What changed in this filing

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Item 9A. Controls and Procedures

2021-03-12 compared with 2020-03-09 · 278 added, 248 removed, 271 unchanged (66% of the section changed)

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.

The term “disclosure controls and procedures,”

as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

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.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Annual Report on Internal Controls Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework (2013)”

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that, as of December 31, 2019, our internal control over financial reporting was effective.

In September 2020, we were the victim of an email-based wire fraud which involved two electronic communications impersonating one of our vendors, resulting in our sending wires totaling $1.9 million to accounts controlled by the impersonator.

As a result of the foregoing, we identified a material weakness due to our internal controls having not been adequately designed to prevent or timely detect unauthorized cash disbursements.

Specifically, certain members within our finance organization failed to exercise appropriate skepticism and oversight for disbursement of Company-owned funds , and our cash disbursement process was not adequately designed to identify unauthorized payment requests.

We do not believe that this breach had a material adverse effect on our business.

Management took immediate action to remediate the material weakness, including enhancing and formalizing cash disbursement controls to prevent and timely detect unauthorized cash disbursements and significantly enhancing our information technology infrastructure and security measures.

We have also added additional members to the finance and information technology teams with greater experience in the area of internal controls and security.

Management has concluded that the material was remediated during the fourth quarter of 2020 and, based on management’s assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission, concluded that, as of December 31, 2020, our internal control over financial reporting was effective .

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except for the remediation efforts described above taken to address the material weakness, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2020 (the “2020 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2019.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2020.

Executive Compensation

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Exhibits, Financial Statement Schedules

The following documents are filed as part of this report:

(a) The following documents are filed as part of this report:

(1) Financial Statements:

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’

Equity (Deficit)

Statements of Cash Flows

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Financial Statements

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All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(3) Exhibits.

Amended and Restated Certificate of Incorporation.

Amended and Restated Bylaws

Description of the Registrant’s Securities Registered Under Section 12 of the Exchange Act

Specimen Stock Certificate evidencing the shares of common stock

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Second Amended and Restated Separation and Shared Services Agreement, dated March 6, 2020 , by and between BioXcel Corporation and BioXcel Therapeutics, Inc.

F irst Amendment to Second Amended and Restated Separation and Shared Services Agreement, dated March 3, 2021, by and between BioXcel LLC and BioXcel Therapeutics Inc.

Amended and Restated Asset Contribution Agreement, effective November 7, 2017, by and between BioXcel Corporation and BioXcel Therapeutics, Inc.

Collaborative Research Agreement, dated August 27, 2017, by and between BioXcel Therapeutics, Inc.

and Nektar Therapeutics

Clinical Trial Collaboration Agreement, dated September 21, 2018, by and between BioXcel Therapeutics, Inc.

and Nektar Therapeutics

Lease Agreement, dated as of August 20, 2018, by and between Fusco Harbour Associates, LLC, as Landlord, and BioXcel Therapeutics, Inc., as Tenant

First Amendment, dated August 19, 2020, to Lease Agreement, dated as of August 20, 2018, by and between Fusco Harbour Associates, LLC, as Landlord, and BioXcel Therapeutics, Inc., as Tenant.

2017 Equity Incentive Plan

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Form of Non-Statutory Stock option Agreement under the 2017 Equity Incentive Plan

10.10†

BioXcel Therapeutics, Inc.

2020 Incentive Award Plan and forms of award agreements thereunder

BioXcel Therapeutics, Inc.

2020 Employee Stock Purchase Plan

Form of Indemnification Agreement with directors and executive officers

10.11†

Employment Agreement, dated March 7, 2018 by and between BioXcel Therapeutics, Inc.

and Vimal Mehta

10.12†

Employment Agreement, dated February 12, 2018, by and between BioXcel Therapeutics, Inc.

and Frank Yocca

10.13†

Employment Agreement, effective October 2, 2017, by and between BioXcel Therapeutics, Inc.

and Richard Steinhart

10.14†

Employment Agreement, dated June 1, 2018, by and between BioXcel Therapeutics, Inc.

Vincent O’Neill, M.D.

Employment Agreement between William Kane and BioXcel Therapeutics, Inc., dated May 15, 2020.

Employment Agreement between Reina Benabou and BioXcel Therapeutics, Inc., dated June 21, 2020.

Employment Agreement between Javier Rodriguez and BioXcel Therapeutics, Inc., dated February 15, 2021.

Non-Employee Director Compensation Program

Subsidiaries of BioXcel Therapeutics, Inc.

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Vimal Mehta, Ph.D.

Chief Executive Officer, President, Secretary and Director (Principal Executive Officer)

Chief Executive Officer, President, and Director (Principal Executive Officer)

March 12, 2021

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March 12, 2021

/s/ KRISHNAN NANDABALAN

Krishnan Nandabalan, Ph.D.

