Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets September 30, 2021 December 31, 2020 (unaudited) Assets Current Assets: Cash and cash equivalents $ 90,366,812 $ 11,637,911 Deposits 22,009 22,009 Deferred transaction costs - - Deferred transaction costs - - Payroll tax receivable 356,309 190,000 Prepaid assets 437,351 317,040 Total current assets 91,182,481 12,166,960 Property and equipment, net 365,533 558,876 Operating lease right-of-use assets 289,586 230,911 Total Assets $ 91,837,600 $ 12,956,747 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 1,746,425 $ 217,377 Finance lease liabilities 5,840 5,810 Operating lease liabilities 190,458 187,518 Accrued expenses 879,851 774,612 Total current liabilities 2,822,574 1,185,317 Finance lease liabilities 3,916 8,299 Operating lease liabilities 108,915 60,861 Note payable, non-current 14,427,809 - Total Liabilities 17,363,214 1,254,477 Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020 - - Common stock, $ 0.001 par value: 25,000,000 shares authorized; 14,905,898 and 10,299,822 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 14,906 10,300 Additional paid-in capital 123,632,827 38,013,551 Accumulated deficit ( 49,173,347 ) ( 26,321,581 ) Total Stockholders’ Equity 74,474,386 11,702,270 Total Liabilities and Stockholders’ Equity $ 91,837,600 $ 12,956,747 See accompanying notes to the financial statements 3 Celcuity Inc. Condensed Statements of Operations (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating expenses: Research and development $ 4,960,515 $ 1,962,610 $ 20,266,965 $ 5,576,250 General and administrative 639,271 517,465 1,768,058 1,428,578 Total operating expenses 5,599,786 2,480,075 22,035,023 7,004,828 Loss from operations ( 5,599,786 ) ( 2,480,075 ) ( 22,035,023 ) ( 7,004,828 ) Other income (expense) Interest expense ( 433,072 ) ( 28 ) ( 824,283 ) ( 93 ) Interest income 5,612 5,805 7,803 81,639 Loss on sale of fixed assets - - ( 263 ) - Other income (expense), net ( 427,460 ) 5,777 ( 816,743 ) 81,546 Net loss before income taxes ( 6,027,246 ) ( 2,474,298 ) ( 22,851,766 ) ( 6,923,282 ) Income tax benefits - - - - Net loss $ ( 6,027,246 ) $ ( 2,474,298 ) $ ( 22,851,766 ) $ ( 6,923,282 ) Net loss per share, basic and diluted $ ( 0.41 ) $ ( 0.24 ) $ ( 1.78 ) $ ( 0.67 ) Weighted average common shares outstanding, basic and diluted 14,877,619 10,273,567 12,867,484 10,262,636 See accompanying notes to the financial statements 4 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three Months and Nine Months Ended September 30, 2021 Common Stock Additional Accumulated Shares Amount Paid-In Capital Deficit Total Balance at December 31, 2020 10,299,822 $ 10,300 $ 38,013,551 $ ( 26,321,581 ) $ 11,702,270 Stock-based compensation - - 449,098 - 449,098 Stock-based compensation Stock-based compensation, shares Employee stock purchases Employee stock purchases, shares Exercise of common stock warrants 1,185 1 11,256 - 11,257 Exercise of common stock options, net of shares withheld for exercise price 12,707 13 ( 13 ) - - Issuance of common stock warrants, note payable Issuance of common stock, licensing agreement Issuance of common stock, licensing agreement, shares Issuance of common stock upon closing of follow-on offering, net of underwriting discounts and offering costs 1,971,100 1,971 25,766,522 - 25,768,493 Issuance of common stock in an at-the-market (“ATM”) offering 3,082 3 38,959 - 38,962 Issuance costs associated with ATM offering - - ( 3,868 ) - ( 3,868 ) Net loss - - - ( 2,791,668 ) ( 2,791,668 ) Balance at March 31, 2021 (unaudited) 12,287,896 $ 12,288 $ 64,275,505 $ ( 29,113,249 ) $ 35,174,544 Stock-based compensation 2,964 3 540,314 - 540,317 Employee stock purchases 5,496 6 25,811 - 25,817 Exercise of common stock options, net of shares withheld for exercise price 9,136 9 36,850 - 36,859 Issuance of common stock warrants, note payable - 289,839 - 289,839 Issuance of common stock, licensing agreement 349,406 349 4,999,651 - 5,000,000 Net loss - - - ( 14,032,852 ) ( 14,032,852 ) Balance at June 30, 2021 (unaudited) 12,654,898 $ 12,655 $ 70,167,970 $ ( 43,146,101 ) $ 27,034,524 Stock-based compensation - - 699,916 - 699,916 Exercise of common stock options, net of shares withheld for exercise price 1,000 1 5,099 - 5,100 Issuance of common stock upon closing of follow-on offering, net of underwriting discounts and offering costs 2,250,000 2,250 52,759,842 - 52,762,092 Net loss - - - ( 6,027,246 ) ( 6,027,246 ) Balance at September 30, 2021 (unaudited) 14,905,898 $ 14,906 $ 123,632,827 $ ( 49,173,347 ) $ 74,474,386 See accompanying notes to the financial statements 5 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three Months and Nine Months Ended September 30, 2020 Common Stock Additional Accumulated Shares Amount Paid-In Capital Deficit Total Balance at December 31, 2019 10,253,988 $ 10,254 $ 36,134,723 $ ( 16,847,406 ) $ 19,297,571 Stock-based compensation - - 464,649 - 464,649 Net loss - - - ( 2,246,995 ) ( 2,246,995 ) Balance at March 31, 2020 (unaudited) 10,253,988 10,254 36,599,372 ( 19,094,401 ) 17,515,225 Stock-based compensation 15,686 16 423,177 - 423,193 Employee stock purchases 4,678 4 23,893 - 23,897 Issuance of common stock in an at-the-market (“ATM”) offering 14,901 15 154,127 - 154,142 Issuance costs associated with ATM offering - - ( 52,110 ) - ( 52,110 ) Net loss - - - ( 2,201,989 ) ( 2,201,989 ) Balance at June 30, 2020 (unaudited) 10,289,253 10,289 37,148,459 ( 21,296,390 ) 15,862,358 Stock-based compensation - - 448,947 - 448,947 Issuance costs associated with ATM offering - - ( 75,032 ) - ( 75,032 ) Net loss - - - ( 2,474,298 ) ( 2,474,298 ) Balance at September 30, 2020 (unaudited) 10,289,253 $ 10,289 $ 37,522,374 $ ( 23,770,688 ) $ 13,761,975 See accompanying notes to the financial statements 6 Celcuity Inc. Condensed Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 22,851,766 ) $ ( 6,923,282 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 240,206 287,701 Stock-based compensation 1,689,331 1,336,789 Issuance of common stock, licensing agreement 5,000,000 - Amortization of debt issuance costs and discount 173,361 - PIK interest 196,348 - Loss on sale of fixed assets 263 - Changes in operating assets and liabilities: Payroll tax receivable ( 166,309 ) - Prepaid assets and deposits ( 120,311 ) 170,990 Accounts payable 1,553,381 ( 64,657 ) Accrued expenses 105,239 172,554 Non-cash operating lease, net ( 7,681 ) ( 18,533 ) Net cash used for operating activities ( 14,187,938 ) ( 5,038,438 ) Cash flows from investing activities: Purchases of property and equipment ( 71,959 ) ( 75,494 ) Proceeds from sale of property and equipment 500 - Net cash used for investing activities ( 71,459 ) ( 75,494 ) Cash flows from financing activities: Proceeds from exercise of common stock warrants 11,257 - Proceeds from exercise of employee stock options 41,959 - Proceeds from employee stock purchases 25,817 23,897 Proceeds from follow-on offering, net of underwriting discounts and offering costs 78,530,585 - Proceeds from note payable, net of debt issuance costs and discount of $ 652,061 14,347,939 - Gross proceeds from an ATM offering 38,962 154,142 Payments for secondary registration statement costs ( 3,868 ) ( 98,399 ) Payments for finance leases ( 4,353 ) ( 4,323 ) Net cash provided by financing activities 92,988,298 75,317 Net change in cash and cash equivalents 78,728,901 ( 5,038,615 ) Cash and cash equivalents: Beginning of period 11,637,911 18,735,002 End of period 90,366,812 $ 13,696,387 Supplemental disclosures of non-cash investing and financing activities: Property and equipment included in accounts payable $ - $ 7,714 Issuance of common stock warrants and final fee recognized as discount to note payable $ 964,839 $ - See accompanying notes to the financial statements 7 CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three and Nine Months Ended September 30, 2021 and 2020) 1. Organization Nature of Business Celcuity Inc., a Delaware corporation (the “Company”), is a clinical-stage biotechnology company seeking to extend the lives of cancer patients by pursuing an integrated companion diagnostic (CDx) and therapeutic (Rx) strategy. Our CELsignia companion diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from targeted therapies. This enables a CELsignia CDx to support advancement of new indications for already approved targeted therapies. Our therapeutic efforts are focused on in-licensing and developing molecularly targeted therapies that address the same cancer driver our companion diagnostics can identify. By pursuing an integrated companion diagnostic and therapeutic strategy, we believe we are uniquely positioned to achieve our goal of helping cancer patients receive the therapeutic best suited to treat their cancer driver. The Company was co-founded in 2012 by Brian F. Sullivan and Dr. Lance G. Laing and is based in Minnesota. The Company has not generated any revenues to date. Follow-on Offering On July 1, 2021, the Company completed a follow-on offering whereby it sold 2,250,000 shares of common stock