K. MIRABELLI, PH.D.
Chairman of the Board of Directors
March 24, 2023
Christopher K. Mirabelli, Ph.D.
/s/ JAMES CAVANAUGH, PH.D.
Director
March 24, 2023
James Cavanaugh, Ph.D.
/s/ THOMAS DIETZ, PH.D.
Director
March 24, 2023
Thomas Dietz, Ph.D.
/s/ WILLIAM LI, M.D.
Director
March 24, 2023
William Li, M.D.
/s/ JOSEPH LOSCALZO, M.D., PH.D.
Director
March 24, 2023
Joseph Loscalzo, M.D., Ph.D.
/s/ PATRICIA MARTIN
Director
March 24, 2023
Patricia Martin
/s/ NISSIM MASHIACH
Director
March 24, 2023
Nissim Mashiach
/s/ CHRISTIAN RICHARD
Director
March 24, 2023
Christian Richard
/s/ RICHARD L. SCHILSKY, M.D.
Director
March 24, 2023
Richard L Schilsky, M.D
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-2
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
F-3
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021
F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
F-7
Notes to Consolidated Financial Statements
F-8
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Leap Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Leap Therapeutics, Inc. 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
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.
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.
F-1
Table of Contents
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
We have served as the Company’s auditor since 2014.
EISNERAMPER LLP
Iselin, New Jersey
March 23, 2023
F-2
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
65,500
$
114,916
Research and development incentive receivable
2,099
1,189
Prepaid expenses and other current assets
351
769
Total current assets
67,950
116,874
Property and equipment, net
20
36
Right of use assets, net
669
459
Deferred tax assets, net
—
159
Deferred costs
576
—
Other long term assets
30
90
Deposits
1,108
293
Total assets
$
70,353
$
117,911
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
5,657
$
4,189
Accrued expenses
5,152
5,366
Lease liability - current portion
416
432
Total current liabilities
11,225
9,987
Non current liabilities:
Lease liability, net of current portion
262
37
Total liabilities
11,487
10,024
Stockholders’ equity:
Common stock, $ 0.001 par value; 240,000,000 shares authorized; 99,021,376 and 88,318,454 shares issued and outstanding as of December 31, 2022 and 2021, respectively
99
88
Additional paid-in capital
376,807
371,638
Accumulated other comprehensive income (loss)
128
( 267 )
Accumulated deficit
( 318,168 )
( 263,572 )
Total stockholders’ equity
58,866
107,887
Total liabilities and stockholders’ equity
$
70,353
$
117,911
See notes to consolidated financial statements
F-2
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Year Ended December 31,
2022
2021
License revenue
$
—
$
1,500
Operating expenses:
Research and development
44,965
32,160
General and administrative
11,798
10,766
Total operating expenses
56,763
42,926
Loss from operations
( 56,763 )
( 41,426 )
Interest income
925
9
Interest expense
( 54 )
( 41 )
Australian research and development incentives
2,051
1,226
Foreign currency loss
( 608 )
( 379 )
Loss before income taxes
( 54,449 )
( 40,611 )
Benefit from (provision for) income taxes
( 147 )
24
Net loss attributable to common stockholders
$
( 54,596 )
$
( 40,587 )
Net loss per share
Basic & diluted
$
( 0.48 )
$
( 0.47 )
Weighted average common shares outstanding
Basic & diluted
113,239,092
85,825,283
See notes to consolidated financial statements
F-3
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Year Ended December 31,
2022
2021
Net loss
$
( 54,596 )
$
( 40,587 )
Other comprehensive income:
Foreign currency translation adjustments
395
312
Comprehensive loss
$
( 54,201 )
$
( 40,275 )
See notes to consolidated financial statements
F-4
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousands, except share amounts)
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Comprehensive
Accumulated
Stockholders'
Shares
Amount
Capital
Loss
Deficit
Equity
Balances at December 31, 2020
59,657,742
$
60
$
270,155
$
( 579 )
$
( 222,985 )
$
46,651
Issuance of common stock upon exercise of warrants
530,643
—
993
—
—
993
Issuance of common stock upon exercise of prefunded warrants
559,705
1
( 1 )
—
—
—
Issuance of common stock upon exercise of stock options