/s/ JUNE BRAY

March 12, 2021

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March 12, 2021

/s/ KRISHNAN NANDABALAN

Krishnan Nandabalan, Ph.D.

March 12, 2021

/s/ MICHAL VOTRUBA

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Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors of BioXcel Therapeutics, Inc.

Shareholders and Board of Directors

BioXcel Therapeutics, Inc.

New Haven, CT

Opinion on the Financial Statements

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

(the "Company") as of December 31, 2019 and 2018, and the related statements of operations, changes in stockholders’

equity (deficit), and cash flows for each of the two years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2020 and 2019, the related statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, 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 at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 , 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.

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.

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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.

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/s/ BDO USA, LLP

We have served as the Company’s auditor since 2017.

We have served as the Company's auditor since 2017 .

Stamford, Connecticut

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BALANCE SHEETS

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

(amounts in thousands, except per share amounts)

Current assets

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Prepaid expenses and other current assets

Due from Parent

Total current assets

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Total current liabilities

Operating lease liability

Long-term portion of operating lease liability

Total liabilities

Commitments and contingencies (Note 13)

Stockholders' equity

Preferred stock, $0.001 par value, 10,000,000 shares authorized;

no shares issued or outstanding

Common stock, $0.001 par value, 50,000 shares authorized;

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STATEMENTS OF OPERATIONS

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

Operating costs and expenses

(amounts in thousands, except per share amounts)

Year Ended December 31,

Operating expenses

Research and development

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Loss from operations

Dividend and interest income, net

Net loss per share attributable to common stockholders/ Parent basic and diluted

Other income (expense)

Dividend and interest income

Interest expense

Net loss per share - basic and diluted

Weighted average shares outstanding - basic and diluted

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BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

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

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

Balance as of January 1, 2019

Issuance of common stock

Issuance of common stock, upon completion of Initial Public Offering, net of issuance costs of $5,898

Issuance of common shares, net of issuance costs of $1,991

Stock-based compensation

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Balance as of December 31, 2019

Issuance of common stock, net of issuance costs of $1,991

Issuance of common shares, net of issuance costs of $17,815

Purchase and cancellation of shares from BioXcel Corporation

Stock-based compensation

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STATEMENTS OF CASH FLOWS

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

(amounts in thousands)

Year ended December 31,

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Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable, accrued expenses and other liabilities

Prepaid expenses, other assets and right of use assets

Accounts payable, accrued expenses, lease liabilities and other liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of equipment

Purchases of equipment and leasehold improvements

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net

Proceeds from issuance of common stock, net of issuance costs

Purchase and cancellation of shares from BioXcel Corporation

Exercise of options

Payable to Parent for services

Due to Parent

Note Payable —

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the period

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Interest paid

Supplemental disclosure of non-cash Operating, Investing and Financing Activities:

Deferred issuance costs reclassified to additional paid-in-capital upon completion of initial public offering

Right-of-use asset obtained in exchange for new operating lease liability

Purchases of equipment and leasehold improvements in accounts payable and accrued expense

Operating right of use lease assets obtained in exchange for operating lease liabilities

Operating lease right of use asset and liability (non-cash adoption balances)

The accompanying notes are an integral part of these financial statements.

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NOTES TO FINANCIAL STATEMENTS

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

Organization and Principal Activities

(in thousands, except per share amounts)

Nature of the Business

BioXcel Therapeutics, Inc.

is a clinical stage biopharmaceutical company utilizing artificial intelligence to identify improved therapies in neuroscience and immuno-oncology.

is a clinical stage biopharmaceutical company focused on drug development that utilizes artificial intelligence to identify improved therapies in neuroscience and immuno-oncology.

BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices.

BTI's two most advanced clinical development programs are BXCL501, a sublingual thin film formulation designed for acute treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an orally administered systemic innate immunity activator designed for treatment of a rare form of prostate cancer, pancreatic cancer and advanced solid cancers in combination with other immuno-oncology agents.

The Company’s primary activities have been clinical and pre-clinical research and development for BXCL501 and BXCL701.

As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company”

or “BTI”

refer to BioXcel Therapeutics, Inc., and “BioXcel”

or “Parent”

refer to BioXcel Corporation, the Company’s parent.

The Company is a majority-owned subsidiary of BioXcel Corporation, also referred to as BioXcel or Parent, and was incorporated under the laws of the State of Delaware on March 29, 2017.

The Company’s principal office is in New Haven, Connecticut.

Initial Public Offering

On March 7, 2018, the Company’s registration statement on Form S‑1 relating to its initial public offering of its common stock, or the IPO, was declared effective by the Securities and Exchange Commission, or the SEC.

The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share.

Gross proceeds totaled $60,000 and net proceeds totaled $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering expenses of approximately $1,698.

In connection with and immediately prior to the closing of its IPO, the Company effectuated a 237 to one stock split.

Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements have been adjusted retroactively, where applicable, to reflect the stock split.

