Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets September 30, 2022 December 31, 2021 (unaudited) Assets Current Assets: Cash and cash equivalents $ 57,483,776 $ 84,286,381 Deposits 22,009 22,009 Deferred transaction costs 349,147 22,144 Payroll tax receivable 260,926 298,764 Prepaid assets 6,578,252 722,677 Total current assets 64,694,110 85,351,975 Property and equipment, net 302,005 312,444 Operating lease right-of-use assets 295,535 241,901 Total Assets $ 65,291,650 $ 85,906,320 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 3,168,198 $ 1,507,099 Finance lease liabilities 3,916 5,850 Operating lease liabilities 194,643 189,858 Accrued expenses 3,278,315 802,893 Total current liabilities 6,645,072 2,505,700 Finance lease liabilities - 2,449 Operating lease liabilities 107,830 61,771 Note payable, non-current 15,013,407 14,625,923 Total Liabilities 21,766,309 17,195,843 Commitments and Contingencies (Note 4) - - Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021 - - Common stock, $ 0.001 par value: 65,000,000 and 25,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 14,942,958 and 14,918,887 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 14,943 14,919 Additional paid-in capital 128,225,939 124,622,405 Accumulated deficit ( 84,715,541 ) ( 55,926,847 ) Total Stockholders’ Equity 43,525,341 68,710,477 Total Liabilities and Stockholders’ Equity $ 65,291,650 $ 85,906,320 See accompanying notes to the financial statements 3 Celcuity Inc. Condensed Statements of Operations (unaudited) 2022 2021 2022 2021 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating expenses: Research and development $ 9,621,505 $ 4,960,515 $ 24,685,505 $ 20,266,965 General and administrative 1,022,050 639,271 3,066,382 1,768,058 Total operating expenses 10,643,555 5,599,786 27,751,887 22,035,023 Loss from operations ( 10,643,555 ) ( 5,599,786 ) ( 27,751,887 ) ( 22,035,023 ) Other income (expense) Interest expense ( 537,661 ) ( 433,072 ) ( 1,428,108 ) ( 824,283 ) Interest income 287,495 5,612 391,301 7,803 Loss on sale of fixed assets - - - ( 263 ) Other income (expense), net ( 250,166 ) ( 427,460 ) ( 1,036,807 ) ( 816,743 ) Net loss before income taxes ( 10,893,721 ) ( 6,027,246 ) ( 28,788,694 ) ( 22,851,766 ) Income tax benefits - - - - Net loss $ ( 10,893,721 ) $ ( 6,027,246 ) $ ( 28,788,694 ) $ ( 22,851,766 ) Net loss per share, basic and diluted $ ( 0.75 ) $ ( 0.41 ) $ ( 1.95 ) $ ( 1.78 ) Weighted average common shares outstanding, basic and diluted 14,938,224 14,877,619 14,928,727 12,867,484 See accompanying notes to the financial statements 4 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three and Nine Months Ended September 30, 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 Stock-based compensation 3,273 3 1,519,456 - 1,519,459 Employee stock purchases 15,888 16 80,525 - 80,541 Exercise of common stock options, net of shares withheld for exercise price 1,871 2 9,540 - 9,542 Net loss - - - ( 9,960,526 ) ( 9,960,526 ) Balance at June 30, 2022 (unaudited) 14,941,334 $ 14,941 $ 126,995,610 $ ( 73,821,820 ) $ 53,188,731 Stock-based compensation 250 - 1,223,054 - 1,223,054 Exercise of common stock options, net of shares withheld for exercise price 1,374 2 7,275 - 7,277 Net loss - - - ( 10,893,721 ) ( 10,893,721 ) Balance at September 30, 2022 (unaudited) 14,942,958 $ 14,943 $ 128,225,939 $ ( 84,715,541 ) $ 43,525,341 See accompanying notes to the financial statements 5 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three and Nine Months Ended September 30, 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 Stock-based compensation 2,964 3 540,314 - 540,317 Employee stock purchases 5,496 6 25,811 - 25,817 Exercise of common stock options, net of shares withheld for exercise price 9,136 9 36,850 - 36,859 Issuance of common stock warrants, note payable - 289,839 - 289,839 Issuance of common stock, licensing agreement 349,406 349 4,999,651 - 5,000,000 Net loss - - - ( 14,032,852 ) ( 14,032,852 ) Balance at June 30, 2021 (unaudited) 12,654,898 $ 12,655 $ 70,167,970 $ ( 43,146,101 ) $ 27,034,524 Stock-based compensation - - 699,916 - 699,916 Exercise of common stock options, net of shares withheld for exercise price 1,000 1 5,099 - 5,100 Issuance of common stock upon closing of follow-on offering, net of underwriting discounts and offering costs 2,250,000 2,250 52,759,842 - 52,762,092 Net loss - - - ( 6,027,246 ) ( 6,027,246 ) Balance at September 30, 2021 (unaudited) 14,905,898 $ 14,906 $ 