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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                          

Commission file number: 001-37990

LEAP THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware
State or other jurisdiction of
incorporation or organization

    

27-4412575
(I.R.S. Employer
Identification No.)

47 Thorndike St, Suite B1-1, Cambridge, MA
Address of Principal Executive Offices

02141
Zip Code

(617) 714-0360

Registrant’s Telephone Number, Including Area Code

N/A

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol(s)

    

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

LPTX

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

    

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No

As of August 9, 2023, there were 25,565,414 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1

Financial Statements

6

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4

Controls and Procedures

32

PART II — OTHER INFORMATION

Item 1

Legal Proceedings

33

Item 1A

Risk Factors

33

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3

Defaults Upon Senior Securities

33

Item 4

Mine Safety Disclosures

33

Item 5

Other Information

33

Item 6

Exhibits

34

2

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements which reflect our current views with respect to, among other things, our operations and financial performance. Such statements are based upon our current plans, estimates and expectations that are subject to various risks and uncertainties that could cause actual results to differ materially from such statements. The inclusion of forward-looking statements should not be regarded as a representation that such plans, estimates and expectations will be achieved. Words such as “anticipate,” “expect,” “project,” “intend,” “believe,” “may,” “will,” “should,” “plan,” “could,” “continue,” “target,” “contemplate,” “estimate,” “forecast,” “guidance,” “predict,” “possible,” “potential,” “pursue,” “likely,” and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. All statements, other than historical facts, including statements regarding estimations of projected cash runway; our future product development plans; the potential, safety, efficacy, and regulatory and clinical progress of our product candidates, including the anticipated timing for initiation of clinical trials and release of clinical trial data and the expectations surrounding potential regulatory submissions, approvals and timing thereof; and any assumptions underlying any of the foregoing, are forward-looking statements. Important factors that could cause actual results to differ materially from our plans, estimates or expectations could include, but are not limited to: (i) our ability and plan to develop and commercialize DKN-01, FL-301 and our preclinical programs; (ii) status, timing and results of our preclinical studies and clinical trials; (iii) the potential benefits of DKN-01, FL-301 and our preclinical programs; (iv) the timing of our development programs and seeking regulatory approval of DKN-01, FL-301 and our preclinical programs; (v) our ability to obtain and maintain regulatory approval; (vi) our estimates of expenses and future revenues and profitability; (vii) our estimates regarding our capital requirements and our needs for additional financing; (viii) our estimates of the size of the potential markets for DKN-01, FL-301 and our preclinical programs; (ix) the benefits to be derived from any collaborations, license agreements, or other acquisition efforts, including the acquisition of Flame Biosciences and the ongoing collaboration with BeiGene; (x) sources of revenues and anticipated revenues, including contributions from any collaborations or license agreements for the development and commercialization of products; (xi) the rate and degree of market acceptance of DKN-01, FL-301 or our preclinical products; (xii) the success of other competing therapies that may become available; (xiii) the manufacturing capacity for our products; (xiv) our intellectual property position; (xv) our ability to maintain and protect our intellectual property rights; (xvi) our results of operations, financial condition, liquidity, prospects, and growth and strategies; (xvii) the industry in which we operate; (xviii) the trends that may affect the industry or us; (xix) our ability to successfully integrate the Flame operations and realize the anticipated benefits of the acquisition of Flame; (xx) the effect of inflation and currency rate fluctuations on our future expenses, (xxi) fluctuations in the market price of our traded securities and (xxii) that the initiation, conduct, and completion of clinical trials, laboratory operations, manufacturing campaigns, and other studies may be delayed, adversely affected, or impacted by global conflict or supply chain related issues.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. You should carefully read this Quarterly Report and any documents that we have filed as exhibits to this Quarterly Report completely.

3

Table of Contents

You should refer to Part II, Item 1A, Risk Factors in this Quarterly Report and Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 24, 2023, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard any such statement as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and, except to the extent required by applicable law, we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

DKN-01 and FL-301 are investigational drugs undergoing clinical development and have not been approved by the U.S. Food and Drug Administration (the “FDA”), nor have they been submitted to the FDA for approval. DKN-01 and FL-301 have not been, and may never be, approved by any regulatory agency or marketed anywhere in the world. Statements contained in this Quarterly Report should not be deemed to be promotional.

4

Table of Contents

INTRODUCTORY COMMENT

References to Leap

Throughout this Quarterly Report on Form 10-Q, the “Company,” “Leap,” “Leap Therapeutics,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Leap Therapeutics, Inc. and its consolidated subsidiaries, and “Board of Directors” refers to the board of directors of Leap Therapeutics, Inc.