Also, in connection with the completion of its IPO, the Company amended its articles of incorporation to authorize the issuance of up to 50,000,000 shares of common stock with a par value of $.001 each and 10,000,000 shares of preferred stock with a par value of $.001 each.

BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal symptoms, and BXCL701, an orally administered, systemic innate immune activator for the treatment of aggressive forms of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI” refer to BioXcel Therapeutics, Inc., and “BioXcel” or “Parent” refer to BioXcel LLC and, its predecessor, BioXcel Corporation.

The Company is a minority-owned subsidiary of BioXcel and was incorporated under the laws of the State of Delaware on March 29, 2017.

The Company’s principal office is in New Haven, Connecticut.

The Company incurred losses of $82,169 and $32,968 for the years ended December 31, 2020 and 2019, respectively.

The Company had an accumulated deficit of $138,857 as of December 31, 2020.

The Company has funded its operations primarily through the sale of equity securities.

Certain reclassifications have been made to the prior year financial information to conform to the current period presentation.

These reclassifications had no effect on the reported results of operations.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus, a global pandemic.

This outbreak has caused and is continuing to cause major disruptions to businesses and financial markets worldwide.

This may affect the Company’s operations and those of third parties on which the Company relies, including causing disruptions in the supply of the Company’s product candidates and the conduct of current and planned preclinical and clinical studies.

The Company may need to limit its operations and may experience limitations in employee resources.

There are risks that the COVID-19 pandemic may be more difficult to contain than currently anticipated in which case the risks described herein could increase significantly.

The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the coronavirus on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity, and the Company’s ability to complete its preclinical and clinical studies on a timely basis, or at all.

The ultimate impact of COVID-19 is highly uncertain and subject to change.

The Company does not yet know the full extent of potential delays or impacts on its business, financing, preclinical and clinical trial activities or the global economy as a whole.

However, these effects could have a material, adverse impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

Basis of Presentation

The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).

Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP.

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in its financial statements and the accompanying notes.

The most significant estimates in the financial

statements relate to the fair value of equity awards and valuation allowance related to the Company’s deferred tax assets.

Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates.

The Company’s financial statements are prepared in accordance with GAAP.

Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

As of December 31, 2019 and 2018, cash equivalents were comprised of money market funds.

As of December 31, 2020, and 2019, cash equivalents were comprised primarily of money market funds.

Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts.

We believe we mitigate such risk by investing in or through major financial institutions.

Deferred Offering Costs

The Company capitalized certain legal, professional accounting and other third-party fees that were directly associated with in-process equity financings as deferred offering costs until the equity financing was consummated.

After consummation of an equity financing, these costs are recorded in shareholders’

equity (deficit) as a reduction of proceeds generated as a result of the offering.

As of December 31, 2017, the Company recorded deferred offering costs relating to its IPO of $461.

The Company’s IPO was completed in March 2018, and these costs, as well as additional IPO costs including commissions of $4,200 and an additional $1,237 of other expenses incurred in 2018, were recorded as a reduction to shareholders’

Property and Equipment

Equipment consists of computers and related equipment and furniture that are stated at cost and depreciated using the straight-line method over estimated useful life of 5 years.

Leasehold improvements are amortized over the shorter of the life of the lease or asset.

Property and equipment are recorded at cost and depreciated and amortized over the shorter of their remaining lease term or their estimated useful life on a straight-line basis as follows:

Equipment 3-5 years

Furniture 7 years

Leasehold improvements Lesser of life of improvement or lease term

Expenditures for maintenance and repairs which do not improve or extend the useful lives of respective assets are expensed as incurred.

When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is include income (loss) from operations.

The Company follows the guidance provided by FASB ASC Topic 360-10, Property, Plant, and Equipment .

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Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Since its inception, the Company has not recognized any impairment or disposition of long-lived assets.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “

Compensation—Stock Compensation, ”

which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options.

The Company’s stock-based compensation plan was adopted and became effective in August 2017.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.

The Company accounts for stock-based compensation in accordance with ASC 718, “ Compensation—Stock Compensation, ” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options.

The Company’s 2017 Equity Incentive Plan became effective in August 2017.

The Company’s 2020 Stock Plan became effective in May 2020.

Following the effective date of the Company's 2020 Stock Plan, the Company ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.

The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model on the date of grant.

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The Black-Scholes option-pricing model was used as its method of determining fair value.

This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables.

These subjective variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

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The periodic expense is then determined based on the valuation of the options.

The Company adopted FASB ASU 2016‑09 as of January 1, 2018 and has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

Research and Development Costs

Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study and manufacturing costs and other expenses that are directly related to the Company’s research and development activities.

At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives.

Such estimates are subject to change as additional information becomes available.

Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Such estimates are subject to change as additional information becomes available.

The Company expenses research and development costs as incurred.

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value Measurements

ASC 820 “

Fair Value Measurements ”

defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements.