2,292
—
4
—
—
4
Issuance of common stock in connection with September 2021 Public Offering, net of issuance costs of $ 6,733
27,568,072
27
96,801
—
—
96,828
Foreign currency translation adjustment
—
—
—
312
—
312
Stock-based compensation
—
—
3,686
—
—
3,686
Net loss
—
—
—
—
( 40,587 )
( 40,587 )
Balances at December 31, 2021
88,318,454
$
88
$
371,638
$
( 267 )
$
( 263,572 )
$
107,887
See notes to consolidated financial statements
F-5
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2022
(In thousands, except share amounts)
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Comprehensive
Accumulated
Stockholders’
Shares
Amount
Capital
Income (Loss)
Deficit
Equity
Balances at December 31, 2021
88,318,454
$
88
$
371,638
$
( 267 )
$
( 263,572 )
$
107,887
Foreign currency translation adjustment
—
—
—
395
—
395
Issuance of common stock upon exercise of prefunded warrants
10,702,922
11
( 11 )
—
Stock-based compensation
—
—
5,180
—
—
5,180
Net loss
—
—
—
—
( 54,596 )
( 54,596 )
Balances at December 31, 2022
99,021,376
$
99
$
376,807
$
128
$
( 318,168 )
$
58,866
See notes to consolidated financial statements
F-6
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2022
2021
Cash flows from operating activities:
Net loss
$
( 54,596 )
$
( 40,587 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
16
29
Amortization of contract asset
—
135
Change in right-of-use asset
399
392
Stock-based compensation expense
5,180
3,686
Foreign currency loss
608
379
Change in fair value of restricted stock liability
—
( 204 )
Changes in operating assets and liabilities:
Prepaid expenses and other assets
416
( 639 )
Deferred tax asset
152
11
Research and development incentive receivable
( 1,009 )
( 1,159 )
Deferred costs
—
209
Accounts payable and accrued expenses
945
3,900
Deferred revenue
—
( 1,500 )
Lease liability
( 400 )
( 406 )
Other assets
( 755 )
597
Net cash used in operating activities
( 49,044 )
( 35,157 )
Cash flows from financing activities:
Proceeds from the issuance of common stock and prefunded warrants, net of offering costs - September 2021 Public Offering
—
97,222
Proceeds from the exercise of common stock warrants
—
993
Proceeds from the exercise of stock options
—
4
Payment of deferred costs
( 210 )
( 184 )
Net cash provided by (used in) financing activities
( 210 )
98,035
Effect of exchange rate changes on cash and cash equivalents
( 162 )
( 33 )
Net increase (decrease) in cash and cash equivalents
( 49,416 )
62,845
Cash and cash equivalents at beginning of period
114,916
52,071
Cash and cash equivalents at end of period
$
65,500
$
114,916
Supplemental disclosure of non-cash financing activities:
Deferred costs in accounts payable and accrued expense - January 2023 Flame Merger
$
576
$
—
Deferred costs in accounts payable and accrued expense - September 2021 Public Offering
$
—
$
210
Remeasurement of right-of-use asset and lease liability
$
609
$
323
See notes to consolidated financial statements
F-7
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
1. Nature of Business, Basis of Presentation and Liquidity
Nature of Business
Leap Therapeutics, Inc. was incorporated in the state of Delaware on January 3, 2011. During 2015, HealthCare Pharmaceuticals Pty Ltd. (“HCP Australia”) was formed and is a wholly owned subsidiary of the Company.
On December 10, 2015, the Company entered into a merger agreement with GITR Inc. (“GITR”), an entity under common control, whereby a wholly owned subsidiary was merged with GITR and the surviving name of the wholly owned subsidiary was GITR Inc.
On August 29, 2016, the Company entered into a merger agreement with Macrocure Ltd. (“Macrocure”), a publicly held, clinical-stage biotechnology company based in Petach Tikva, Israel. In connection with the merger, the Company applied to be listed on the Nasdaq Global Market. Nasdaq approved the listing, and trading in the Company’s common stock commenced on January 24, 2017, under the trading symbol “LPTX.” On February 1, 2017, Macrocure’s name was changed to Leap Therapeutics Ltd. In 2020, Leap Therapeutics Ltd. was dissolved.
On December 15, 2021, Leap Securities Corp. was formed and is a wholly owned subsidiary of the Company.