5

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

June 30, 

December 31, 

    

2023

    

2022

(Unaudited)

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

91,415

$

65,500

Research and development incentive receivable

 

2,046

 

2,099

Prepaid expenses and other current assets

 

419

 

351

Total current assets

 

93,880

 

67,950

Property and equipment, net

 

13

 

20

Right of use assets, net

467

669

Research and development incentive receivable, net of current portion

563

Deferred costs

576

Other long term assets

30

Deposits

 

934

 

1,108

Total assets

$

95,857

$

70,353

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

 

  

Accounts payable

$

6,500

$

5,657

Accrued expenses

 

4,826

 

5,152

Lease liability - current portion

436

416

Total current liabilities

11,762

11,225

Non current liabilities:

Lease liability, net of current portion

38

262

Total liabilities

11,800

11,487

Stockholders’ equity:

Common stock, $0.001 par value; 240,000,000 shares authorized; 25,565,414 and 9,902,137 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

26

10

Additional paid-in capital

 

457,038

 

376,896

Accumulated other comprehensive income

 

414

 

128

Accumulated deficit

 

(373,421)

 

(318,168)

Total stockholders’ equity

 

84,057

 

58,866

Total liabilities and stockholders’ equity

$

95,857

$

70,353

See notes to condensed consolidated financial statements.

6

Table of Contents

LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

Three Months Ended June 30, 

 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Operating expenses:

Research and development

$

11,104

$

14,045

$

50,046

$

21,829

General and administrative

 

3,558

 

2,855

 

7,342

 

5,703

Total operating expenses

 

14,662

 

16,900

 

57,388

 

27,532

Loss from operations

 

(14,662)

 

(16,900)

 

(57,388)

 

(27,532)

Interest income

 

1,157

 

39

 

2,005

 

44

Interest expense

(17)

(38)

Australian research and development incentives

 

298

 

587

 

570

 

624

Foreign currency loss

(145)

(733)

(452)

(498)

Change in fair value of Series X preferred stock warrant liability

(38)

12

Net loss attributable to common stockholders

$

(13,390)

$

(17,024)

$

(55,253)

$

(27,400)

Net loss per share

Basic & diluted

$

(0.91)

$

(1.50)

$

(4.01)

$

(2.42)

Weighted average common shares outstanding

Basic & diluted

14,710,375

11,324,893

13,794,605

11,324,893

See notes to condensed consolidated financial statements.

7

Table of Contents

LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Net loss

$

(13,390)

$

(17,024)

$

(55,253)

$

(27,400)

Other comprehensive income:

 

 

Foreign currency translation adjustments

59

 

519

286

 

361

Comprehensive loss

$

(13,331)

$

(16,505)

$

(54,967)

$

(27,039)

See notes to condensed consolidated financial statements.

8

Table of Contents

LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 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 March 31, 2022

 

8,831,845

$

9

$

372,921

$

(425)

$

(273,948)

$

98,557

Foreign currency translation adjustment

 

 

 

 

519

 

 

519

Stock-based compensation

 

 

 

1,266

 

 

 

1,266

Net loss

 

 

 

 

 

(17,024)

 

(17,024)

Balances at June 30, 2022

 

8,831,845

$

9

$

374,187

$

94

$

(290,972)

$

83,318

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at December 31, 2021

 

8,831,845

$

9

$

371,717

$

(267)

$

(263,572)

$

107,887

Foreign currency translation adjustment

 

 

 

 

361

 

 

361

Stock-based compensation

 

 

 

2,470

 

 

 

2,470

Net loss

 

 

 

 

 

(27,400)

 

(27,400)

Balances at June 30, 2022

 

8,831,845

$

9

$

374,187

$

94

$

(290,972)

$

83,318

See notes to condensed consolidated financial statements.