Costs related to filing and pursuing patent applications are expensed as incurred as general and administrative costs as recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, “ Fair Value Measurements and Disclosures ” for financial assets and liabilities measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances, or unobservable inputs.

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

ASC 820 requires that fair value measurements be classified and disclosed in one of three categories:

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2—Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.

Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment.

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.

are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment.

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.

The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments.

Net Loss per Share

The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities.

Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the "treasury stock" and/or "if converted" methods as applicable.

The Company did not have any potentially dilutive securities outstanding in any period presented in the accompanying financial statements.

There were 3,009,386 and 2,588,729 shares of options that were excluded from the calculation of the loss per share for the years ended December 31, 2019 and 2018, respectively.

Inclusion of potential common shares would be anti-dilutive for all periods presented and have been excluded from the calculations.

Earnings (Loss) per Share

Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “ Earnings Per Share ,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding.

Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants.

In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive.

Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive.

Segment Information

The Company operates in a single segment.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance.

To date, our chief operating decision maker has made such decisions and assessed performance at the company level as one segment.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016‑02 Lease Accounting Topic 842 .

This ASU requires the Company to record all leases longer than one year on its balance sheet.

Under the new guidance, when the Company records leases on its balance sheet, it will record a liability with a value equal to the present value of payments it will make over the life of the lease and an asset representing the underlying leased asset.

The new accounting guidance requires the Company to determine if its leases are operating or financing leases, similar to current accounting guidance.

The Company will record expense for operating type leases on a straight-line basis as an operating expense and it will record expense for finance type leases as interest expense.

The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted.

The Company adopted the new standard in January 2019 and recorded a Right of Use asset and related liability in the amount of $1,308 on commencement of a new office lease.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic:

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Key provisions include (i) the removal of separation models in ASC 470-20 for convertible instruments;

(ii) expanded disclosures about the terms and features of convertible instruments;

(iii) removed certain conditions for equity classification;

and (iv) updated earnings per share calculation with respects to convertible instruments, share settlement presumption, down round features and the earnings per share denominator.

2020-06 is effective for annual and interim reporting periods beginning after December 15, 2021, and the guidance is to be applied using the full or modified retrospective approach.

Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2020.

The Company does not expect that the adoption of ASU No.

2020-06 new guidance will have a material impact on the Company’s financial statements.

In December 2019, the FASB issued ASU No.

2019-12 , Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income taxes.

This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance.

The ASU is effective for fiscal years beginning after December 15, 2020.

The Company does not expect that the adoption of this new guidance will have a material impact on the Company’s Financial Statements.

2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance.

2019-12 is effective for fiscal years beginning after December 15, 2020.

The Company does not expect that the adoption of ASU No.

2019-12 will have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That

Is a Service Contract .

We adopted this standard effective January 1, 2020 on a prospective basis.

2018-15 requires that certain implementation costs for cloud computing arrangements are capitalized and amortized over the term of associated hosted cloud computing arrangement service and that capitalized implementation costs are classified in prepaid expenses and other assets.

2018-15 also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures.

The adoption of ASU No.

2018-15 did not have an effect on the Company’s financial statements.

Financing Activities

In May 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an initial offering price no greater than $20.0 million (the “Shares”), from time to time, through an “at the market offering” program under which Jefferies will act as sales agent.

The Company sold 66 shares under the Sale Agreement for proceeds of $387, net of issuance costs of $350.

The Sale Agreement was terminated by the Company on September 22, 2019.

In September 2019, the Company entered into an underwriting agreement with several underwriters in connection with the issuance and sale by the Company in a public offering of 2,303 shares of the Company’s common stock at a public offering price of $8.25 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No.

333-230674) and a related prospectus supplement filed with the SEC (the “September 2019 Offering”).

The September 2019 Offering closed on September 30, 2019.

The Company received proceeds of approximately $17,423, net of issuance costs of $1,577 from the September 2019 Offering.

In February 2020, the Company sold in a registered offering 2,300 shares of its common stock at a public offering price of $32.00 per share.

The Company received proceeds of $68,811, net of issuance costs of $4,789.

The Company used $9,024 of the proceeds to purchase and cancel 300 shares of common stock from BioXcel.

In July 2020, the Company sold in a registered offering 4,000 shares of its common stock at a public offering price of $50.00.

The Company received proceeds of approximately $186,974, net of issuance costs of $13,026.

Under the terms of the Underwriting Agreement entered into by the Company in connection with the July 2020 offering, certain stockholders of the Company granted the underwriters an option exercisable for thirty days to purchase up to an additional 600 shares of common stock at the public offering price less underwriting discounts and commissions, which was not exercised.

The Company intends to use the net proceeds of the offering to fund ongoing clinical trials, commercialization preparation and for general corporate purposes.

Transactions with BioXcel

The Company has entered into the Amended and Restated Asset Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration for (i) 9,480,000 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/ bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the Phase 2 proof of concept open label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or combination of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom.

With the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in connection with (ii) above and was paid on April 5, 2018.