123,632,827 $ ( 49,173,347 ) $ 74,474,386 See accompanying notes to the financial statements 6 Celcuity Inc. Condensed Statements of Cash Flows (unaudited) 2022 2021 Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 28,788,694 ) $ ( 22,851,766 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 161,981 240,206 Stock-based compensation 3,498,784 1,689,331 Issuance of common stock, licensing agreement - 5,000,000 Amortization of debt issuance costs and discount 284,184 173,361 Payment-in-Kind interest 311,764 196,348 Non-cash operating lease, net ( 2,791 ) ( 7,681 ) Loss on sale of fixed assets - 263 Changes in operating assets and liabilities: Payroll tax receivable 37,838 ( 166,309 ) Prepaid assets and deposits ( 5,855,575 ) ( 120,311 ) Accounts payable 1,553,176 1,553,381 Accrued expenses 2,270,422 105,239 Net cash used for operating activities ( 26,528,911 ) ( 14,187,938 ) Cash flows from investing activities: Purchases of property and equipment ( 46,724 ) ( 71,959 ) Proceeds from sale of property and equipment - 500 Net cash used for investing activities ( 46,724 ) ( 71,459 ) Cash flows from financing activities: Proceeds from exercise of common stock warrants - 11,257 Proceeds from exercise of employee stock options 24,233 41,959 Proceeds from employee stock purchases 80,541 25,817 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 Payments for debt issuance costs ( 8,463 ) - Gross proceeds from an ATM offering - 38,962 Payments for secondary registration statement costs ( 318,897 ) ( 3,868 ) Payments for finance leases ( 4,384 ) ( 4,353 ) Net cash (used for) provided by financing activities ( 226,970 ) 92,988,298 Net change in cash and cash equivalents ( 26,802,605 ) 78,728,901 Cash and cash equivalents: Beginning of period 84,286,381 11,637,911 End of period $ 57,483,776 $ 90,366,812 Supplemental disclosure of cash flow information: Interest paid $ 832,161 $ 454,573 Supplemental disclosures of non-cash investing and financing activities: Property and equipment included in accounts payable $ 104,818 $ - Offering and registration statement costs included in accounts payable 11,230 - Deferred financing costs and offering and registration statement costs included in accrued expenses 205,000 - Issuance of common stock warrants and final fee recognized as discount to note payable - 964,839 See accompanying notes to the financial statements 7 CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three and Nine Months Ended September 30, 2022 and 2021) 1. Organization Nature of Business Celcuity Inc., a Delaware corporation (the “Company”), is a clinical-stage biotechnology company focused on development of targeted therapies for multiple solid tumor indications. The Company’s lead therapeutic candidate is gedatolisib, a potent, reversible dual inhibitor that selectively targets all Class I PI3K isoforms 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 initiated 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 and nine months ended September 30, 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 initial drug product, gedatolisib, the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval of its drug product, gedatolisib, 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. 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. The Company’s emerging growth company filer status will cease on its Form 10-K filing for the year ended December 31, 2022. Recently Adopted Accounting Pronouncements In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which provides guidance on how an issuer should account for modifications made to equity-classified written call options. The guidance in the ASU requires the issuer to treat the modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. The issuer should measure the effect of a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The standard is effective for all entities for all fiscal years beginning after December 15, 2021. The Company adopted this accounting standard effective January 1, 2022, and based on the standard, determined that the Representative’s Warrant amendment was equity-classified, treated as a deemed dividend within Additional Paid-in Capital, and the estimated incremental fair value of the modification for the Representative’s Warrant at the date of amendment was $ 271,988 . 