at a public offering price of $ 25.00 per share. The aggregate gross proceeds from the sale of shares in the follow-on offering was approximately $ 56.3 million before deducting underwriting discounts of approximately $ 3.4 million and offering expenses of approximately $ 0.1 million. On February 26, 2021, the Company completed a follow-on offering whereby it sold 1,971,100 shares of common stock (including 257,100 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $ 14.00 per share. The aggregate gross proceeds from the sale of shares in the follow-on offering, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was approximately $ 27.6 million before deducting underwriting discounts of approximately $ 1.6 million and offering expenses of approximately $ 0.2 million. 2. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements Basis of Presentation The accompanying unaudited financial statements include the accounts of the Company and have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, as permitted by Article 10, the unaudited financial statements do not include all of the information required by accounting principles generally accepted in the United States (“U.S. GAAP”). The balance sheet at December 31, 2020 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP. In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair presentation have been reflected in the financial statements. These unaudited condensed financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020 and the related footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. Accounting Estimates Management uses estimates and assumptions in preparing these unaudited condensed financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates and the difference could be material. Significant items subject to such estimates and assumptions include the valuation of stock-based compensation and prepaid or accrued clinical trial costs. Risks and Uncertainties The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval of its diagnostic tests, the clinical and commercial success of its initial drug product, gedatolisib, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition. Clinical Trial Costs The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with service agreements with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its prepaid assets or accrued expenses. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in an adjustment to expense in future periods. Changes in these estimates that result in material changes to the Company’s prepaid assets or accrued expenses could materially affect the Company’s results of operations. 8 Application of New or Revised Accounting Standards Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements. The Company is an emerging growth company but has irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. Recently Adopted Accounting Pronouncements 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 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and adoption must be as of the beginning of the Company’s annual fiscal year. The Company’s early adoption of this accounting standard on April 8, 2021, in conjunction with the closing of a loan agreement, did not have an impact on the Company’s financial statements and related disclosures. 3. Net Loss Per Common Share Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period. For all periods presented, the common shares underlying the options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share are the same. For the three and nine months ended September 30, 2021 and 2020, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 1,184,721 and 810,725 shares of common stock, respectively, warrants to purchase 378,442 and 353,585 shares of common stock, respectively, and 2,964 and 15,686 shares of restricted common stock, respectively. 