Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets March 31, 2022 December 31, 2021 (unaudited) Assets Current Assets: Cash and cash equivalents $ 78,295,426 $ 84,286,381 Deposits 22,009 22,009 Deferred transaction costs 170,503 22,144 Payroll tax receivable 193,034 298,764 Prepaid assets 762,882 722,677 Total current assets 79,443,854 85,351,975 Property and equipment, net 291,076 312,444 Operating lease right-of-use assets 194,925 241,901 Total Assets $ 79,929,855 $ 85,906,320 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 2,139,291 $ 1,507,099 Finance lease liabilities 5,860 5,850 Operating lease liabilities 189,267 189,858 Accrued expenses 1,216,392 802,893 Total current liabilities 3,550,810 2,505,700 Finance lease liabilities 981 2,449 Operating lease liabilities 15,328 61,771 Note payable, non-current 14,823,021 14,625,923 Total Liabilities 18,390,140 17,195,843 Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021 - - Common stock, $ 0.001 par value: 25,000,000 shares authorized; 14,920,302 and 14,918,887 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively 14,920 14,919 Additional paid-in capital 125,386,089 124,622,405 Accumulated deficit ( 63,861,294 ) ( 55,926,847 ) Total Stockholders’ Equity 61,539,715 68,710,477 Total Liabilities and Stockholders’ Equity $ 79,929,855 $ 85,906,320 See accompanying notes to the financial statements 3 Celcuity Inc. Condensed Statements of Operations (unaudited) 2022 2021 Three Months Ended March 31, 2022 2021 Operating expenses: Research and development $ 6,696,313 $ 2,236,342 General and administrative 811,292 555,428 Total operating expenses 7,507,605 2,791,770 Loss from operations ( 7,507,605 ) ( 2,791,770 ) Other income (expense) Interest expense ( 435,001 ) ( 24 ) Interest income 8,159 389 Loss on sale of fixed assets - ( 263 ) Other income (expense), net ( 426,842 ) 102 Net loss before income taxes ( 7,934,447 ) ( 2,791,668 ) Income tax benefits - - Net loss $ ( 7,934,447 ) $ ( 2,791,668 ) Net loss per share, basic and diluted $ ( 0.53 ) $ ( 0.25 ) Weighted average common shares outstanding, basic and diluted 14,917,187 11,072,097 See accompanying notes to the financial statements 4 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three Months Ended March 31, 2022 Shares Amount Capital Deficit Total Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2021 14,918,887 $ 14,919 $ 124,622,405 $ ( 55,926,847 ) $ 68,710,477 Stock-based compensation - - 756,271 - 756,271 Exercise of common stock options, net of shares withheld for exercise price 1,415 1 7,413 - 7,414 Net loss - - - ( 7,934,447 ) ( 7,934,447 ) Balance at March 31, 2022 (unaudited) 14,920,302 $ 14,920 $ 125,386,089 $ ( 63,861,294 ) $ 61,539,715 See accompanying notes to the financial statements 5 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three Months Ended March 31, 2021 Common Stock Additional Paid-In Accumulated Shares Amount 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 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 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 See accompanying notes to the financial statements 6 Celcuity Inc. Condensed Statements of Cash Flows (unaudited) 2022 2021 Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 7,934,447 ) $ ( 2,791,668 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 55,989 98,222 Stock-based compensation 756,271 449,098 Amortization of debt issuance costs and discount 95,012 - PIK interest 102,086 - Loss on sale of fixed assets - 263 Changes in operating assets and liabilities: Payroll tax receivable 105,730 - Prepaid assets and deposits ( 40,205 ) ( 234,305 ) Accounts payable 513,091 73,924 Accrued expenses 413,499 ( 113,763 ) Non-cash operating lease, net ( 58 ) ( 3,276 ) Net cash used for operating activities ( 5,933,032 ) ( 2,521,505 ) Cash flows from investing activities: Purchases of property and equipment ( 11,635 ) ( 30,925 ) Proceeds from sale of property and equipment - 500 Net cash used for investing activities ( 11,635 ) ( 30,425 ) Cash flows from financing activities: Proceeds from exercise of common stock warrants - 11,257 Proceeds from exercise of employee stock options 7,414 - Proceeds from follow-on offering, net of underwriting discounts and offering costs - 25,814,167 Gross proceeds from an ATM offering - 38,962 Payments for secondary registration statement costs ( 52,244 ) ( 12,016 ) Payments for finance leases ( 1,458 ) ( 1,449 ) Net cash (used for) provided by financing activities ( 46,288 ) 25,850,921 Net change in cash and cash equivalents ( 5,990,955 ) 23,298,991 Cash and cash equivalents: Beginning of period 84,286,381 11,637,911 End of period $ 78,295,426 $ 34,936,902 Supplemental disclosure of cash flow information: Interest paid $ 237,903 $ 24 Supplemental disclosures of non-cash investing and financing activities: Offering and registration statement costs included in accounts payable $ 104,237 $ 51,245 Property and equipment included in accounts payable 22,987 14,101 See accompanying notes to the financial statements 7 CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three Months Ended March 31, 2022 and 2021) 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 lead therapeutic candidate is gedatolisib, a potent, reversible dual inhibitor that selectively targets all Class I isoforms of PI3K and mTOR. Its mechanism of action and pharmacokinetic properties are highly differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or together. The company expects to initiate a Phase 3 study evaluating gedatolisib in patients with HR+/HER2- advanced breast cancer in 2022. 