9

Table of Contents

LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2023

(In thousands, except share amounts)

(Unaudited)

Mezzanine Equity

Stockholders Equity

Accumulated

Series X Non Voting Convertible

Additional

Other

Total

Preferred Stock

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at March 31, 2023

 

136,248

$

67,715

11,941,099

$

12

$

387,993

$

355

$

(360,031)

$

28,329

Conversion of Series X preferred stock to common stock

 

(136,248)

 

(67,715)

13,624,800

 

14

 

67,702

 

 

 

67,716

Reclassification of Series X preferred stock warrants to equity

78

78

Fractional shares paid in cash

(485)

Foreign currency translation adjustment

 

 

 

 

 

59

 

 

59

Stock-based compensation

 

 

 

1,265

 

 

 

1,265

Net loss

 

 

 

 

 

(13,390)

 

(13,390)

Balances at June 30, 2023

 

$

25,565,414

$

26

$

457,038

$

414

$

(373,421)

$

84,057

Mezzanine Equity

Stockholders Equity

Accumulated

Series X Non Voting Convertible

Additional

Other

Total

Preferred Stock

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at December 31, 2022

 

$

9,902,137

$

10

$

376,896

$

128

$

(318,168)

$

58,866

Issuance of Series X Preferred Stock in connection with Flame merger

 

136,248

 

67,715

 

 

 

 

 

Issuance of common stock in connection with Flame merger

1,972,901

2

9,803

9,805

Issuance of common stock warrants in connection with Flame merger

13

13

Redemption of 2019 Warrants

 

 

 

 

(29)

 

 

 

(29)

Issuance of common stock upon vest of restricted stock units

 

 

66,061

 

 

 

 

 

Conversion of Series X preferred stock to common stock

(136,248)

(67,715)

13,624,800

14

67,702

67,716

Reclassification of Series X preferred stock warrants to equity

78

78

Fractional shares paid in cash

(485)

Foreign currency translation adjustment

286

286

Stock-based compensation

2,575

2,575

Net loss

 

 

 

 

 

 

(55,253)

 

(55,253)

Balances at June 30, 2023

 

$

25,565,414

$

26

$

457,038

$

414

$

(373,421)

$

84,057

See notes to condensed consolidated financial statements.

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LEAP THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(55,253)

$

(27,400)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

In-process research and development costs acquired in connection with the acquistion of Flame

29,582

Depreciation expense

 

8

 

8

Amortization of right-of-use assets

202

206

Stock-based compensation expense

 

2,575

 

2,470

Foreign currency transaction loss

452

498

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other assets

 

(70)

 

336

Research and development incentive receivable

 

(575)

 

(638)

Accounts payable and accrued expenses

 

(382)

 

679

Lease liability

(203)

(208)

Other assets

779

272

Net cash used in operating activities

 

(22,885)

 

(23,777)

Cash flows from investing activities:

 

 

Cash acquired in connection with the acquistion of Flame

50,362

Payment of direct and incremental costs of the asset acquisition

(1,393)

Net cash provided by investing activities

 

48,969

 

Cash flows from financing activities:

 

 

Payment of redemption of 2019 warrants

 

(29)

 

Payment of deferred costs

(210)

Net cash used in financing activities

 

(29)

 

(210)

Effect of exchange rate changes on cash and cash equivalents

 

(140)

 

(46)

Net increase (decrease) in cash and cash equivalents

 

25,915

 

(24,033)

Cash and cash equivalents at beginning of period

 

65,500

 

114,916

Cash and cash equivalents at end of period

$

91,415

$

90,883

Supplemental disclosure of non-cash financing activities:

Issuance and conversion of Series X Preferred Stock issued in connection with the acquisition of Flame to common stock

$

67,715

$

Reclassification of Series X Preferred Stock Warrants from liability to equity

$

78

$

Issuance of common stock in connection with the acquisition of Flame

$

9,805

$

Issuance of warrants for the purchase of common stock in connection with the acquisition of Flame

$

13

$

Net liabilities assumed from acquistion of Flame

$

928

$

Remeasurement of right-of-use asset and lease liability

$

$

609

See notes to condensed consolidated financial statements.

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Leap Therapeutics, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

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 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 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. Its 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 condensed consolidated financial statements as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2023.

The condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments which are necessary for the fair presentation of the Company’s financial position as of June 30, 2023, statements of operations and statements of comprehensive loss for the three and six months ended June 30, 2023, and 2022 and statements of cash flows for the six months ended June 30, 2023 and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

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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 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.

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 condensed consolidated financial statements are issued. As of June 30, 2023, the Company had cash and cash equivalents of $91,415. Additionally, the Company had an accumulated deficit of $373,421 at June 30, 2023, and during the six months ended June 30, 2023, the Company incurred a net loss of $55,253. The Company expects to continue to generate operating losses for the foreseeable future. The Company believes that its cash and cash equivalents of $91,415 as of June 30, 2023 will be sufficient to fund its operating expenses for at least the next 12 months from 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 condensed 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 condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

Under the program, a percentage of eligible research and development expenses incurred by the Company through its subsidiary in Australia are reimbursed. The percentage was 43.5% for the year ended December 31, 2022 and for the six months ended June 30, 2023.

