Celcuity Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Celcuity Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Celcuity, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Boulay PLLP We have served as the Company’s auditor since 2017. Minneapolis, Minnesota March 23, 2022 PCAOB ID: 542 61 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Celcuity Inc. Balance Sheets December 31, 2021 December 31, 2020 Assets Current Assets: Cash and cash equivalents $ 84,286,381 $ 11,637,911 Deposits 22,009 22,009 Deferred transaction costs 22,144 - Payroll tax receivable 298,764 190,000 Prepaid assets 722,677 317,040 Total current assets 85,351,975 12,166,960 Property and equipment, net 312,444 558,876 Operating lease right-of-use assets 241,901 230,911 Total Assets $ 85,906,320 $ 12,956,747 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 1,507,099 $ 217,377 Finance lease liabilities 5,850 5,810 Operating lease liabilities 189,858 187,518 Accrued expenses 802,893 774,612 Total current liabilities 2,505,700 1,185,317 Finance lease liabilities 2,449 8,299 Operating lease liabilities 61,771 60,861 Note payable, non-current 14,625,923 - Total Liabilities 17,195,843 1,254,477 Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of December 31, 2021 and December 31, 2020 - - Common stock, $ 0.001 par value: 25,000,000 shares authorized; 14,918,887 and 10,299,822 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 14,919 10,300 Additional paid-in capital 124,622,405 38,013,551 Accumulated deficit ( 55,926,847 ) ( 26,321,581 ) Total Stockholders’ Equity 68,710,477 11,702,270 Total Liabilities and Stockholders’ Equity $ 85,906,320 $ 12,956,747 See accompanying notes to the financial statements 62 Celcuity Inc. Statements of Operations Years Ended December 31, 2021 2020 Operating expenses: Research and development $ 25,758,006 $ 7,683,522 General and administrative 2,597,909 1,872,642 Total operating expenses 28,355,915 9,556,164 Loss from operations ( 28,355,915 ) ( 9,556,164 ) Other income (expense) Interest expense ( 1,262,350 ) ( 120 ) Interest income 13,262 82,109 Loss on sale of fixed assets ( 263 ) - Other income (expense), net ( 1,249,351 ) 81,989 Net loss before income taxes ( 29,605,266 ) ( 9,474,175 ) Income tax benefits - - Net loss $ ( 29,605,266 ) $ ( 9,474,175 ) Net loss per share, basic and diluted $ ( 2.21 ) $ ( 0.92 ) Weighted average common shares outstanding, basic and diluted 13,382,553 10,266,884 See accompanying notes to the financial statements 63 Celcuity Inc. Statements of Changes in Stockholders’ Equity shares Amt Common Stock Additional Paid-In Accumulated Shares Amount 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 15,686 16 1,763,863 - 1,763,879 Employee stock purchases 12,423 12 60,291 - 60,303 Exercise of common stock warrants Exercise of common stock warrants, shares Exercise of common stock options, net of shares withheld for exercise price Exercise of common stock options, net of shares withheld for exercise price, shares Issuance of common stock upon closing of follow-on offerings, net of underwriting discounts and offering costs Issuance of common stock upon closing of follow-on offerings, net of underwriting discounts and offering costs, shares Issuance of common stock in an at-the-market (“ATM”) offering 17,725 18 182,676 - 182,694 Issuance costs associated with ATM offering - - ( 128,002 ) - ( 128,002 ) Issuance of common stock warrants, note payable Issuance of common stock, licensing agreement Issuance of common stock, licensing agreement, shares Net loss - - - ( 9,474,175 ) ( 9,474,175 ) Balance at December 31, 2020 10,299,822 10,300 38,013,551 ( 26,321,581 ) 11,702,270 Stock-based compensation 2,964 3 2,609,932 - 2,609,935 Employee stock purchases 13,487 14 65,825 - 65,839 Exercise of common stock warrants 1,975 2 18,760 - 18,762 Exercise of common stock options, net of shares withheld for exercise price 27,051 27 63,393 - 63,420 Issuance of common stock upon closing of follow-on offerings, net of underwriting discounts and offering costs 4,221,100 4,221 78,526,363 - 78,530,584 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 ) 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 - - - ( 29,605,266 ) ( 29,605,266 ) Balance at December 31, 2021 14,918,887 $ 14,919 $ 124,622,405 $ ( 55,926,847 ) $ 68,710,477 See accompanying notes to the financial statements 64 Celcuity Inc. Statements of Cash Flows Years Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 29,605,266 ) $ ( 9,474,175 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 303,235 385,591 Stock-based compensation 2,609,935 1,763,879 Issuance of common stock, licensing agreement 5,000,000 - Amortization of debt issuance costs and discount 267,821 - PIK interest 300,001 - Loss on sale of fixed assets 263 - Changes in operating assets and liabilities: Payroll tax receivable ( 108,764 ) - Prepaid assets and deposits ( 405,637 ) ( 42,440 ) Accounts payable 1,305,932 52,971 Accrued expenses 28,280 190,293 Non-cash operating lease, net ( 7,740 ) ( 21,808 ) Net cash used for operating activities ( 20,311,940 ) ( 7,145,689 ) Cash flows from investing activities: Purchases of property and equipment ( 81,898 ) ( 89,371 ) Proceeds from sale of property and equipment 500 - Net cash used for investing activities ( 81,398 ) ( 89,371 ) Cash flows from financing activities: Proceeds from exercise of common stock warrants 18,762 - Proceeds from exercise of employee stock options 63,420 - Proceeds from employee stock purchases 65,839 60,303 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 38,962 182,694 Payments for secondary registration statement costs ( 17,889 ) ( 99,259 ) Payments for finance leases ( 5,810 ) ( 5,769 ) Net cash provided by financing activities 93,041,808 137,969 Net change in cash and cash equivalents 72,648,470 ( 7,097,091 ) Cash and cash equivalents: Beginning of period 11,637,911 18,735,002 End of period $ 84,286,381 $ 11,637,911 Supplemental disclosure of cash flow information: Interest paid $ 694,528 $ 120 Supplemental disclosures of non-cash investing and financing activities: Registration statement costs included in accounts payable $ 8,123 $ - Property and equipment included in accounts payable - 24,333 Issuance of common stock warrants and final fee recognized as discount to note payable 964,839 - See accompanying notes to the financial statements 65 CELCUITY INC. NOTES TO FINANCIAL STATEMENTS 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 therapeutic and companion diagnostic strategy. The company’s therapeutic efforts are focused on in-licensing and developing molecularly targeted therapies that address the same cancer driver its companion diagnostics can identify. Its CELsignia companion diagnostic platform is uniquely able to analyze live patient tumor cells to identify new groups of cancer patients likely to benefit from already approved targeted therapies. 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 financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Operating results for the year ended December 31, 2021 are not necessarily indicative of results to be expected for any future year. Accounting Estimates Management uses estimates and assumptions in preparing these 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 significant. Significant items subject to such estimates and assumptions include the valuation of stock-based compensation and prepaid or accrued clinical trial costs. Cash and Cash Equivalents The Company maintains its accounts at one financial institution. At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. At December 31, 2021 and December 31, 2020, the Company had $ 83,286,381 and $ 11,378,685 , respectively, in money market funds that are considered cash equivalents and not insured by the Federal Deposit Insurance Corporation. Property and Equipment Property and equipment are stated at cost. Depreciation is provided over estimated useful lives using the straight-line method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Estimated useful lives of property and equipment are as follows for the major classes of assets: Schedule of Estimated Useful Lives of Property and Equipment Asset Description Estimated Lives Furniture and Equipment 4 - 5 Leasehold Improvements 2 - 3 66 Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. Deferred Transaction Costs Deferred transaction costs primarily consist of legal fees and SEC filing fees related to the Company’s Registration Statement on Form S-3 filed on November 17, 2021 and declared effective by the SEC on November 26, 2021. The deferred transaction costs were capitalized as incurred and will be offset against the proceeds from future securities offered by the Company for a period up to three years. The deferred transaction costs will be reviewed periodically to assess the probability that future securities will be offered. In the event that no future offering will occur, any deferred transaction costs will be expensed. Total costs incurred were $ 22,144 and $ 0 for years ended December 31, 2021 and 2020, respectively. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For all periods presented, there was no difference between net loss and comprehensive loss. 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 initial drug product, gedatolisib, the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval of its diagnostic tests, 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. Fair Value of Financial Instruments The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adheres to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: ● Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement date. ● Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. ● Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The level in the fair value hierarchy within which a fair value measurement in its entirety falls, is based on the lowest level input that is significant to the fair value measurement in its entirety. The carrying values of cash equivalents, accounts payable, accrued expenses and other financial working capital items approximate fair value at December 31, 2021 and