| Shareholders' Equity | Note 6. Shareholders’ Equity Preferred Stock As of December 31,
2019, the Company had 3,480,000 authorized shares of preferred stock, of which 2,438,866 shares designated as Series A Preferred
Stock (the “Series A Preferred Stock”) were issued and outstanding. Upon the Company’s
IPO, all shares of the Company’s Series A preferred stock were converted into 2,438,851 shares of common stock effective
June 15, 2020, with fractional share adjustments made in connection with the conversion as discussed below. As of December 31,
2020, the Company had 1,000,000 authorized shares of preferred stock, with zero shares of preferred stock issued and outstanding. The holders of Series
A Preferred Stock were entitled to receive dividends when, as and if declared by the Company’s Board of Directors, payable
in preference and priority to any declaration or payment of dividends on Common Stock. No dividends on any Series A Preferred
Stock were declared and no dividends on Common Stock have been declared to date. In March 2019, the
Company sold 590,643 shares of Series A preferred stock for aggregate proceeds of approximately $1,850,000. The Company also issued
213,510 shares of Series A preferred stock in March 2019, in connection with the conversion of the Simple Agreement for Future
Equity (SAFE) agreements. See Note 7. In connection with the sale and issuance of the Series A preferred stock in March 2019,
the Company issued warrants to purchase an aggregate of 96,499 shares of Series A preferred stock at an initial exercise price
of $3.13 per share. In July 2019, the
Company sold 341,761 shares of Series A preferred stock for aggregate proceeds of approximately $1,070,000. In connection with
the issuance of the Series A preferred stock, the Company issued warrants to purchase an aggregate of 41,015 shares of Series
A preferred stock at an initial exercise price of $3.13 per share. Each share of Series
A Preferred Stock was convertible into one share of Common Stock, subject to adjustments for anti-dilution. In addition, the terms
of the Series A Preferred Stock provided that it would automatically convert into Common Stock upon the closing of an initial
public offering meeting certain specified conditions, and also that it would convert into Common Stock in the event holders of
at least 75% of the Series A Preferred Stock approved a mandatory conversion. The holders of the
Series A Preferred Stock, exclusively and as a separate class, had the right to elect two directors of the Company, and two directors
of the Company were elected by the holders of Series A Preferred Stock in accordance with such provision. The Series A Preferred
Stock also had the right to vote together with holders of Common Stock on any matter presented to the shareholders of the Company
for their action or consideration. In addition, the separate approval of a majority of the Series A Preferred Stock was required
in connection with specified Company activities and transactions, including a merger or consolidation of the Company, and the
liquidation, dissolution or winding-up the business and affairs of the Company. In the event of a
voluntary or involuntary liquidation, dissolution or winding up of the Company or a deemed liquidation event, the terms of the
Series A Preferred Stock provided that holders of Series A Preferred Stock would be entitled to be paid, out of the assets of
the Company available for distribution, an amount equal to $3.13 per share, plus any dividends declared but unpaid thereon, before
any payment was made to the holders of Common Stock. The liquidation preference of the Series A Preferred Stock was approximately
$7,639,000 at December 31, 2019. The terms of the Series A Preferred Stock provided that, if upon any liquidation, dissolution
or winding up of the Company or deemed liquidation event, the assets of the Company available for distribution to its shareholders
should be insufficient to pay holders of Series A Preferred Stock the full amount to which they would otherwise be entitled, the
holders of Series A Preferred Stock would share ratably in any distribution of the assets available for distribution in proportion
to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. Effective January
15, 2020, as a result of the Company’s reincorporation in the state of Delaware, the par value of the Company’s preferred
stock was changed from $0.01 to $0.0001 per share, and all data on preferred stock was retroactively adjusted to be shown herein
as reflective of this change. Common Stock On June 15, 2020,
the Company received net proceeds of $23,419,721 in its IPO, after deducting underwriting discounts and commissions of $1,968,750
and other offering expenses of $861,529 borne by the Company. The Company issued and sold 1,750,000 shares of common stock in
its IPO at a price of $15.00 per share. In connection with the IPO, all shares of the Company’s Series A Preferred Stock
were converted into 2,438,851 shares of common stock, after giving effect to the 1.74 for 1 forward stock split of the common
stock and net of the fractional shares adjustments that occurred in connection with the IPO. The Company made payments
of approximately $261 in the aggregate in connection with fractional shares resulting from the stock split and the conversion
of the preferred stock that took place in connection with the IPO. During the year ended
December 31, 2020, the Company issued 50,460 shares of common stock, relating to the exercise of stock options. The shares were
issued at a purchase price of $1.03 for total proceeds of $52,000. During the year ended
December 31, 2020, the Company issued 3,350 shares of common stock related to a cashless exercise of a warrant to purchase 4,022
shares. As of December 31,
2020, the Company had 25,000,000 authorized shares of Common Stock, of which 6,220,927 shares were issued and outstanding. As
of December 31, 2019, the Company had 12,180,000 authorized shares of Common Stock, of which 1,978,269 shares were issued and
outstanding. Options On August 29, 2018,
the Board of Directors of the Company adopted the Lantern Pharma Inc. 2018 Equity Incentive Plan, which was subsequently amended
on December 17, 2018 and February 26, 2020. The Lantern Pharma Inc. 2018 Equity Incentive Plan, as amended and restated, is referred
to herein as the “Plan”. The Company reserved 1,489,680 shares of its common stock for issuance under the Plan. The
Plan is designed to provide additional incentives to employees, directors and consultants to remain in the service of the Company
as well as to encourage stock acquisition by members of these targeted groups, which in the opinion of the management will support
the alignment of the interests of the members of these groups and stockholders. Options granted under the Plan are generally exercisable
for up to 10 years from grant date. 535,099 shares remain available for future awards under the Plan at December 31, 2020, following
the grant of options and the award of restricted stock grants through December 31, 2020. The Company recorded stock-based compensation
of approximately $1,192,000 and $118,000 related to stock options during the years ended December 31, 2020 and 2019, respectively.