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The research and development incentive receivable represents an amount due in connection with the above program. The Company recorded a research and development incentive receivable of $2,609 and $2,099 as of June 30, 2023 and December 31, 2022, respectively, in the condensed consolidated balance sheets and other income from Australian research and development incentives of $298 and $587, respectively, for the three months ended June 30, 2023 and 2022, and $570 and $624 for the six months ended June 30, 2023 and 2022, respectively, in the condensed consolidated statements of operations related to refundable research and development incentive program payments in Australia.

The following table shows the change in the research and development incentive receivable from January 1, 2022 to June 30, 2023 (in thousands):

Balance at January 1, 2022

    

$

1,189

Australian research and development incentive income, net

 

2,051

Cash received for 2021 eligible expenses

 

(1,064)

Foreign currency translation

 

(77)

Balance at December 31, 2022

2,099

Australian research and development incentive income, net

570

Foreign currency translation

(60)

Balance at June 30, 2023

$

2,609

Foreign Currency Translation

The financial statements of the Company’s Australian subsidiary are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated into U.S. dollars at an exchange rate 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 period. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders’ equity. Realized and unrealized foreign currency transaction gains and losses are included in the results of operations.

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 year ended December 31, 2022 or for the six months ended June 30, 2023.

Deposits

As of June 30, 2023 and December 31, 2022, there were $934 and $1,108, 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, which were recorded in the condensed consolidated balance sheets.

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”) and in the warrants that were issued in a private placement in March 2020 (the “March 2020 Coverage 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.

The Company initially classified the warrants that were exercisable for shares for Series X Non-Voting Convertible Preferred Stock (the “January 2023 Series X Preferred Stock Warrants”) as a liability on its condensed consolidated balance sheet on January 17, 2023 and subsequently remeasured the warrant liability to fair value at each reporting date until the conversion of Series X Non-

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Voting Convertible Preferred Stock (the “Series X Preferred Stock”) into common stock, which occurred on June 21, 2023. Changes in the fair value of the warrant liability were recognized as gains (losses) in the Company’s condensed consolidated statement of operations.

During the three months ended June 30, 2023, in connection with obtaining Stockholder Approval to convert shares of Series X Preferred Stock into shares of common stock (“Stockholder Approval”), the January 2023 Series X Preferred Stock Warrants were reclassified from liability to equity.

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.

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

    

Total

    

Level 1

    

Level 2

    

Level 3

June 30, 2023

Assets:

Cash equivalents

$

61,135

$

61,135

$

$

Total assets

$

61,135

$

61,135

$

$

December 31, 2022

Assets:

Cash equivalents

$

62,074

$

62,074

$

$

Total assets

$

62,074

$

62,074

$

$

Cash equivalents of $61,135 and $62,074 as of June 30, 2023 and December 31, 2022, respectively, consisted of overnight investments and money market funds which are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

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

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Leases

The Company accounts for leases in accordance with Accounting Standards Codification, or ASC, Topic 842, 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 Topic 842, 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.

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.

Reverse Stock Split

On June 21, 2023, the Company effected a one-for-ten reverse stock split of its issued and outstanding shares of common stock, which also adjusted the conversion ratio of its Series X Preferred Stock such that each share of Series X Preferred Stock became convertible into 100 shares of common stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split. All fractional shares resulting from the reverse stock split were paid in cash.

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

For a discussion of recent accounting pronouncements please refer to Note 2, “Summary of Significant Accounting Policies.” in the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2022.

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3. Acquisition of Flame Biosciences

Merger

On January 17, 2023 (the “Effective Date”), Leap acquired 100% of the outstanding equity of Flame, in accordance with the terms of the Agreement and Plan of Merger, dated as of the Effective Date (the “Merger Agreement”), by and among Leap, Fire Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Leap (“First Merger Sub”), Flame Biosciences LLC, a Delaware limited liability company and wholly owned subsidiary of Leap (“Second Merger Sub”), Flame, and the Stockholder Representative named therein. Pursuant to the Merger Agreement, First Merger Sub merged with and into Flame, and Flame was the surviving corporation of such merger and became a wholly owned subsidiary of Leap (the “First Merger”). Immediately following the First Merger, Flame merged with and into Second Merger Sub, and Second Merger Sub was the surviving entity of such merger (together with the First Merger, the “Merger”).