December 31, 2020, due to the short maturity nature of these items. Income Taxes The Company accounts for income taxes using the asset and liability method, as required by the accounting standard for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred taxes are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in results of operations in the period that includes the enactment date. The effects of any future changes in tax laws or rates have not been considered. The Company regularly reviews deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if the Company does not consider it to be more likely than not that the deferred tax assets will be realized. The Company recognizes the impact of an uncertain tax position in its financial statements if, in management’s judgment, the position is more-likely-than-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. 67 Stock-Based Compensation The Company’s stock-based compensation consists of stock options and restricted stock issued to certain employees and nonemployees of the Company and the Company’s 2017 Employee Stock Purchase Plan. The Company recognizes compensation expense based on an estimated grant date fair value using the Black-Scholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as they occur. Research and Development Research and development costs are expensed as incurred. Research and development costs amounted to $ 25,758,006 for the year ended December 31, 2021 and $ 7,683,522 for the year ended December 31, 2020. 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. Segment Data The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. 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 December 2019, the FASB issued ASU No. 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes” intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside cost basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company adopted this standard on January 1, 2021 and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures. 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. 68 3. Liquidity Based on the Company’s cash and cash equivalents on hand at December 31, 2021 of $ 84,286,381 , the Company believes that its cash will be sufficient to fund the Company’s current operating plan through at least the next 12 months from the issuance date of this Annual Report. 4. 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 years ended December 31, 2021 and 2020, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 1,315,321 and 849,949 shares of common stock, respectively, warrants to purchase 377,652 and 353,585 shares of common stock, respectively, and 2,964 and 15,686 shares of restricted common stock, respectively. 5. Payroll Tax Receivable The payroll tax receivable was initially recorded in 2019. It is the result of the Company’s utilization of research and development tax credits as authorized by the Path Act. The balance at December 31, 2021 was $ 298,764 and December 31, 2020 was $ 190,000 . 6. Prepaid Assets Prepaid assets consisted of the following at December 31: Schedule of Prepaid Assets 2021 2020 Current: Directors & officers’ insurance $ 313,958 $ 288,750 Prepaid research & development 338,760 - Other 69,959 28,290 Total $ 722,677 $ 317,040 7. Property and Equipment Property and equipment consisted of the following at December 31: Summary of Property and Equipment 2021 2020 Leasehold improvements $ 302,848 $ 302,848 Furniture and equipment 1,517,896 1,461,512 Property and equipment, Gross 1,820,744 1,764,360 Less: Accumulated depreciation ( 1,508,300 ) ( 1,205,484 ) Total $ 312,444 $ 558,876 Depreciation expense was $ 303,235 and $ 385,591 for the years ended December 31, 2021 and 2020, respectively. 8. Accrued Expenses Accrued expenses consisted of the following at December 31: Schedule of Accrued Expenses 2021 2020 Accrued compensation $ 438,477 $ 628,121 Employee Stock Purchase Plan 34,455 9,471 Clinical trial 138,788 - Other 191,173 137,020 Total $ 802,893 $ 774,612 69 9. 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. Supplemental balance sheet information consisted of the following at December 31, 2021: Schedule of Supplemental Balance Sheet Information Related to Leases 2021 Operating Lease Right-of-use assets $ 241,901 Operating lease liability $ 251,629 Less: short term portion ( 189,858 ) Long term portion $ 61,771 Finance Lease Furniture and equipment $ 28,932 Less: Accumulated depreciation ( 20,735 ) Net book value of property and equipment under finance lease $ 8,197 Finance lease liability $ 8,299 Less: short term portion ( 5,850 ) Long term portion $ 2,449 Maturity analysis under lease agreements consisted of the following as of December 31, 2021: Schedule of Maturity Analysis Under Lease Agreements Operating Leases Finance Leases 2022 $ 201,099 $ 7,255 2023 68,080 3,022 Total minimum lease payments 269,179 10,277 Less: Present value discount ( 17,550 ) ( 43 ) Less amount representing services - ( 1,935 ) Present value of net minimum lease payments $ 251,629 $ 8,299 70 Weighted Average Remaining Lease Term