The Company has entered into the Amended and Restated Asset Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration for (i) 9,480 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/ bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the Phase 2 proof of concept open label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or combination of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom.

Upon the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in connection with (ii) above and was paid on April 5, 2018.

The Company paid $500 to BioXcel in connection with (iii) above in April 2019.

In July 2019, the Company completed the first dosing of a patient in the combination trial of BXCL701 with Keytruda, and as a result the Company paid $500 to BioXcel in connection with (iv) above in July 2019.

The Company entered into a Separation and Shared Services Agreement with BioXcel that took effect on June 30, 2017, as amended and restated on November 7, 2017 and March 6, 2020, or the Services Agreement, pursuant to which BioXcel will allow us to continue to use the office space, equipment, services and leased employees based on the agreed upon terms and conditions for a payment of defined monthly and/or hourly fees.

The office space and equipment portion of the Services Agreement ended effectively on April 30, 2018 when the Company moved to new office space to accommodate additional personnel that had been hired.

Services provided by BioXcel through its subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties.

These services are primarily for drug discovery and for chemical, manufacturing and controls cost.

The Company entered into a Separation and Shared Services Agreement with BioXcel that took effect on June 30, 2017, as amended and restated, or the Services Agreement, pursuit to which services provided by BioXcel through its

subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties.

These services are primarily for drug discovery, chemical, manufacturing and controls cost, and administrative support.

Service charges recorded under this agreement were $1,262 and $862 for the years ended December 31, 2020 and 2019, respectively.

Under the Services Agreement, the Company has an option, exercisable until December 31, 2020, to enter into a collaborative services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI.

Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI.

The parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30 million in the aggregate.

BioXcel shall continue to make such product identification and related services available to us for at least five years from June 30, 2017.

The parties are currently discussing extending the product identification and related services that BioXcel would provide under the collaborative services agreement, however, as of the date hereof, we have not reached a definitive agreement.

In connection with the Services Agreement, BioXcel agreed to provide the Company a line of credit, which was capped at $1,000, or the Total Funding Amount, pursuant to the terms of a grid note, the (“Grid Note”).

The Grid Note was payable upon the earlier of (i) the completion of an initial public offering and (ii) December 31, 2018, together with interest on the unpaid balance of each advance made under the Grid Note, which would accrue at a rate per annum equal to the applicable federal rate for short-term loans as of the date thereof, in each case calculated based on a 365 day year and actual days elapsed.

All amounts due to BioXcel under the line of credit, the Grid Note, and for expenses paid on the Company’s behalf were paid following the completion of the Company’s IPO on March 20, 2018.

BioXcel shall continue to make such product identification and related services available to us at least September 30, 2024.

The Company paid $9,024 in February 2020 for the purchase and subsequent cancellation of 300 shares owned by BioXcel.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding.

Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants.

In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive.

Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive.

The calculations of basic and diluted net loss per share are as follows (in thousands, except per share amounts):

Net loss (numerator)

Weighted-average share, in thousands (denominator)

Basic and diluted net loss per share

Property and Equipment, net

A summary of property and equipment is as follows:

Computers and related equipment

Leasehold improvements

Accumulated depreciation and amortization

Work in Process

Accumulated depreciation

Depreciation expense was $188 and $155 for the years ended December 31, 2020 and 2019, respectively.

Commitments and Contingencies

Master Service Agreements

The Company has entered into a Master Services Agreement (“MSA”) with a Contract Research Organization, or CRO, dated November 1, 2018 for strategic planning, expert consultation, clinical trial services, statistical programming and analysis, data processing, data management, regulatory, clerical, project management, medical device services, and

other research and development services as set forth in specific work orders.

This agreement is for a period of five (5) years.

Excluding the CRO’s property, all improvements, inventions, processes, techniques, work product, know-how, data and information generated, conceived, reduced to practice or derived under the MSA by the CRO or its personnel and subcontractors, shall be and remain the exclusive property of the Company, and any inventions that may evolve from the foregoing shall belong to the Company.

The Company entered into a series of cancellable work orders to support its clinical trial activities, related to the first of the Company’s BXCL701 clinical trials.

This clinical trial is expected to cost approximately $10,000 and is anticipated to take place over the next two years.

To date, the Company has incurred $1,809 in costs for the work surrounding this trial.

In the first quarter of 2019 the Company entered into a second series of cancellable work orders to support a second clinical trial related the Company’s BXCL 701 product candidate.

This clinical trial is expected to aggregate approximately $8,000 and it is anticipated to take place over the next three years.

Approximately one half of this cost is to be reimbursed by a partner.

The Company has incurred $1,353 of costs in connection with this trial and has also recorded a related receivable of $82.

In addition, an MSA was signed with a second CRO during the first quarter of 2019 to include strategic planning, expert consultation, regulatory activities, data interpretation, New Drug Application services, and research and development services, including clinical, data management, statistical and medical writing activities.