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. 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, 2021 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, 2021 and the related footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for the three months ended March 31, 2022 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 months ended March 31, 2022 and 2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 1,353,406 and 855,072 shares of common stock, respectively, warrants to purchase 377,652 and 352,400 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 March 31, 2022: Schedule of Supplemental Balance Sheet Information Related to Leases Operating Lease Right-of-use assets $ 194,925 Operating lease liability $ 204,595 Less: short term portion ( 189,267 ) Long term portion $ 15,328 Finance Lease Furniture and equipment $ 28,932 Less: Accumulated depreciation ( 22,181 ) Net book value of property and equipment under finance lease $ 6,751 Finance lease liability $ 6,841 Less: short term portion ( 5,860 ) Long term portion $ 981 Maturity analysis under lease agreements consisted of the following as of March 31, 2022: Schedule of Maturity Analysis Under Lease Agreements Operating Leases Finance Leases 2022 $ 152,394 $ 5,441 2023 68,080 3,023 Total minimum lease payments 220,474 8,464 Less: Present value discount ( 15,879 ) ( 30 ) Less amount representing services - ( 1,593 ) Present value of net minimum lease payments $ 204,595 $ 6,841 Remaining Lease Term Discount Rate Weighted Average Operating lease 1.1 years 6.0 % Finance lease 1.2 years 1.0 % Lease costs for the period ended March 31, 2022: Schedule of Lease Costs Three-month period Operating lease cost $ 48,557 Finance lease cost: Amortization 1,447 Interest 14 Variable lease cost 20,269 Total lease cost $ 70,287 Supplemental cash flow information related to leases period ended March 31, 2022: Schedule of Supplemental Cash Flow Information Related to Leases Three-month period Cash paid for amounts included in operating and finance leases: Operating cash outflow from operating leases $ 68,885 Operating cash outflow from finance leases 14 Financing cash outflow from finance leases 1,458 Total cash paid for amounts included in operating and finance leases $ 70,357 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 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, the Expanded Access study, and the Phase 3 clinical study to date, are generally based on time and material. 5. Stockholders’ Equity On February 4, 2022, the Company 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. 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 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. During the three months ended March 31, 2022 and 2021, the Company sold 0 and 3,082 shares, respectively, 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 three months ended March 31: Schedule of Stock Options Activity 2022 2021 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 1,315,321 $ 11.97 849,949 $ 9.33 Granted 119,500 10.01 38,391 15.20 Exercised ( 1,415 ) 5.24 29,997 8.00 Forfeited ( 80,000 ) 13.01 ( 3,271 ) 7.62 Balance at March 31 1,353,406 $ 11.75 855,072 $ 9.65 Options exercisable at March 31: 625,912 $ 9.68 406,332 $ 10.37 Weighted Average Grant Date Fair Value for options granted during the period: $ 6.72 $ 10.07 11 The following table summarizes additional information about stock options outstanding and exercisable at March 31, 2022: 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 1,353,406 7.86 $ 11.75 $ 2,014,794 625,912 $ 9.68 $ 1,523,502 The Company recognized stock-based compensation expense for stock options of $ 709,509 and $ 418,192 for the three months ended March 31, 2022 and 2021, 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 of this modification on stock-based compensation was $ 28,029 and $ 0 for the three months ended March 31, 2022 and 2021, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 316,000 . 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 of this modification on stock-based compensation was $ 11,614 and $ 13,449 for the three months ended March 31, 2022 and 2021, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 73,000 . 