Discount Rate Operating lease 1.3 years 6.0 % Finance lease 1.4 years 1.0 % Lease costs for the years ended December 31: Schedule of Lease Costs 2021 2020 Operating lease cost $ 185,379 $ 171,530 Finance lease cost: Amortization 5,786 5,786 Interest 79 119 Variable lease cost 79,477 85,265 Total lease cost $ 270,721 $ 262,700 Supplemental cash flow information related to leases for the years ended December 30: Schedule of Supplemental Cash Flow Information Related to Leases 2021 2020 Cash paid for amounts included in operating and finance leases: Operating cash outflow from operating leases $ 274,297 $ 278,603 Operating cash outflow from finance leases 79 119 Financing cash outflow from finance leases 5,810 5,769 Total cash paid for amounts included in operating and finance leases $ 280,186 $ 284,491 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 five Phase 2 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 continued a Phase 1b study – B2151009 related to gedatolisib. These patients subsequently transitioned to an Expanded Access study – CELC-G-001. Timing of milestone payments related to the Phase 2 clinical trials 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. Contracts related to the Phase 1b study and the Expanded Access study are generally based on time and material. 10. Stockholders’ Equity On September 15, 2017, in connection with its IPO, Celcuity LLC filed a certificate of conversion, whereby Celcuity LLC effected a corporate conversion from a Minnesota limited liability company to a Delaware corporation and changed its name to Celcuity Inc. Pursuant to the conversion, units of membership interest in the limited liability company were converted into shares of common stock of the corporation at a conversion ratio of 40 units for one share of common stock . The Company had 257,604,208 units issued and outstanding as of September 15, 2017. After giving effect to the corporate conversion, the number of common shares outstanding as of such date was 6,440,139 . As a result of the corporate conversion, accumulated deficit was reduced to zero on the date of the corporate conversion, and the corresponding amount was credited to additional paid-in capital. The corporate conversion was approved by members holding a majority of the outstanding units of Celcuity LLC, and in connection with such conversion, the Company filed a certificate of incorporation and adopted bylaws. The Company determined that the corporate conversion is equivalent to a change in the Company’s capital structure. On September 22, 2017, the Company completed its IPO whereby it sold 2,760,000 shares of common stock at a public offering price of $ 9.50 per share. The aggregate net proceeds received by the Company from the IPO were approximately $ 23.3 million, net of underwriting commissions of approximately $ 1.8 million and offering expenses of approximately $ 1.1 million. Upon the closing of the IPO, 10,082,050 shares of common stock were outstanding, which included 881,911 shares of common stock issued as a result of the conversion of the Company’s convertible notes. Shares of the Company’s common stock began trading on September 20, 2017 on The Nasdaq Capital Market under the symbol “CELC”. 71 On May 11, 2018, the Company filed an amendment to its certificate of incorporation with the Secretary of State of the State of Delaware to decrease the number of authorized shares of its common stock and preferred stock. Pursuant to the Company’s amended certificate of incorporation, the Company is authorized to issue up to 25,000,000 shares of common stock, $ 0.001 par value per share and 2,500,000 shares of preferred stock, $ 0.001 par value per share. 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. Pursuant to the ATM Agreement, the company sold 3,082 shares of common stock at an average selling price of $ 12.64 per share in the year ended December 31, 2021 and 17,725 shares of common stock at an average selling price of $ 10.31 per share in the year ended December 31, 2020. On February 23, 2021, in conjunction with the Company’s follow-on offering, the ATM Agreement was terminated. 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 April 8, 2021, in conjunction with entering into a license agreement with Pfizer to research, develop, manufacture and commercialize gedatolisib, the Company issued to Pfizer $ 5.0 million of shares of the Company’s common stock pursuant to an Equity Grant Agreement. The number of shares issued totaled 349,406 at a price of $ 14.31 . 