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
The accompanying consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Liquidity
Since inception, the Company has been engaged in organizational activities, including raising capital, and research and development activities. The Company does not yet have a product that has been approved by the Food and Drug Administration (the “FDA”), has not generated any product sales revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. 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.
F-8
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
1. Nature of Business, Basis of Presentation and Liquidity (continued)
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, 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: delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, any of which could adversely affect its business prospects. The inability to obtain funding, as and when needed, could have a negative impact on the Company’s financial condition and ability to pursue its business strategies.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation.
Use of Estimates
The presentation of consolidated 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
F-9
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Research and Development Expense
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including noncash share-based compensation and costs for third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, patient enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. 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.
Research and development incentive income and receivable
The Company recognizes other income from Australian research and development incentives when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. The research and development incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997 as long as eligibility criteria are met.
Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis.
Under the program, a percentage of eligible research and development expenses incurred by the Company through its subsidiary in Australia are reimbursed. This percentage was 43.5 % for the years ended December 31, 2022 and 2021.
The research and development incentive receivable represents an amount due in connection with the above program. 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.
F-10
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. 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:
Balance at January 1, 2021
$
73
Australian research and development incentive income, net
1,226
Cash received for 2020 eligible expenses
( 111 )
Foreign currency translation
1
Balance at December 31, 2021
1,189
Cash received for 2021 eligible expenses
( 1,064 )
Australian research and development incentive income, net
2,051
Foreign currency translation
( 77 )
Balance at December 31, 2022
$
2,099
Concentration of Credit Risk
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 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.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows accounting guidance concerning provisions for uncertainty in income tax positions. This guidance clarifies the accounting for income taxes by prescribing a minimum probability threshold that an uncertain tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The Company recognizes accrued interest and penalties associated with uncertain tax position as part of the income tax provision. There were no uncertain tax positions or income tax related interest and penalties recorded for the years ended December 31, 2022 and 2021. The income tax returns of the Company for the year ended December 31, 2019 and subsequent years are subject to examination by the Internal Revenue Service and other taxing authorities, generally for three years after the return is filed.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiary are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated into U.S. dollars at exchange rates as of the consolidated balance sheet date. Equity is translated at historical exchange rates. Revenues and expenses are translated into U.S. dollars at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders’ deficiency. Foreign currency transaction gains and losses are included in the results of operations.
F-11
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of each asset. Computer equipment is depreciated over three years . Laboratory equipment , office equipment and furniture and fixtures are depreciated over five years . Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value. The Company did not record any impairment losses on long-lived assets during 2022 and 2021.
Deferred Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred costs until such financings are consummated. 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.
As of December 31, 2022 there was $ 576 of deferred costs. As of December 31, 2021, the Company did no t have any deferred costs.
Deposits
Deposits as of December 31, 2022 and 2021 included $ 1,108 and $ 293 , respectively, of deposits made by the Company with certain service providers that are to be applied to future payments due under the service agreements or returned to the Company if not utilized.
Warrants
The Company will recognize on a prospective basis the value of the effect of the down round feature in the warrants to purchase shares of common stock that were issued in a private placement in November 2017 (the “2017 Warrants”) when it is triggered (i.e., when the exercise price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down round feature) using the reduced exercise price. 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.
F-12
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
● Level 1—Quoted prices in active markets for identical assets or liabilities.
● Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
During the years presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the years ended December 31, 2022 and 2021.
A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows (in thousands):
Total
Level 1
Level 2
Level 3
December 31, 2022
Assets:
Cash equivalents
$
62,074
$
62,074
$
—
$
—
Total assets
$
62,074
$
62,074
$
—
$
—
December 31, 2021
Assets:
Cash equivalents
$
112,726
$
112,726
$
—
$
—
Total assets
$
112,726
$
112,726
$
—
$
—
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.
F-13
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Leases
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. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. The Company has determined that the rate implicit in the lease is not determinable and the Company does not have borrowings with similar terms and collateral. Therefore, the Company considered a variety of factors, including observable debt yields from comparable companies and the volatility in the debt market for securities with similar terms, in determining that 8 % was reasonable to use as the incremental borrowing rate for purposes of the calculation of lease liabilities.
In accordance with the guidance in ASC 842 “Leases”, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). 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.