4. Commitments Operating and Finance Leases The Company leases its corporate space in Minneapolis, Minnesota. In September 2017, the Company entered into a non-cancelable operating lease agreement for building space. The new lease commenced, and the Company moved to the facility in May 2018, in conjunction with the termination of its then existing lease. Rent expense is recorded on a straight-line basis over the lease term. In July 2020 the Company signed an amendment to extend this lease through April 30, 2022. The lease amendment provides for monthly rent, real estate taxes and operating expenses. As a result of the lease amendment, the Company recorded an incremental $ 197,211 in the operating right-of-use (“ROU”) asset and lease liability. In July 2021, the Company signed the second amendment to extend this lease through April 30, 2023. This amendment provides for monthly rent, real estate taxes and operating expenses. The Company recorded an incremental $ 193,517 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this amendment. The second amendment also includes the option to extend the term for one additional year. The option to extend is at the Company’s discretion and because the Company has not determined if the option to extend will be exercised, the extended lease term is not included in the ROU assets and lease liabilities. The Company regularly evaluates the renewal options and when it is reasonably certain of exercise, the Company will include the renewal period in its lease term. In May 2018, the Company entered into a non-cancelable finance lease agreement for office equipment with a five-year term. The underlying assets are included in furniture and equipment. The lease contains a bargain purchase option at the end of the lease. When an implicit rate is not provided, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. 9 Supplemental balance sheet information consisted of the following at September 30, 2021: Schedule of Supplemental Balance Sheet Information Related to Leases Operating Lease Right-of-use assets $ 289,586 Operating lease liability $ 299,373 Less: short term portion ( 190,458 ) Long term portion $ 108,915 Finance Lease Furniture and equipment $ 28,932 Less: Accumulated depreciation ( 19,288 ) Net book value of property and equipment under finance lease $ 9,644 Finance lease liability $ 9,756 Less: short term portion ( 5,840 ) Long term portion $ 3,916 Maturity analysis under lease agreements consisted of the following as of September 30, 2021: Schedule of Maturity Analysis Under Lease Agreements Operating Leases Finance Leases 2021 $ 48,705 $ 1,814 2022 201,099 7,255 2023 68,080 3,023 Total minimum lease payments 317,884 12,091 Less: Present value discount ( 18,511 ) ( 59 ) Less: Amount representing services – ( 2,277 ) Present value of net minimum lease payments $ 299,373 $ 9,756 Remaining Lease Term Discount Rate Weighted Average Operating lease 1.6 years 6.0 % Finance lease 1.7 years 1.0 % Lease costs for the period ended September 30, 2021: Schedule of Lease Costs Three-month Period Nine-month Period Operating lease cost $ 47,575 $ 136,732 Finance lease cost: Amortization 1,447 4,340 Interest 18 63 Variable lease cost 19,869 59,607 Total lease cost $ 68,909 $ 200,742 Supplemental cash flow information related to leases for the period ended September 30, 2021: Schedule of Supplemental Cash Flow Information Related to Leases Three-month Period Nine-month Period Cash paid for amounts included in operating and finance leases: Operating cash outflow from operating leases $ 68,574 $ 204,021 Operating cash outflow from finance leases 19 63 Financing cash outflow from finance leases 1,454 4,353 Total cash paid for amounts included in operating and finance leases $ 70,047 $ 208,437 10 Clinical Research Studies The Company enters into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. The Company currently has six Phase II clinical trial agreements in place to evaluate targeted therapies selected with one of our CELsignia tests. The Company also has a license agreement in place with Pfizer to research, develop, manufacture and commercialize gedatolisib. In conjunction with the license agreement, the Company is continuing a Phase I study – B2151009 related to gedatolisib. Timing of milestone payments are uncertain and the contracts generally provide for termination following a certain period after notice, therefore the Company believes that non-cancelable obligations under the agreements are not material. 5. Stockholders’ Equity On July 1, 2021, the Company completed a follow-on offering whereby it sold 2,250,000 shares of common stock at a public offering price of $ 25.00 per share. The offering generated approximately $ 56.3 million before deducting underwriting discounts of approximately $ 3.4 million and offering expenses of approximately $ 0.1 million. On February 26, 2021, the Company completed a follow-on offering whereby it sold 1,971,100 shares of common stock (including 257,100 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $ 14.00 per share. The aggregate gross proceeds from the sale of shares in the follow-on offering, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was approximately $ 27.6 million before deducting underwriting discounts of approximately $ 1.6 million and offering expenses of approximately $ 0.2 million. On June 5, 2020, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley FBR, Inc. (the “Agent”). Pursuant to the ATM Agreement, the Company was able to offer and sell from time to time, at its option, shares of common stock having an aggregate offering price of up to $ 10,000,000 , par value $ 0.001 per share (the “Placement Shares”), through the Agent. The Placement Shares were registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (File No. 333-227466), which was originally filed with the SEC on September 21, 2018 and declared effective by the SEC on October 4, 2018, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed on June 5, 2020. Sales of the Company’s common stock, if any, under this prospectus supplement were able to be made by any method deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. As of the nine months ended September 30, 2021, the Company sold 3,082 shares of common stock pursuant to the ATM Agreement, at an average selling price of $ 12.64 per share. On February 23, 2021, in conjunction with the Company’s follow-on offering, the ATM Agreement was terminated. 6. Stock-Based Compensation The following table summarizes the activity for all stock options outstanding for the nine months ended September 30: Schedule of Stock Options Exercised 2021 2020 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 849,949 $ 9.33 585,215 $ 14.37 Granted 402,550 23.04 238,762 6.67 Exercised ( 40,620 ) 7.26 - - Forfeited ( 27,158 ) 19.07 ( 13,252 ) 11.54 Balance at September 30 1,184,721 $ 13.84 810,725 $ 9.29 Options exercisable at September 30: 560,915 $ 9.45 371,550 $ 10.28 Weighted Average Grant Date Fair Value for options granted during the period: $ 15.28 $ 4.29 11 The following table summarizes additional information about stock options outstanding and exercisable at September 30, 2021: Schedule of Stock Options Outstanding and Exercisable Options Outstanding Options Exercisable Options Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Aggregate Intrinsic Value Options Exercisable Weighted Average Exercise Price Aggregate Intrinsic Value 1,184,721 8.01 $ 13.84 $ 7,414,546 560,915 $ 9.45 5,162,976 The Company recognized stock-based compensation expense for stock options of $ 673,022 and $ 410,544 for the three months ended September 30, 2021 and 2020, respectively and $ 1,611,575 and $ 1,275,481 for the nine months ended September 30, 2021 and 2020, respectively. In May 2020, the Company modified the exercise price on 203,750 stock option awards to $ 5.10 , the closing market price on the Nasdaq Capital Market on May 14, 2020. No director or officer awards were modified. The effect on stock-based compensation was $ 12,602 and $ 19,000 for the three months ended September 30, 2021 and 2020, respectively and $ 34,396 and $ 70,000 for the nine months ended September 30, 2021 and 2020. The effect on stock-based compensation over the remaining service period will be approximately $ 97,000 . The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the nine months ended September 30: Schedule of Fair Value of Equity-based Awards 2021 2020 Risk-free interest rate 0.63 % - 1.16 % 0.35 % - 1.66 % Expected volatility 76.6 % - 76.9 % 73.3 % - 77.1 % Expected life (years) 5.0 to 6.08 5.5 to 6.12 Expected dividend yield 0 % 0 % The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s initial public offering, the price per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the initial public offering, the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility since being publicly traded. All assumptions used to calculate the grant date fair value of non-employee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options issued in connection with the agreements would also be cancelled. The Company had 2,964 and 15,686 shares of restricted stock outstanding as of September 30, 2021 and 2020, respectively, and 0 shares of restricted stock vested during the three months ended September 30, 2021 and 2020. The Company recognized stock-based compensation expense for restricted stock of $ 20,792 and $ 20,904 for the three months ended September 30, 2021 and 2020, respectively and $ 59,359 and $ 31,815 for the nine months ended September 30, 2021 and 2020, respectively. The Company initially reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Amended and Restated Stock Incentive Plan (the “2017 Plan”). The number of shares reserved for issuance was automatically increased by 102,540 shares on January 1, 2020 and by 102,998 shares on January 1, 2021 and will increase automatically on January 1 of each of 2022 through 2027 by the number of shares equal to 1.0% of the aggregate number of outstanding shares of Company common stock as of the immediately preceding December 31. At the Annual Meeting held on May 12, 2021, the stockholders approved a one-time, 500,000 increase to the number of shares reserved for issuance under the 2017 Plan. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for grant under the Company’s 2017 Plan as of September 30, 2021 was 423,564 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2021 $ 767,915 2022 2,681,394 2023 1,967,574 2024 1,492,473 2025 581,225 Total estimated compensation cost to be recognized $ 7,490,581 12 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 6,102 and $ 17,499 for the three months ended September 30, 2021 and 2020, respectively and $ 18,397 and $ 29,493 for the nine months ended September 30, 2021 and 2020, respectively. The Company initially reserved a total of 100,000 shares for issuance under the employee stock purchase plan. The number of shares reserved for issuance was automatically increased by 51,270 shares on January 1, 2020 and 51,499 shares on January 1, 2021 and will increase automatically on each subsequent January 1 by the number of shares equal to 0.5% of the total outstanding number of shares of Company common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for issuance under the employee stock purchase plan as of September 30, 2021 was 158,214 . The Company recognized total stock-based compensation expense as follows for the three and nine months ended September 30: Schedule of Stock-based Compensation Expense 2021 2020 2021 2020 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Stock-based compensation expense in operating expenses: Research and development $ 434,597 $ 254,537 $ 1,017,855 $ 813,099 General and administrative 265,319 194,410 671,476 523,690 Total $ 699,916 $ 448,947 $ 1,689,331 $ 1,336,789 7. Debt On April 8, 2021, the Company entered into a loan and security agreement (the “Loan Agreement”) with Innovatus Life Sciences Lending Fund I, LP, a Delaware limited partnership (“Innovatus”) in its capacity as Collateral Agent and sole Lender. The Lender agreed to loan up to $ 25 million in three tranches consisting of (i) a $ 15.0 million non-contingent term A loan that was funded on April 8, 2021, (ii) a $ 5 million term B loan to be funded upon request of the Company no later than March 31, 2022, and (iii) a $ 5 million term C loan to be funded upon request of the Company no later than March 31, 2023 (collectively the “Term Loans”). Funding of the term B and C loan is subject to the Company’s ability to achieve certain milestones. The Innovatus Loan Agreement is secured by a lien covering substantially all assets of the Company. The Loan Agreement also contains certain events of default, warranties and covenants of the Company. In connection with each funding of the Term Loans, the Company is required to issue Innovatus a warrant (the “Warrants”) to purchase a number of shares of the Company’s stock equal to 2.5% of the principal amount of the relevant Term Loan funded divided by the exercise price, which will be based on the lower of (i) $14.40 per share or (ii) the volume weighted price per share of the Company’s stock for the five-trading day period ending on the last trading day immediately preceding the funding date of the Term B or Term C Loan, as applicable. The warrants may be exercised on a cashless basis and are immediately exercisable through the tenth anniversary of the applicable funding date. In connection with the first tranche of the Term Loans, the Company issued a warrant to Innovatus to purchase 26,042 shares of the Company’s common stock at an exercise price of $ 14.40 per share. The Company evaluated the warrant under ASC 470, debt, and recognized an additional debt discount of approximately $ 0.3 million based on the relative fair value of the base instruments and warrants. The Company calculated the fair value of the warrant using the Black-Scholes model. The Company is also required to maintain a minimum cash balance in agreement with the term loans’ default terms. The Company is entitled to make interest-only payments for thirty-six months, or up to forty-eight months if certain conditions are met. The Term Loans will mature on the fifth anniversary of the initial