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 is the same. For the three and nine months ended September 30, 2022 and 2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 1,919,114 and 1,184,721 shares of common stock, respectively, warrants to purchase 309,652 and 378,442 shares of common stock, respectively, and 3,273 and 2,964 shares of restricted common stock, respectively. In accordance with ASU 2021-04, for purposes of calculating basic and diluted net loss per share for the three- and nine-month periods ended September 30, 2022, the reported net loss was increased by approximately $ 272,000 related to the deemed dividend resulting from the amendment to the warrant agreement as further discussed in Note 5. This adjustment increased the basic and diluted net loss per share by $ .02 for the three- and nine-month periods ended September 30, 2022. 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 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. 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 $ 193,571 in the operating right-of-use (“ROU”) asset and lease liability. In July 2022, the Company signed the third amendment to extend this lease through April 30, 2024. This amendment provides for monthly rent, real estate taxes and operating expenses. The Company recorded an incremental $ 195,437 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this amendment. 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 Clinical Research Studies The Company enters into contracts in the normal course of business to conduct research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CMO’s, and CRO’s. The Company currently has five Phase 2 clinical trial agreements in place to evaluate targeted therapies selected with one of our CELsignia tests. 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. 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. Contracts related to the Phase 1B study and the Expanded Access study, are generally based on time and material. In addition, contracts related to the Company’s Phase 3 clinical study (VIKTORIA-1) are generally cancelable with reasonable notice within 120 days and the Company’s obligations under these contracts are primarily based on services performed through termination dates plus certain cancelation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties. As of September 30, 2022, the Company had only one material non-cancelable contractual commitment with respect to these arrangements, which totaled approximately $ 2.5 million. 5. Stockholders’ Equity On September 13, 2022, the Company entered into a First Amendment to Representative’s Warrant (the “Warrant Amendment”) with Craig-Hallum Capital Group LLC (“Craig-Hallum”), amending the terms of that certain Representative’s Warrant, dated September 22, 2017 (the “Representative’s Warrant”) issued by the Company to Craig-Hallum in connection with the Company’s initial public offering. Under the terms of the Warrant Amendment, (i) the number of shares of the Company’s common stock issuable upon exercise of the Representative’s Warrant was reduced from 138,000 shares to 70,000 shares, and (ii) the exercise period of the Representative’s Warrant was extended three years to September 19, 2025 . There were no other material amendments or modifications to the Representative’s Warrant. The estimated incremental fair value of the Representative’s Warrant at the date of amendment was $ 271,988 . As the Company has an accumulated deficit balance in Retained Earnings, the incremental impact will be recorded as a deemed dividend, classified within Additional Paid-in Capital. On September 1, 2022, the Company held a Special Meeting of Stockholders, at which the Company’s stockholders approved a proposal to amend the Company’s Certificate of Incorporation to increase the authorized number of the Company’s Common Stock from 30,000,000 shares to 65,000,000 shares. 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 exercisable for 0.40 shares of common stock. 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. The closing of the private placement is conditioned on, among other customary items, the first patient enrolled in the Company’s Phase 3 clinical study (VIKTORIA-1) having received their first dose of treatment at a clinical site located in the United States, provided that if such date does not occur on or before December 31, 2022, each investor will have the right to terminate its obligation to purchase securities under the securities purchase agreement. 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. As of September 30, 2022, the Company has incurred $ 142,241 in fees related to the transaction. 