Although separation of lease and non-lease components is required, certain practical expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results in an operating right-of-use asset being recorded on the consolidated balance sheets and amortized such that lease expense is recorded on a straight line basis over the term of the lease.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is developing novel, targeted drugs for the treatment of cancer. Substantially all of the Company’s tangible assets are held in the United States.
Patent Costs
All patent related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
Stock-Based Compensation
The Company measures all stock options and other stock-based awards granted to employees, consultants and nonemployees based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options with only service-based vesting conditions and records the expense for these awards using the straight-line method.
Stock-based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.
F-14
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. 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. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options granted to employees has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to nonemployees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. 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.
Revenue Recognition
The Company records revenue in accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue From Contracts with Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
License revenue. The Company’s performance obligations under its license agreements may include providing intellectual property licenses, performing technology transfer, performing research and development consulting services and notifying the customer of any enhancements to licensed technology or new technology that it discovers, among others. The Company determined that its performance obligations under its license agreements as evaluated at contract inception were not distinct and represented a single performance obligation. Upfront payments are amortized to revenue on a straight line basis over the performance period. Upfront payment contract liabilities resulting from the Company’s license agreements do not represent a financing component as the payment is not financing the transfer of goods or services, and the technology underlying the licenses granted reflects research and development expenses already incurred by the Company. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license revenues. Sales-based milestones and royalties under the Company’s license agreements will be recognized as royalty revenue in the period the related sale occurred. The Company generally invoices its licensees upon the completion of the effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.
Research and Development Services. The promises under the Company’s license agreements may include research and development services to be performed by the Company on behalf of the customer. 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.
F-15
Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Customer Options. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. 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.
Milestone Payments. At the inception of each arrangement that includes research or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties. For arrangements that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. Amounts that are owed to collaboration partners are recognized as an offset to collaboration revenues as such amounts are incurred by the collaboration partner. Where amounts owed to a collaboration partner exceed the Company’s collaboration revenues in each quarterly period, such amounts are classified as research and development expense. Reimbursements from and payments to the customer that are the result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction to research and development expense. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above under ASC 606.
See Note 3 for a complete discussion of the revenue recognition for the Company’s license agreement.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (continued)
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants.
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are early adopted by the Company or adopted as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements or disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes, or ASC 740, which simplifies the accounting for income taxes. The new standard was effective in the first quarter of fiscal 2021. The Company adopted ASC 740 effective in the first quarter of fiscal 2021 and the Company’s adoption of this standard did not have an effect on the Company’s consolidated financial statements.
In May 2021, FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. FASB issued this update to clarify the accounting by issuers for modifications or exchanges of equity-classified warrants. 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 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. FASB issued this update to simplify the accounting for certain financial instruments with characteristics of liabilities and equity. 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 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.
3. BeiGene Exclusive Option and License Agreement
Terms of Agreement
On January 3, 2020, the Company entered into an exclusive option and license agreement (the “BeiGene Agreement”) with BeiGene, Ltd. (“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.
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 New Zealand. In March 2023, BeiGene notified the Company that it did not intend to exercise its option under the BeiGene Agreement.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
3. BeiGene Exclusive Option and License Agreement (continued)
Revenue Recognition
The Company evaluated the BeiGene Agreement to determine whether it is a collaborative arrangement for purposes of ASC 808. The Company concluded that because both parties were active participants and were exposed to the risks and rewards of the BeiGene Agreement, that such activities are under the scope of ASC 808. The Company concluded that BeiGene was a customer with regard to the combined license and research and development activities and as such the contract should be evaluated under ASC 606.
In determining the appropriate amount of revenue to be recognized under ASC 606 as the Company fulfills its obligations under the Agreement, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.
The Company identified the following material promises under the BeiGene Agreement: (1) option to an exclusive license to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and New Zealand, (2) participation in a joint development committee, (3) technology transfer services and (4) pre-option research and development services. The Company determined that the option to an exclusive license in the territory does not represent a material right. Additionally, the Company determined that the participation in the joint development committee, research and development services and technology transfer services are not distinct from each other, as each has limited value without the other. 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.
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 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
The Company incurred contract acquisition costs of $ 270 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. 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.