Accrued Expenses

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December 31, 2019

Drugs and clinical trial expenses

Accrued salaries, benefits and travel related costs

Professional and consultant fees

Legal expenses

Other administrative accruals

Stockholders’

Equity (Deficit)

Research and development expenses

Accrued compensation and benefits

Accrued professional expenses

Accrued taxes

Other accrued expenses

Capital Structure

Authorized Capital

The Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.001 per share.

No preferred shares were issued and outstanding as of December 31, 2019 and 2018.

The Company is authorized to issue up to 10,000 preferred shares with a par value of $0.001 per share of which no shares were issued and outstanding as of December 31, 2020 and 2019.

The Company is authorized to issue up to 50,000 shares of common stock with a par value of $0.001 per share.

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The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors.

Common Stock Issuances

On March 7, 2018, the Company’s registration statement on Form S‑1 relating to the Company’s IPO was declared effective by the SEC.

The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share, for gross proceeds of $60,000 and net proceeds of $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering expenses of $1,698.

In January and February 2018, the Company issued 283,452 shares of common stock with an issuance price of $6.88 per share for gross and net proceeds of $1,950.

On May 20, 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company may offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an initial offering price no greater than $20.0 million (the “Shares”), from time to time, through an “at the market offering”

program under which Jefferies will act as sales agent.

The Company sold 66,193 shares under the Sale Agreement for gross proceeds of $737, issuance costs of $350 or net proceeds of $387.

The Sale Agreement was terminated by the Company on September 22, 2019

On September 26, 2019, the Company entered into an underwriting agreement with several underwriters in connection with the issuance and sale by the Company in a public offering of 2,303,030 shares of the Company’s common stock at a public offering price of $8.25 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No.

333-230674) and a related prospectus supplement filed with the SEC (the “September 2019 Offering”).

The September 2019 Offering closed on September 30, 2019.

The Company received gross and net proceeds of approximately $19,000 and $17,423 respectively from the September 2019 Offering.

The Company intends to use the net proceeds for general corporate purposes, which may include development and commercialization of their product candidates, research and development, general and administrative expenses, license or technology acquisitions, and working capital and capital expenditures.

See Note 13 - Subsequent Event for a description of the February 2020 offering.

Stock-Based Compensation

Stock Options

The Company’s 2017 Stock Incentive Plan, or the 2017 Stock Plan, became effective in August 2017 and will expire in August 2027.

Under the 2017 Stock Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards.

As of December 31, 2019, there were 3,389,956 shares of the Company’s common stock authorized for issuance under the 2017 Stock Plan.

Options granted under the 2017 Stock Plan have a term of ten years with the vesting term determined by the board of directors, which is generally four years.

The fair value of options granted during the year ended December 31, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions.

Stock‑based awards to non‑employees are re‑measured at fair value each financial reporting date until performance is complete.

The weighted average fair value of options granted in 2019 and 2018 was $9.68 and $7.64 per option, respectively and were determined using the following assumptions:

2017 Equity Incentive Plan

The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017.

Following the effective date of the Company's 2020 Plan (as defined below), the Company ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

2020 Incentive Award Plan

The Company’s 2020 Incentive Award Plan (the “2020 Plan”) was approved and became effective at the Company’s 2020 annual meeting of Shareholders on May 20, 2020 and unless, earlier terminated by the Board of Directors, will remain in effect until March 26, 2030.

The 2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock authorized for issuance and (ii) 233 shares of the Company’s common stock, which represents the number of shares that remained available for issuance under the 2017 Plan as of immediately prior to the approval of the 2020 Plan by the Company’s shareholders.

Any shares of Common Stock which, as of immediately prior to the approval of the 2020 Plan by the Company’s stockholders, were subject to awards granted under the 2017 Plan that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the number of shares of common stock available for grant under the 2020 Plan.

In addition, the number of shares available for issuance under the 2020 Plan will increase on the first day of each calendar year beginning January 1, 2021 and ending on and including January 1, 2030 by a number of shares equal to the lesser of (A) 4% of the aggregate number of shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares of common stock as is determined by the Board of Directors.

On January 1, 2021, the shares available for issuance under the 2020 Plan increased by 977 shares.

Options granted under the 2020 Plan have a term of ten years with the vesting schedule determined by the Board of Directors, which is generally four years.

As of December 31, 2020, there were 158 shares available to be granted under the 2020 Plan.

A summary of the status of the Company’s stock option activity for the year ended December 31, 2020 is presented below (in thousands, except per share amounts):

Weighted Average

Price per Share

Outstanding as of January 1, 2020

Outstanding as of December 31, 2020

Options vested and exercisable as of December 31, 2020

As of December 31, 2020, the intrinsic value of options outstanding was $117,298.

The intrinsic value for stock options is calculated based on the difference between the exercise prices of the underlying awards and the quoted stock price of the Company’s common stock as of the reporting date.