funding date and will bear interest at a rate equal to sum of (a) the greater of (i) Prime Rate (as defined in the Loan Agreement) or (ii) 3.25%, plus (b) 5.70%. The effective interest rate is 11.36 %. Additionally, the Company elected to make 2.7 % of the interest rate as payable in kind, which shall accrue as principal monthly. The Company is obligated to pay the Lenders (i) a non-refundable facility fee in the amount of 1.00 % of each term loan that is funded (the “Facility Fee”), and (ii) a final fee equal to 4.50 % of the aggregate amount of the term loans funded (the “Final Fee”). In connection with the funding of the first tranche of the Term Loans, a final fee of approximately $ 0.7 million was recorded as additional principal and as a debt discount, and a facility fee of approximately $ 0.1 million was recorded as additional debt discount. The Company has the option to prepay the loan at any time following the first anniversary of the loan closing, with tiered prepayment fees ranging from 0 – 2% based on when the prepayment would occur. Innovatus also has the right, at its election, after June 1, 2021 and until the third anniversary of the Loan Agreement, to convert up to 20 % of the outstanding principal amount of all Terms Loans made under the Loan Agreement into shares of the Company’s common stock at a price per share equal to the volume weighted average closing price of the Company’s stock for the 5-trading day period ending on the last trading day immediately preceding the execution of the Loan Agreement (the “Conversion Right”). 13 In connection with the Loan Agreement and the funding of the first tranche of the Term Loans, the Company incurred debt issuance costs of approximately $ 0.5 million. The debt issuance costs, and the debt discount are amortized to interest expense using the effective interest method over the life of the Term Loans. The carrying value of the debt approximates fair value as of September 30, 2021. Long-term debt consisted of the following: Schedule of Long-term Debt September 30, 2021 Note payable $ 15,000,000 Add: PIK interest (added to principal) 196,348 Add: final fee 675,000 Less: unamortized debt issuance costs ( 426,877 ) Less: unamortized debt discount ( 1,016,662 ) Total long-term debt $ 14,427,809 Future principal payments, including the final fee, are as follows: Schedule of Future Principal Payments Years Ending December 31, 2024 $ 5,698,631 2025 7,598,174 2026 2,574,543 Total $ 15,871,348 8. License Agreement On April 8 th , the Company entered into a license agreement with Pfizer to research, develop, manufacture and commercialize gedatolisib, a potent, well-tolerated, reversible dual inhibitor that targets PI3K and mTOR, for the treatment, diagnosis and prevention of all diseases. The Company paid Pfizer $ 5.0 million in upfront fees and issued to Pfizer $ 5.0 million of shares of the Company’s common stock pursuant to an Equity Grant Agreement. The upfront payment and the issuance of shares were expensed to research & development in full for the three months ending June 30, 2021. The Company is also required to make milestone payments to Pfizer upon achievement of certain development and commercial milestone events, up to an aggregate of $ 335.0 million. Additionally, the Company will pay Pfizer tiered royalties on sales of gedatolisib at percentages ranging from the low to mid-teens, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. Unless earlier terminated, the license agreement will expire upon the expiration of all royalty obligations. The royalty period will expire on a country-by-country basis upon the later of (a) 12 years following the date of first commercial sale of such product in such country, (b) the expiration of all regulatory or data exclusivity in such country for such product or (c) the date upon which the manufacture, use, sale, offer for sale or importation of such product in such country would no longer infringe, but for the license granted in the license agreement, a valid claim of a licensed patent right. The Company has the right to terminate the license agreement for convenience upon 90 days’ prior written notice. Pfizer may not terminate the agreement for convenience. Either the Company or Pfizer may terminate the license agreement if the other party is in material breach and such breach is not cured within the specified cure period. In addition, either the Company or Pfizer may terminate the license agreement in the event of specified insolvency events involving the other party. 14