Royalties
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.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
4. Property and equipment, net
Property and equipment, net consisted of the following:
December 31,
2022
2021
Computer office equipment
$
51
$
51
Leasehold improvements
69
69
Lab equipment
76
76
Furnitures and fixtures
30
30
226
226
Less: accumulated depreciation
( 206 )
( 190 )
Property and equipment, net
$
20
$
36
Depreciation expense was $ 16 and $ 29 for the years ended December 31, 2022 and 2021, respectively.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2022
2021
Clinical trials
$
2,093
$
2,499
Professional fees
533
181
Payroll and related expenses
2,526
2,686
Accrued expenses
$
5,152
$
5,366
6. Leases
The Company has operating leases for real estate in the United States and does not have any finance leases. The Company’s leases may contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liability on the Company’s consolidated balance sheets are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.
The Company has existing leases that include variable lease and non-lease components that are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index (e.g., the Consumer Price Index).
In calculating the present value of future lease payments, the Company utilized its incremental borrowing rate based on the remaining lease term at the date of adoption. The Company has elected to account for each lease component and its associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components only. This will potentially result in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability for leases being greater than if the policy election was not applied. The Company has existing net leases in which the non-lease components (e.g. 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
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
6. Leases (continued)
Future lease payments under non-cancelable operating leases as of December 31, 2022 are detailed as follows:
Future Operating Lease Payments
2023
452
2024
267
Total Lease Payments
719
Less: imputed interest
( 41 )
Total operating lease liabilities
$
678
7. Warrants
As of December 31, 2022, outstanding warrants to purchase common stock, all of which are classified as equity warrants, consisted of the following:
December 31, 2022
Number of Shares
Description
Issuable
Exercise Price
Expiration Date
January 23 2017 Warrants
54,516
$
0.01
Upon M&A Event
2017 Warrants
2,502,382
$
1.055
November 2024
2019 Warrants
7,008,257
$
1.95
February 2026
March 2020
8,247,170
$
0.001
No Expiry
March 2020
25,945,035
$
2.11
Jan - March 2027
September 2021
5,916,030
$
0.001
No Expiry
49,673,390
2017 Warrants
The 2017 Warrants contain full ratchet anti-dilution protection provisions. The Company will recognize on a prospective basis the value of the effect of the down round feature in the warrant when it is triggered (i.e., when the exercise price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down round feature) using the reduced exercise price. 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.
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
On February 5, 2019, in connection with the 2019 Public Offering, the Company issued immediately exercisable warrants (the “2019 Warrants”) to purchase 7,557,142 shares of common stock to investors. The 2019 Warrants have an exercise price of $ 1.95 per share and expire on February 5, 2026. 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 .
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
7. Warrants (continued)
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.
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. Each investor also received a warrant to purchase an equal number of shares of common stock at an exercise price of $ 2.11 per share (the “Coverage Warrants”). 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
On June 22, 2020, the Company completed a Public Offering (“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, offered pre-funded warrants (the “June 2020 Pre-funded Warrants”) to purchase up to 2,250,000 shares of its common stock to certain investors. The June 2020 Pre-funded Warrants have an exercise price of $ 0.001 per share and qualify for equity classification.
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
On September 24, 2021, the Company completed a public offering (the “2021 Public Offering”) whereby the Company issued 27,568,072 shares of its common stock, at $ 2.85 per share and, in lieu of common stock, offered pre-funded warrants (the “September 2021 Pre-funded Warrants”) to purchase up to 8,771,928 shares of its common stock to certain investors. 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.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
8. Common Stock
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the preferred stockholders. Through December 31, 2022, no dividends have been declared for shares of common stock.
Public Offering of Common Stock - September 2021
On September 24, 2021, the Company completed the 2021 Public Offering, whereby the Company issued 22,828,072 shares of its common stock at $ 2.85 per share and, in lieu of common stock, issued certain investors 8,771,928 of its September 2021 Pre-funded Warrants. The September 2021 Pre-funded Warrants have an exercise price of $ 0.001 per share and qualify for equity classification. The underwriters exercised their right to purchase 4,740,000 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 2021 Public Offering were approximately $ 96,828 net of underwriting discounts and commissions and offering expenses payable by the Company.