The total intrinsic value of stock options exercised for the years ended December 31, 2020 and 2019 was $11,629 and $565, respectively.

The weighted average grant date fair value of options granted in 2020 and 2019 was $32.71 and $9.68, respectively.

The weighted average grant date fair value of options vested at December 31, 2020 was $2.61.

The weighted average remaining contractual life is 6.9 years for options exercisable.

Stock-Based Compensation

The fair value of options granted during the years ended December 31, 2020 and 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions.

December 31, 2020

Exercise price per share

December 31, 2019

Expected Term

Expected stock price volatility

Risk-free rate of interest

Fair value of grants per share

Expected Term (years)

Since the Company completed its IPO within the last year, it does not have a history of market prices of its common stock and, as such, volatility was estimated using historical volatilities of similar public companies.

Expected dividend

Prior to the Company’s IPO, it did not have a history of market prices of its common stock and, as such, volatility is estimated using historical volatilities of similar public companies.

The expected term of the employee awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period.

The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term.

The expected term of non-employee awards represents the awards contractual term.

The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options.

The risk-free interest rates are based on the United States Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options.

The following table summarizes information about stock option activity during the period the Plan was in effect (in thousands, except share and per share data):

Weighted Average

Price per Share

Life (in years)

Outstanding as of January 1, 2019

Options granted

Options forfeited

Options exercised

Outstanding as of December 31, 2019

Options vested and exercisable as of December 31, 2019

There were 331,607 shares available for grant as of December 31, 2019.

The Company recognized stock-based compensation expense under the 2017 Stock Plan of $3,070 and $2,872 for the years ended December 31, 2019 and 2018, respectively.

The Company recognized stock-based compensation expense of $14,590 and $3,070 for the years ended December 31, 2020 and 2019, respectively.

Unrecognized compensation expense related to unvested awards as of December 31, 2020 was $24,599 and will be recognized over the remaining vesting periods of the underlying awards.

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BioXcel Charges

BioXcel has granted stock options to its employees under its own Equity Incentive Plan (“BioXcel Plan”).

BioXcel has granted stock options to Company employees under its own Equity Incentive Plan (“BioXcel Plan”).

Stock-based compensation expense from the BioXcel Plan is allocated to the Company over the period over which those stock option awards vest and are based the on the percentage of time spent on Company activities compared to BioXcel activities.

The BioXcel stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.

The estimated fair value of these BioXcel stock option awards was determined using

the Black Scholes option pricing model on the date of grant.

The estimated fair value of these BioXcel stock option awards was determined using the Black Scholes option pricing model on the date of grant.

Significant judgment and estimates were used to estimate the fair value of these awards, as they are not publicly traded.

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The Company charged $1,791 and 1,351 to research and development and general and administrative expense for the year ended December 31, 2019, respectively.

2020 Employee Stock Purchase Plan

The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the Company’s 2020 annual meeting of Shareholders on May 20, 2020.

The ESPP is designed to assist eligible employees of the Company with the opportunity to purchase the Company’s common stock at a discount through accumulated payroll deductions during successive offering periods.

The aggregate number of Shares that may be issued pursuant to rights granted under the ESPP is 100 shares of common stock.

In addition, the number of shares available for issuance under the ESPP will increase on the first day of each calendar year beginning on January 1, 2021 and ending on and including January 1, 2030 by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board.

The number of shares that may be issued or transferred pursuant to rights granted under the component of the ESPP that is intended to qualify for favorable U.S.

federal tax treatment under Section 423 of the Internal Revenue Code (the “Section 423 Component”) shall not exceed 500 shares.

The purchase price will be determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair market value of a share on the first trading day or on the last trading day of the applicable offering period, whichever is lower.

On January 1, 2021, the shares available for issuance under the 2020 ESPP increased by 244 shares.

To date, no shares have been sold under the ESPP.

In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12 th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12 th Floor Lease) which was effective February 22, 2019.

The 12 th Floor Lease expires in February 2026.

In August 2020, the Company entered into an amendment to the 12 th Floor Lease wherein the Company leased an additional 7,245 square feet of space on the 12 th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12 th Floor Lease Amendment”).

The 12 th Floor Lease Amendment expires in February 2026.

The future minimum annual lease payments under these operating leases as of December 31, 2020 are as follows:

Year ending December 31,

Total lease payments

Less imputed interest

Total lease liability

Less current portion of lease liability

Long-term portion operating lease liability

The current portion of the Company’s operating lease liability of $237 as of December 31, 2020 is included in other current liabilities on the balance sheet.

The Company recorded lease expense related to its operating lease right-of-use asset of $345 and $155 for the years ended December 31, 2020 and 2019, respectively.

The Company has an option to renew the lease for one additional five-year term at 95% of the then-prevailing market rates but not less than the rental rate at the end of the initial lease term.

Commitments and Contingencies

From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as information gathering requests, inquiries and/or investigations.

The Company is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be incurred.