Total remaining unrecognized compensation expense for non-vested options is $2,480,912 as of December 31, 2020, and is expected
to be recognized over a weighted average period of 1.3 years. The weighted average remaining contractual term of outstanding options
at December 31, 2020 is 8.5 years. A summary of stock
option activity under the Plan during the years ended December 31, 2020 and 2019 is presented below:
Options Outstanding Options Exercisable
Number
of Weighted-Average Number
of Weighted-Average
Outstanding December 31, 2018 629,060 $ 1.03 194,479 $ 1.03
Granted 1,342 $ 1.03 - -
Exercised - - - -
Cancelled or expired (22,911 ) $ 1.03 - -
Outstanding December 31, 2019 607,491 $ 1.03 393,413 $ 1.03
Granted 321,743 $ 15.01 - -
Exercised (50,460 ) $ 1.03 - -
Cancelled or expired (43,166 ) $ 1.03 - -
Outstanding December 31, 2020 835,608 $ 6.41 610,633 $ 3.24 For 2020 and 2019,
the fair value of each option granted was estimated using the Black-Scholes option-pricing model, using the following weighted
average assumptions:
2020 2019
Term (in years) 7.00 5.94
Risk Free Rate 0.54% - 0.67 % 2.79 %
Volatility 83.2% - 84.37% 60.1 %
Dividend Yield 0.0 % 0.0 %
Grant Date Fair Value $ 11.01 – 11.28 $ 0.59 The fair value of
options is recognized as an expense over the vesting period and forfeitures are accounted for as they occur. The total intrinsic
value of options outstanding at December 31, 2020 was $10,726,878, and the total intrinsic value of options exercisable at December
31, 2020 was $9,773,797. The total intrinsic value of options exercised during the year ended December 31, 2020 was $20,590. The
intrinsic value of options outstanding at December 31, 2019 was $0. No options were exercised during the year ended December 31,
2019.
Expected Term - The Company used a weighted average of time to vesting
and maturity date.
Expected Volatility- Due to the Company’s limited operating history and a lack
of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the
historical volatility of a group of similar companies that are publicly traded commensurate with expected term as of grant
date. The historical volatility data was computed using the daily closing prices for the selected comparable companies’
shares.
Risk-Free Interest Rate- The Company used the U.S. treasury bill rate commensurate with
the expected term as of grant date.
Expected Dividend- As the Company has not issued any dividends and does not expect
to issue dividends over the life of the options, the Company has estimated the dividend yield to be zero. Warrants The Company had warrants
to purchase 325,618 shares of common stock outstanding and exercisable as of December 31, 2020 at a weighted average exercise
price of $6.49 per share. The Company had warrants to purchase 262,003 shares of Series A Preferred Stock outstanding and exercisable
as of December 31, 2019 at a weighted average exercise price of $3.13 per share. In connection with
the Series A Preferred Stock financing transactions discussed above, in 2019 the Company issued warrants to purchase an aggregate
of 137,513 shares of Series A Preferred Stock. In connection with
the IPO and the conversion of the Series A Preferred Stock into common stock, all outstanding warrants to purchase Series A Preferred
Stock converted into warrants to purchase common stock. In connection with
the IPO, the Company granted the underwriters warrants (the “Underwriters’ Warrants”) to purchase an aggregate
of 70,000 shares of common stock at an exercise price of $18.75 per share, which is 125% of the initial public offering price.
The Underwriters’ Warrants have a five-year term and were not exercisable prior to December 7, 2020. All of the Underwriters’
Warrants were outstanding at December 31, 2020. In 2020, the Company
issued 3,350 shares of common stock related to a cashless exercise of a warrant to purchase 4,022 shares. In 2019, warrants to
purchase an aggregate of 39,651 shares of Series A Preferred Stock were modified to become warrants to purchase an aggregate of
27,754 shares of Series A Preferred Stock. As part of the modification, the term of these warrants was extended from .02 to 1.02
years. The fair value of the modified warrants was approximately $21,000 and is recorded in additional paid in capital. In 2020, a warrant
to purchase an aggregate of 23,734 shares of Common Stock was modified to become a warrant to purchase an aggregate of 21,360
shares of Common Stock. As part of the modification, the term of the warrant was extended from .003 to 1.003 years. The fair value
of the modified warrant was approximately $36,000 and is recorded in additional paid in capital. |