9. Stock-Based Compensation
Equity Incentive Plans
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”). Beginning on January 1, 2018, the number of shares of common stock authorized for issuance pursuant to the 2016 Plan was increased each January 1 by an amount equal to four percent ( 4 %) of the Company’s outstanding common stock as of the end of the immediately preceding calendar year or such other amount as determined by the compensation committee of the Company’s board of directors. 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.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
9. Stock-Based Compensation (continued)
A summary of stock option activity under the Company’s Equity Incentive Plans is as follows:
Weighted
Average
Weighted
Aggregate
Exercise Price
Average Remaining
Intrinsic
Options
Per Share
Life in Years
Value
Outstanding at December 31, 2020
6,393,853
5.29
7.96
1,961
Granted
2,482,650
2.19
Exercised
( 2,292 )
1.55
Forfeited
( 348,593 )
3.17
Outstanding at December 31, 2021
8,525,618
4.48
7.58
7,673
Granted
4,024,900
1.50
Forfeited
( 633,187 )
2.17
Outstanding at December 31, 2022
11,917,331
3.59
7.47
Options exercisable at December 31, 2022
7,543,973
4.74
6.46
Options vested and expected to vest at December 31, 2022
11,917,331
3.59
7.47
The grant date fair value of the options granted during the years ended December 31, 2022 and 2021 was estimated at the date of grant using the Black-Scholes option valuation model. The expected life was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin 107, Share-Based Payment. The expected volatility was based on the historical volatility of comparable public companies from a representative peer group selected based on industry and market capitalization data. The risk-free interest rate was based on the continuous rates provided by the U.S. Treasury with a term approximating the expected life of the option. The expected dividend yield was 0 % because the Company does not expect to pay any dividends for the foreseeable future. The Company elected the straight-line attribution method in recognizing the grant date fair value of options issued over the requisite service periods of the awards, which are generally the vesting periods.
The weighted average grant date fair value for the stock options granted during the years ended December 31, 2022 and 2021 was $ 1.08 and $ 1.37 per share, respectively.
The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors during the years ended December 31, 2022 and 2021 were as follows, presented on a weighted average basis:
Year Ended December 31,
2022
2021
Expected volatility
82.70
%
67.64
%
Weighted average risk-free interest rate
3.10
%
0.82
%
Expected dividend yield
0.00
%
0.00
%
Expected term (in years)
6.42
6.82
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.
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
9. Stock-Based Compensation (continued)
Restricted Stock Units
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, 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:
Weighted
Number of
Average Grant
Shares
Date Fair Value
Outstanding at December 31, 2020
753,106
$
1.52
Awarded
275,000
$
2.57
Settled in cash
( 92,500 )
$
1.97
Outstanding at December 31, 2021
935,606
$
1.76
Awarded
2,650,000
$
1.94
Outstanding at December 31, 2022
3,585,606
$
1.89
As of December 31, 2022, there were 3,585,606 shares outstanding covered by RSUs that were vested and expected to vest with a weighted average grant date fair value of $ 1.89 per share and an aggregate grant date fair value of $ 6,777 . As of December 31, 2022, there was approximately $ 3,898 of unrecognized compensation costs related to RSUs granted to employees, which are expected to be recognized as expense over a remaining weighted average period of 2.01 years.
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:
Stock Based Compensation Expense
Year Ended
December 31,
2022
2021
Research and development
$
2,540
$
1,641
General and administrative
2,640
2,045
Total
$
5,180
$
3,686
10. Income Taxes
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.
The Company may be able to utilize its net operating loss carryforwards to reduce future federal and State income tax liabilities. 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
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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.
10. 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.
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.
Income (loss) before income taxes consisted of the following:
Year Ended
December 31,
2022
2021
U.S.