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. At December 31, 2021 and 2020, the Company had 14,918,887 and 10,299,822 shares of common stock outstanding, respectively. Warrants In connection with the 2016 private placement offering of units, the Company issued ten-year warrants to the placement agent of the private placement. The warrants allow the placement agent to purchase up to 55,249 shares of common stock at $ 7.56 per share. The warrants were immediately exercisable and expire on January 14, 2026 and May 2, 2026 . These warrants are equity classified and the $ 330,607 fair value of the warrants is reflected as additional paid-in capital. In connection with the private placement offering of convertible notes, the Company issued ten-year warrants to the placement agent to purchase 48,615 shares of common stock at a price of $ 8.42 per share. The warrants were immediately exercisable and expire on April 28, 2027 and May 17, 2027 . These warrants are equity classified and the $ 286,999 fair value of the warrants is reflected as additional paid-in-capital. In addition, the Company granted the purchasers of the convertible notes the right to receive a seven-year warrant to purchase 131,675 shares of common stock at an exercise price equal to the conversion price of the convertible notes. With the completion of the IPO on September 22, 2017, these warrants were issued. These warrants were immediately exercisable and expire on September 22, 2024 . These warrants are equity classified and the $ 776,717 fair value of the warrants is reflected as additional paid-in-capital. In connection with the IPO, the Company issued a five-year warrant to the underwriter. The warrant allows the underwriter to purchase up to 138,000 shares of common stock at $ 10.45 per share. This warrant was immediately exercisable and expires on September 19, 2022 . This warrant is equity classified and the $ 784,111 fair value of the warrant is reflected as additional paid-in-capital. In connection with entering into a loan and security agreement with Innovatus Life Sciences Lending Fund I, LP, 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. This warrant is equity classified and the $ 289,839 fair value of the warrant was reflected as additional debt discount. At December 31, 2021 and 2020, the Company had warrants to purchase 377,652 and 353,585 shares of common stock outstanding, at a weighted average exercise price of $ 9.76 and $ 9.42 , respectively. A total of 1,975 and 0 warrants were exercised in the years ended December 31, 2021 and 2020, respectively. 72 11. Stock-Based Compensation 2012 Equity Incentive Plan The 2012 Equity Incentive Plan, as amended, was adopted by the Company’s board and approved by the members of Celcuity LLC on August 10, 2012. The Company reserved a maximum of 625,000 shares of common stock for issuance under the 2012 Equity Incentive Plan. The 2012 Equity Incentive Plan provides for options, restricted stock awards, performance stock awards or stock bonuses. The exercise price of each option granted under the 2012 Equity Incentive Plan is not less than 100% of the fair market value of one share on the date of grant. The maximum permitted term of options granted under the 2012 Equity Incentive Plan is ten years. The Company’s board administers the 2012 Equity Incentive Plan and determines the provisions of incentive awards, including eligible recipients, number of shares subject to an incentive award, exercise price, vesting schedule, duration of an incentive award and other restrictions an incentive award may be subject to. The 2012 Equity Incentive Plan was frozen on September 6, 2017 and any new awards will be issued under the terms of the 2017 Amended and Restated Stock Incentive Plan. 2017 Stock Incentive Plan The 2017 Amended and Restated Stock Incentive Plan (the “2017 Plan”) was adopted by the Company’s board on September 6, 2017, became effective following the corporate conversion on September 15, 2017, and was approved by stockholders at the Company’s annual stockholder meeting on May 10, 2018. The 2017 Plan was amended and approved by stockholders at the Company’s annual stockholder meeting on May 14, 2020. The Company initially reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Plan. The number of shares reserved for issuance was automatically increased by 102,998 and 102,540 shares on January 1, 2021 and 2020, respectively 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. However, the Company’s board may reduce the amount of the increase in any particular year. 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. The 2017 Plan provides for options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards and stock bonuses. The exercise price of each option granted under the 2017 Plan is not less than 100% of the fair market value of one share on the date of grant. The maximum permitted term of options granted under the 2017 Plan is ten years. The 2017 Plan is generally administered by the compensation committee of the Company’s board, which has the authority to interpret the 2017 Plan, grant awards and make all other determinations necessary for the administration of the 2017 Plan. The following table summarizes the activity for all stock options outstanding for the years ended December 31: Schedule of Stock Options Activity 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 538,567 16.09 277,986 7.17 Exercised ( 44,828 ) 7.06 - - Forfeited ( 28,367 ) 18.72 ( 13,252 ) 11.54 Balance at December 31: 1,315,321 $ 11.97 849,949 $ 9.33 Options exercisable at December 31: 592,141 $ 9.53 397,425 $ 10.35 Weighted