Pursuant to the Merger, Leap agreed to issue to the stockholders of Flame (the “Flame Stockholders”) 1,972,901 shares of common stock, and 136,248 shares of Series X Preferred Stock, which was a newly designated series of preferred stock that is intended to have economic rights equivalent to the common stock, but with limited voting rights, and issued to the warrant holders of Flame (the “Flame Warrant Holders”) the right to acquire 6,530 shares of common stock (the “January 2023 Common Stock Warrants”) and 443 shares of Series X Preferred Stock (the “January 2023 Series X Preferred Stock Warrants”). Each share of Series X Preferred Stock converted into 100 shares of common stock, as a result of the 1 for 10 reverse stock split approved by the stockholders and effected by the Board of Directors during the three months ended June 30, 2023. Under the terms of the Merger Agreement, Leap held back approximately 15,604 Series X Preferred shares (the “Holdback Shares”), which converted into 1,560,400 shares of common stock out of the aggregate number of shares that the Flame Stockholders otherwise would be entitled to receive pursuant to the Merger so that Leap can have recourse to the Holdback Shares for purposes of satisfying certain claims for indemnification that Leap may have against the Flame Stockholders in connection with the Merger.

On June 16, 2023, the Company obtained Stockholder Approval to convert the Series X Preferred Stock into shares of its common stock, which occurred on June 21, 2023.

The Company accounted for the acquisition of Flame as an asset acquisition allocating the purchase price under GAAP of $79,016 to net assets acquired. Although there is a presumption under SEC Rule 11-01(d) (“11-01(d)”) that when a legal entity is acquired, it represents a business acquisition, the Company concluded that in this case, the transaction did not represent the acquisition of a business. After considering the criteria set forth in 11-01(d), the Company concluded that the acquisition of Flame by the Company was an acquisition of assets and not an acquisition of a business in accordance with 11-01(d). Specifically, the Company concluded that 1) the entity did not generate revenue and 2) there was not sufficient continuity of Flame’s operations prior to and following the transaction, in that no facilities, employees, sales force, distribution system, customer base, trade names or production techniques remained with the entity after the acquisition.

Leap primarily acquired cash of $50,362, certain working capital items ($928) and a portfolio of clinical- and pre-clinical-stage intellectual property, in connection with the acquisition of Flame. The Company accounted for the acquisition of Flame by recording the cash and any other assets and liabilities of Flame on its condensed consolidated balance sheet at their historical carrying values, which approximates fair values. The remaining fair value of the consideration transferred was allocated to the in-process research and development (“IPR&D”) assets acquired. Certain transaction costs that were not deemed to meet the criteria of costs directly attributable to the issuance of securities were capitalized in accordance with ASC 805-50-30-1 and recognized as part of fair value of assets acquired. As the Company concluded that such IPR&D does not have an alternative future use, the relative fair value allocated to acquired IPR&D of $29,582 was expensed in research and development expenses within the Company’s condensed consolidated statement of operations during the six months ended June 30, 2023.

The following table summarizes the net assets acquired based on their estimated fair values as of January 17, 2023 (in thousands):

Acquired IPR&D

    

$

29,582

Cash and cash equivalents

 

50,362

Accounts payable and accrued liabilities

 

(928)

Total acquisition value

$

79,016

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The fair value assigned to each component of the purchase consideration, including direct costs of the acquisition of $1,393, as of the Effective Date is set forth in the table below (in thousands, except share and per share amounts):

    

    

    

Equivalent common

    

    

Number of shares

shares

Fair Value 

Leap common stock (par value $0.0001 per share)

 

1,972,901

 

1,972,901

$

9,805

Leap Series X Preferred Stock (100:1)

 

136,248

 

13,624,800

 

67,715

Warrants on Leap common stock

 

6,530

 

6,530

 

13

Warrants on Leap Series X Preferred Stock (100:1)

 

443

 

44,300

 

90

Direct and incremental costs of the asset acquisition

 

  

 

 

1,393

Total

 

  

 

15,648,531

$

79,016

In addition, subject to and upon the terms and conditions set forth in the Merger Agreement, the Company may also (i) pay Contingent Merger Consideration (as defined in the Merger Agreement) that may become payable if, and only if, certain assets of Flame related to Flame’s FL-101 program and/or FL-103 program are sold after the consummation of the Merger pursuant to the FL-101/103 Disposition Agreement (as defined in the Merger Agreement), which Contingent Merger Consideration shall be 80% of the after-tax net proceeds of such sale, if any, and the payment thereof is subject to the terms and conditions set forth in the Merger Agreement and (ii) issue pursuant to the Merger additional shares of Series X Preferred Stock or common stock as a result of any applicable post-closing purchase price adjustment in the event that Flame’s actual Company Net Cash (as defined in the Merger Agreement) as of the Effective Date is determined to be greater than Flame’s estimated Company Net Cash as of the closing.