$
( 50,325 )
$
( 39,155 )
Foreign
( 4,124 )
( 1,456 )
Loss before income taxes
$
( 54,449 )
$
( 40,611 )
A summary of the Company’s current and deferred expense for income tax is as follows:
Year Ended
December 31,
2022
2021
Current expense (benefit):
Federal
$
—
$
—
State
—
—
Foreign
—
( 37 )
Total current expense (benefit):
$
—
$
( 37 )
Deferred expense (benefit):
Federal
$
—
$
—
State
—
—
Foreign
147
13
Total deferred expense (benefit):
$
147
$
13
Total income tax expense (benefit):
$
147
$
( 24 )
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:
Year Ended
December 31,
2022
2021
Income at US Statutory Rate
21.0
%
21.0
%
State taxes, net of federal benefit
6.0
%
7.2
%
Permanent differences
0.7
%
0.6
%
Research and development credits
1.0
%
1.5
%
Foreign rate differential
0.3
%
0.2
%
Change in valuation allowance
- 27.3
%
- 30.6
%
Other
2.0
%
0.1
%
0.3
%
0.0
%
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LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
10. Income Taxes (continued)
The significant components of the Company’s deferred tax assets as of December 31, 2022 and 2021 were as follows:
Year Ended
December 31,
2022
2021
Federal net operating loss carryforwards
$
44,202
$
41,207
State net operating loss carryforwards
12,104
11,246
Foreign net operating loss carryforwards
98
—
Research and development (R&D) tax credits
9,358
7,172
Capitalized R&D expenses
9,312
—
Stock based compensation
4,757
4,671
Accrued expenses
—
729
License fees
840
1,004
Other
297
212
Total Deferred tax assets
80,968
66,241
Valuation Allowance
( 80,968 )
( 66,082 )
Net deferred tax assets
$
—
$
159
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. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. As of December 31, 2022 the Company has not recorded any uncertain tax positions.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. 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. There were no interest and penalties pertaining to uncertain tax positions for the years ended December 31, 2022 or 2021.
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Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
11. Net Loss Per Share
Basic and diluted net loss per share for the years ended December 31, 2022 and 2021 was calculated as follows:
Year Ended December 31,
2022
2021
Numerator:
Net loss
$
( 54,596 )
$
( 40,587 )
Net loss attributable to common stockholders for basic and diluted loss per share
$
( 54,596 )
$
( 40,587 )
Denominator:
Weighted average number of common shares outstanding - basic and diluted
113,239,092
85,825,283
Net loss per share attributable to common stockholders - basic and diluted
$
( 0.48 )
$
( 0.47 )
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. These securities were excluded from the computations of diluted net loss per share for the years ended December 31, 2022 and 2021, as the effect would be to reduce the net loss per share. The following table includes the potential common shares of common stock, presented based on amounts outstanding at each period end, that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Year Ended December 31,
2022
2021
Restricted stock units to purchase common stock
3,585,606
935,606
Options to purchase common stock
11,917,331
8,525,618
Warrants to purchase common stock
35,455,674
35,455,674
50,958,611
44,916,898
12. Commitments and Contingencies
Manufacturing Agreements— The Company is party to manufacturing agreements with vendors to manufacture DKN-01, its lead product candidate, for use in clinical trials. As of December 31, 2022, noncancelable commitments under these agreements totaled $ 4,701 .
License and Service Agreements— On January 3, 2011, the Company entered into a license agreement with Eli Lilly and Company (“Lilly”), a shareholder, to grant a license to the Company for certain intellectual property rights relating to pharmaceutically active compounds that may be useful in the treatment of bone healing, cancer and, potentially, other medical conditions. As defined in the license agreement, the Company would be required to pay royalties to Lilly based upon a percentage in the low single digits of net sales of developed products, if and when achieved. However, there can be no assurance that clinical or commercialization success of developed products will occur, and no royalties have been paid or accrued through December 31, 2022.
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Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
12. Commitments and Contingencies (continued)
License Agreement— On May 28, 2015, the Company entered into a license agreement with Lonza Sales AG (“Lonza”), pursuant to which Lonza granted the Company a world-wide, non-exclusive license for certain intellectual property relating to a gene expression system for manufacturing DKN-01. As defined in the license agreement, the Company would be required to pay royalties to Lonza based on a percentage in the low single digits of net sales of DKN-01, if and when achieved. 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 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.
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. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2022 and 2021.
13. Defined Contribution Plan
The Company has a 401(k) defined contribution plan (the “401(k) Plan”) for substantially all of its employees. Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits.
The Company makes matching employee contributions in cash to the 401(k) Plan at a rate of 100 % of the first 3 % of earnings contributed and 50 % of the next 2 % of earnings contributed.
Employees participating in the 401(k) Plan are fully vested in the Company matching contributions, and investments are directed by participants. The Company made matching contributions of $ 333 and $ 247 for the years ended December 31, 2022 and 2021, respectively.
14. Related Party Transactions
The Company has a license agreement with a stockholder (See Note 12).
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Table of Contents
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
15. Subsequent Events
Acquisition of Flame
On January 17, 2023, the Company acquired 100 percent of the outstanding equity of Flame Biosciences, Inc. (“Flame”). 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.
F-29
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.