Average Grant Date Fair Value for options granted during the period: $ 14.93 $ 4.63 73 The following table summarizes additional information about stock options outstanding and exercisable at December 31, 2021: Sechdule of Stock Options Outstanding 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 1,315,321 8.01 $ 11.97 $ 4,284,653 592,141 $ 9.53 3,188,333 The Company recognized stock-based compensation expense for stock options of $ 2,488,742 and $ 1,668,859 for the years ended December 31, 2021 and 2020, respectively. In December 2021, the Company modified the exercise price on 311,000 stock option awards to $ 13.44 , the closing market price on the Nasdaq Capital Market on December 15, 2021. No director or officer awards were modified. The effect on stock-based compensation was $ 53,000 for the year ended December 31, 2021. The effect on stock-based compensation over the remaining service period will be approximately $ 344,000 . 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 $ 46,000 and $ 83,000 for the years ended December 31, 2021 and 2020, respectively. The effect on stock-based compensation over the remaining service period will be approximately $ 85,000 . 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 years ended December 31: Schedule of Fair Value Of Equity-based Awards Assumptions 2021 2020 Risk-free interest rate 0.63 % - 1.39 % 0.35 % - 1.66 % Expected volatility 76.6 % - 76.9 % 73.3 % - 77.1 % Expected life (years) 5.0 to 6.11 5.5 to 6.1 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 for the years ended December 31, 2021 and 2020, respectively, and 15,686 and 0 shares of restricted stock vested during the years ended December 31, 2021 and 2020, respectively. The Company recognized stock-based compensation expense for restricted stock of $ 80,150 and $ 52,727 for the years ended December 31, 2021 and 2020, respectively. The total remaining shares available for grant under the Company’s 2017 Plan as of December 31, 2021 was 288,756 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2022 $ 3,202,846 2023 2,410,853 2024 1,932,745 2025 925,350 Total estimated compensation cost to be recognized $ 8,471,794 74 2017 Employee Stock Purchase Plan The Company’s 2017 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Company’s board on September 6, 2017 and approved by stockholders at the Company’s annual stockholder meeting on May 10, 2018. The Company initially reserved a total of 100,000 shares for issuance under the ESPP. The number of shares reserved for issuance was automatically increased by 51,499 and 51,270 shares on January 1, 2021 and 2020, respectively 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 December 31, 2021 is 150,223 . The ESPP provides participating employees with an opportunity to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees unless they are employed for less than 20 hours per week or own 5% or more of the total combined voting power or value of the Company’s common stock. The ESPP is administered using overlapping 24 month offering periods, referred to as an Offering Period. Each Offering Period has four six-month purchase periods. A new Offering Period and purchase period begin every six months on May 1 and November 1 of each year. Participating employees may purchase common stock, on a voluntary after tax-basis, at a price equal to 85% of the fair market value of a share of common stock on either the offering date or the purchase date, whichever is lower. If the purchase date has a lower price, the employee will automatically be placed in the Offering Period beginning immediately after the purchase date. The Company recognized stock-based compensation expense related to the ESPP of $ 41,043 and $ 42,293 for the years ended December 31, 2021 and 2020, respectively. The Company recognized total stock-based compensation expense as follows for the years ended December 31: Schedule of Stock-based Compensation Expense 2021 2020 Stock-based compensation expense in operating expenses: Research and development $ 1,645,353 $ 1,055,094 General and administrative 964,582 708,785 Total $ 2,609,935 $ 1,763,879 12. 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 . 75 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”). 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 December 31, 2021. Long-term debt consisted of the following at December 31: Schedule of Long-term Debt 2021 Note payable $ 15,000,000 Add: PIK interest (added to principal) 300,001 Add: final fee 675,000 Less: unamortized debt issuance costs ( 386,578 ) Less: unamortized debt discount ( 962,500 ) Total long-term debt $ 14,625,923 Future principal payments, including the final fee, are as follows: Schedule of Future Principal Payments Years Ending December 31, 2024 $ 5,737,500 2025 7,650,001 2026 2,587,500 Total $ 15,975,001 13. License Agreement On April 8, 2021 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. 