Series X Preferred Stock

Pursuant to the Merger, the Company agreed to issue 136,248 shares of Series X Preferred Stock to Flame Stockholders and January 2023 Series X Preferred Stock Warrants for 443 shares of Series X Preferred Stock to Flame Warrant Holders. The Company obtained Stockholder Approval during the three months ended June 30, 2023 to convert each issued share of Series X Preferred Stock and each share of Series X Preferred Stock issuable pursuant to the January 2023 Series X Preferred Stock Warrants into 100 shares of its common stock. The Series X Preferred Stock was converted to common stock on June 21, 2023.

January 2023 Common Stock Warrants and January 2023 Series X Preferred Stock Warrants

In January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders became exercisable for 6,530 shares of Leap’s common stock (the “January 2023 Common Stock Warrants”). The January 2023 Common Stock Warrants have an exercise price of $6.80 per share and expire in February 2025. The January 2023 Common Stock Warrants qualify for equity classification.

Also in January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders became exercisable for 443 shares of Series X Preferred Stock (the “January 2023 Series X Preferred Stock Warrants”). Upon obtaining Stockholder Approval for the conversion of the Series X Preferred Stock and the 1 for 10 reverse stock split, each share of Series X Preferred Stock converted into 100 shares of Common Stock. The January 2023 Series X Preferred Stock Warrants have an exercise price of $6.78 per share and expire in February 2025.

The Company initially recorded the January 2023 Series X Preferred Stock Warrants as a liability on the Effective Date and the warrant liability was subsequently remeasured to fair value at each reporting date and on the date on which Stockholder Approval to convert shares of Series X Preferred Stock into shares of common stock was obtained. On June 21, 2023, after obtaining stockholder approval for the conversion of the Series X Preferred Stock into common stock, the January 2023 Series X Preferred Stock Warrants were reclassified from liability to equity.

Changes in the fair value of the warrant liability are recognized as gains (losses) in the Company’s consolidated statement of operations. During the three and six months ended June 30, 2023, the Company recorded a loss of ($38) and a gain of $12 in its condensed consolidated statement of operations.

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4. Accrued Expenses

Accrued expenses consist of the following:

June 30, 

    

December 31, 

    

2023

    

2022

Clinical trials

$

2,892

$

2,093

Professional fees

 

299

 

533

Payroll and related expenses

 

1,635

 

2,526

Accrued expenses

$

4,826

$

5,152

5. 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’s existing lease expires in July 2024 and includes 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 lease term. 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 June 30, 2023, a right-of-use asset of $467 and lease liability of $474 are reflected on the condensed consolidated balance sheets. The Company recorded rent expense of $114 and $112, respectively, during the three months ended June 30, 2023 and 2022, and $228 and $220, respectively, during the six months ended June 30, 2023 and 2022.

Future lease payments under non-cancelable operating leases as of June 30, 2023 are detailed as follows:

Future Operating Lease Payments

2023

    

226

2024

268

Total Lease Payments

 

494

Less: imputed interest

 

(20)

Total operating lease liabilities

$

474

19

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6. Warrants

As of June 30, 2023, the number of shares of common stock issuable upon the exercise of outstanding warrants, consisted of the following:

June 30, 2023

Number of Common Shares

Description

    

Issuable

    

Exercise Price

    

Expiration Date

January 23 2017 Warrants

5,450

$

0.10

Upon M&A Event

2017 Warrants

250,227

$

10.55

November 2024

2019 Warrants

690,813

$

19.50

February 2026

March 2020 Pre-funded Warrants

824,716

$

0.01

No Expiry

March 2020 Coverage Warrants

2,594,501

$

21.10

Jan - March 2027

September 2021 Pre-funded Warrants

591,602

$

0.01

No Expiry

January 2023 Common Stock Warrants

50,830

$

6.78

February 2025

5,008,139

2019 Warrants

During the six months ended June 30, 2023, the Company redeemed 10,000 of the 2019 Warrants at a purchase price of $