As of December 31, 2020, there were no matters which would have a material impact on the Company’s financial results.

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

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From the date of incorporation, the Company is a standalone C corporation subject to corporate income tax and the deferred taxes of the Company have been calculated accordingly.

The significant components of the Company’s net deferred tax assets at December 31, 2019 and 2018 are shown below.

In determining the realizability of the Company’s net deferred tax asset, the Company considered numerous factors, including historical profitability, estimated future taxable income, and the industry in which it operates.

The significant components of the Company’s net deferred tax assets at December 31, 2020 and 2019 are shown below.

Based on this information the Company has provided a valuation allowance for the full amount of its net deferred tax asset because the Company has determined that it is more likely than not that it will not be realized.

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Accrued expense

Total gross deferred tax assets

Lease Accounting - ROU

Lease Accounting - Liability

valuation allowance

Net deferred tax assets

A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended December 31, 2019 and 2018 are as follows:

A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended December 31, 2020 and 2019 are as follows:

Federal statutory rate

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Federal and state credits

Change in valuation allowance

Effective Tax Rate

At December 31, 2019, the Company had approximately $16,406 of gross federal and state net operating loss carry-forwards.

Valuation allowance

At December 31, 2020, the Company had approximately $40,700 of gross federal and $40,700 of gross state net operating loss carry-forwards.

If not utilized, the federal and state net operating loss carry-forwards will begin to expire in 2037.

The federal net operating loss incurred after December 31, 2017 will be carried forward indefinitely.

The federal net operating loss of 38,100 incurred after December 31, 2017 will be carried forward indefinitely.

The utilization of such net operating loss carry-forwards and realization of tax benefits in future years depends predominantly upon having taxable income.

The Company also has approximately $4,324 of federal research and development credits which will begin to expire in 2037 if not utilized.

Our NOLs or credits may also be impaired under state law.

On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law.

The Act contains several new or changed income tax provisions, including but not limited to the following:

increased limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years) and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years.

Most of these provisions are either not applicable or have no material effect on the Company.

Utilization of the net operating loss, or NOL, and research tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that has occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state and foreign provisions.

These ownership changes may limit the amount of NOL and research tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

To date, the Company’s NOLs have not been subject to Section 382 limitation.

In general, an "ownership change"

as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

Furthermore, under the Tax Cuts and Jobs Act

of 2017 and modified by the CARES Act signed on March 27, 2020, although the treatment of NOLs arising on or before December 31, 2017 has generally not changed, NOLs arising on or after January 1, 2018 and beyond may only be used to offset 80% of taxable income for tax years beginning after December 31, 2020.

This change may require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns.

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federal and state net operating losses have occurred since its inception in 2017 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities.

The Company entered into an agreement to lease approximately 11,040 square feet of space on the 12 th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut that commenced February 22, 2019, or the Commencement Date.

The premises were occupied in March 2019.

The term of the 12 th floor lease continues from the Commencement Date through the last day of the calendar month immediately following the seventh anniversary of the Commencement Date.

The Company’s improvement costs were approximately $642 and are being amortized over the life of the lease.

Maturities of the operating lease liability are as follows:

Year ending December 31,

Total lease payments

Less imputed interest

Total lease liability

Less current portion

Operating lease liability

The current portion of the Company’s operating lease liability of $164 as of December 31, 2019 is included in other current liabilities on the balance sheet.

The Company recorded lease expense of $155 related to its operating lease right-of-use asset for the year ended December 31, 2019.

The Company has an option to renew the lease for one additional five-year term at 95% of the then-prevailing market rates but not less than the rental rate at the end of the initial lease term.

Subsequent Event

On February 19, 2020, the Company entered into an underwriting agreement with several underwriters pursuant to its shelf registration statement on Form S-3 in connection with the issuance and sale by the Company in a public offering of 2,000,000 shares of the Company’s common stock at a public offering price of $32.00 per share.

In addition, BTI has granted the underwriters a 30-day option to purchase up to an additional 300,000 shares of common stock from BTI at the public offering price, less underwriting discounts and commissions.

Gross proceeds to BTI from the offering were approximately $64,000, before deducting underwriting discounts and commissions and offering expenses.

To the extent the underwriters exercise their option to purchase additional shares of common stock, the Company intends to use the net proceeds from the sale of additional shares to repurchase shares of common stock (which shares will then be canceled) from BioXcel Corporation at a price equal to the price paid by the underwriters for such shares in the public offering, less underwriting discounts and commissions.

On February 21, 2020 the underwriters exercised their option to purchase an additional 300,000 shares of BTI stock.

Subsequent to the underwriters exercise BTI purchased 300,000 shares from BioXcel Corporation at a price equal to the price paid by the underwriters for such shares in the public offering less underwriting discounts and commissions at a per share price of $30.08.

The offering closed on February 24, 2020.

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

What changed 10-K

Item 9A. Controls and Procedures