76 14. Income Taxes Following the conversion of Celcuity LLC to Celcuity Inc. on September 15, 2017, Celcuity Inc. began filing federal and state returns where required. No income tax benefit was recorded for the years 2021 and 2020, due to net losses and recognition of a valuation allowance. The following table presents a reconciliation of the tax expense computed at the statutory federal rate and the Company’s tax expense for the years ending December 31: Schedule of Effective Income Tax Rate Reconciliation 2021 2020 Tax benefit at statutory federal rate $ ( 6,217,000 ) $ ( 1,990,000 ) State income tax benefit, net of federal tax effect ( 49,000 ) ( 16,000 ) Change in valuation allowance on deferred tax assets 6,330,000 2,159,000 Research and Development Credits ( 222,000 ) ( 450,000 ) Other permanent items 158,000 297,000 Income tax benefits $ - $ - On December 22, 2017 H.R. 1, commonly referred to as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowered the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Act also made changes related to the use and limitation of net operating loss carryforwards generated in tax years beginning after December 31, 2017. For years beginning after December 31, 2017 net operating losses have an indefinite carryforward and the utilization of losses is limited to 80% of taxable income each year. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Act. Corporate taxpayers may carryback net operating losses originating during 2018 through 2020 for up to five years, which was not previously allowed under the Tax Act. The CARES Act also eliminates the 80% of taxable income limitation allowing corporate entities to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019 and 2020. The enactment of the CARES Act did not result in any material impact to the Company’s income tax provision. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the net deferred tax asset, because it is more likely than not that the Company will not realize future benefits associated with these deferred tax assets at December 31, 2021. The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows: Schedule of Deferred Tax Assets and Liabilities 2021 2020 Deferred tax assets (liabilities): Accrued expenses $ 50,000 $ 79,000 Share-based compensation 796,000 528,000 Property and equipment 319,000 255,000 Right-of-use assets ( 51,000 ) ( 49,000 ) Lease liability 53,000 53,000 Start-up expenditures 6,966,000 2,610,000 Net operating losses and tax credits 4,915,000 3,242,000 Valuation allowance ( 13,048,000 ) ( 6,718,000 ) Net deferred tax assets (liabilities) $ - $ - At December 31, 2021, the Company had federal and state net operating loss carryforwards of approximately $ 16.8 million and $ 0.3 million, respectively. The federal and state net operating loss carryforwards for 2017 will begin to expire in the year ending December 31, 2037. The federal net operating loss carryforwards starting in 2018 have no expiration. These deferred tax assets were subject to a full valuation allowance as of December 31, 2021 and December 31, 2020. 77 At December 31, 2021, the Company had federal and state research and development tax credit carryforwards resulting in deferred tax assets of approximately $ 0.7 million and $ 0.7 million, respectively. The federal and state credit carryforwards will begin to expire in the years ending December 31, 2037 and December 31, 2032, respectively. These deferred tax assets were subject to a full valuation allowance as of December 31, 2021 and December 31, 2020. Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company’s ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may limit in the future the amount of net operating loss carryforwards available to offset future taxable income. The Company recognizes uncertain tax positions in accordance with ASC 740 on the basis of evaluating whether it is more-likely-than not that the tax positions will be sustained upon examination by tax authorities. For those tax positions that meet the more-likely-than not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement. As of December 31, 2021, and 2020, the Company has no significant uncertain tax positions. There are no unrecognized tax benefits included on the balance sheet that would, if recognized, impact the effective tax rate. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months. Prior to the conversion, Celcuity was a limited liability company and therefore was taxed as a partnership for income tax purposes. Accordingly, no benefit for income taxes was recorded prior to the conversion. For years prior to 2017, the Company is no longer subject to U.S. federal or state income tax examinations. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of general and administrative expenses. 15. Subsequent Event In February of 2022, we entered into an Open Market Sale Agreement SM with Jefferies LLC, as agent (“Jefferies”), pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $ 50,000,000 . We will pay Jefferies a commission equal to 3.0 % of the aggregate gross proceeds from each sale of such shares. To date, we have not yet made any sales under this arrangement. 78 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None