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 three months ended March 31: Schedule of Assumptions for Fair Value of Equity-based Awards 2022 2021 Risk-free interest rate 1.68 % - 2.41 % 0.63 % - 1.12 % Expected volatility 76.2 % - 76.5 % 76.6 % Expected life (years) 6.04 to 6.08 5.0 to 6.07 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. No restricted stock awards were granted during the three months ended March 31, 2022 and 2021. The Company had 2,964 and 15,686 shares of restricted stock outstanding as of March 31, 2022 and 2021, respectively, and 0 shares of restricted stock vested during the three months ended March 31, 2022 and 2021. The Company recognized stock-based compensation expense for restricted stock of $ 20,344 and $ 20,456 for the three months ended March 31, 2022 and 2021, 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 , 102,998 and 149,189 shares on January 1, 2020, 2021 and 2022, respectively, and will increase automatically on January 1 of each of 2023 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 March 31, 2022 was 398,445 . 12 Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2022 $ 2,236,000 2023 2,349,490 2024 1,864,026 2025 1,001,313 2026 12,502 Total estimated compensation cost to be recognized $ 7,463,331 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 26,148 and $ 10,450 for the three months ended March 31, 2022 and 2021, 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 , 51,499 and 74,594 shares on January 1, 2020, 2021 and 2022, 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 March 31, 2022 was 224,817 . The Company recognized total stock-based compensation expense as follows for the three months ended March 31: Schedule of Stock-based Compensation Expense 2022 2021 Three Months Ended March 2022 2021 Stock-based compensation expense in operating expenses: Research and development $ 450,520 $ 255,181 General and administrative 305,751 193,917 Total $ 756,271 $ 449,098 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 Company is no longer eligible to draw on the term B loan. 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. 13 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 11.61 %. 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”). 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 March 31, 2022. Long-term debt consisted of the following: Schedule of Long-term Debt March 31, 2022 Note payable $ 15,000,000 Add: PIK interest (added to principal) 402,088 Add: final fee 675,000 Less: unamortized debt issuance costs ( 346,479 ) Less: unamortized debt discount ( 907,587 ) Total long-term debt $ 14,823,021 Future principal payments, including the final fee, are as follows: Schedule of Long Term Debt Future Principal Payments Years Ending December 31, 2024 $ 5,775,783 2025 7,701,043 2026 2,600,262 Total $ 16,077,088 8. 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. 9. Subsequent Events On May 15, 2022, the Company entered into a securities purchase agreement with certain institutional and other accredited investors for the sale of Company common stock, preferred stock that may be convertible into common stock and warrants initially exercisable for preferred stock for $ 100 million in the aggregate, before deducting placement agent fees and other offering expenses. Pursuant to the securities purchase agreement, investors will purchase shares of common stock and preferred stock at a price per share of $ 5.75 (on an as converted to common stock basis). For each share of common stock and each 1/10 of a share of preferred stock purchased, investors will receive a warrant initially exercisable for preferred stock equivalent to 0.40 shares of common stock on an as converted basis. The exercise price of the warrants will be at a 40 % premium to the price paid by investors for the initial shares of common stock purchased in the private placement. The preferred stock will be convertible into common stock at the holder’s election, subject to certain limitations such as beneficial ownership and the approval by the Company’s stockholders to increase the number of authorized shares of common stock sufficient to cover the shares of common stock issuable upon conversion of (i) the preferred stock purchased in the private placement and (ii) the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement. The warrants are initially exercisable for preferred stock and will convert into warrants to purchase common stock if the proposed increase in the Company’s authorized common stock is approved by stockholders. The closing of the private placement is conditioned on, among other customary items, the first patient enrolled in the Company’s forthcoming Phase 3 clinical study (VIKTORIA-1) having received their first dose of treatment at a clinical site located in the United States, provided that such date must occur on or before December 31, 2022. The Company also entered into a customary registration rights agreement with the investors pursuant to which it agreed to file a registration statement with the SEC registering the resale of (i) the shares of common stock to be issued and sold in the private placement, (ii) the shares of common stock issuable upon conversion of the preferred stock purchased in the private placement and (iii) the shares of common stock issuable upon conversion of the shares of preferred stock that may be issued upon exercise of warrants purchased in the private placement. 14