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 . The Company will pay Jefferies a commission equal to 3.0 % of the aggregate gross proceeds from each sale of such shares. On October 12, 2022, pursuant to the above agreement, the Company sold 500,000 shares of common stock in a single transaction at a price of $ 10.35 per share, generating gross proceeds of $ 5.2 million ($ 4.8 million net of commissions and offering expenses). 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. 10 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. During the nine months ended September 30, 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 through the Agent. 6. Stock-Based Compensation The following table summarizes the activity for all stock options outstanding for the nine months ended September 30: Schedule of Stock Options 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 720,047 7.19 402,550 23.04 Exercised ( 4,660 ) 5.20 ( 40,620 ) 7.26 Forfeited ( 111,594 ) 10.86 ( 27,158 ) 19.07 Balance at September 30 1,919,114 $ 6.08 1,184,721 $ 13.84 Options exercisable at September 30: 882,215 $ 5.92 560,915 $ 9.45 Weighted Average Grant Date Fair Value for options granted during the period: $ 4.87 $ 15.28 The following table summarizes additional information about stock options outstanding and exercisable at September 30, 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 1,919,114 7.98 $ 6.08 $ 7,791,703 882,215 $ 5.92 $ 3,779,591 The Company recognized stock-based compensation expense for stock options of $ 1,162,751 and $ 673,022 for the three months ended September 30, 2022 and 2021, respectively and $ 3,329,969 and $ 1,611,575 for the nine months ended September 30, 2022 and 2021, respectively. In May 2022, the Company modified the exercise price on 776,324 stock option awards to $ 5.50 , the closing market price on the Nasdaq Capital Market on May 17, 2022. The effect of this modification on stock-based compensation was $ 49,088 for the three months ending September 30, 2022 and $ 477,431 for the nine months ending September 30, 2022. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 389,000 . 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 $ 21,778 and $ 0 for the three months ended September 30, 2022 and 2021, respectively and $ 75,562 and $ 0 for the nine months ended September 30, 2022 and 2021, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 219,000 . 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 $ 7,681 and $ 12,602 for the three months ended September 30, 2022 and 2021, respectively and $ 30,897 and $ 34,396 for the nine months ended September 30, 2022 and 2021. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 27,000 . 11 The Black-Scholes option-pricing model was used to estimate the grant date fair value of equity-based awards with the following weighted-average assumptions for the nine months ended September 30: Schedule of Assumptions for Fair Value of Equity-based Awards 2022 2021 Risk-free interest rate 1.68 % - 3.93 % 0.63 % - 1.16 % Expected volatility 76.2 % - 79.6 % 76.6 % - 76.9 % Expected life (years) 5.29 to 6.25 5.0 to 6.08 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 3,273 and 2,964 shares of restricted stock outstanding as of September 30, 2022 and 2021, respectively, and 250 and 0 shares of restricted stock vested during the three months ended September 30, 2022 and 2021. The Company recognized stock-based compensation expense for restricted stock of $ 7,245 and $ 20,792 for the three months ended September 30, 2022 and 2021, respectively and $ 36,686 and $ 59,359 for the nine months ended September 30, 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 each year from 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 and May 12, 2022, the stockholders approved a one-time, 500,000 increase each year for a total increase of 1,000,000 to the number of shares reserved for issuance under the 2017 Plan. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for grant under the Company’s 2017 Plan as of September 30, 2022 was 325,094 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows for the year ended: Schedule of Unrecognized Compensation Cost 2022 $ 1,116,837 2023 3,277,254 2024 2,130,739 2025 1,333,749 2026 176,866 Total estimated compensation cost to be recognized $ 8,035,445 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 53,058 and $ 6,102 for the three months ended September 30, 2022 and 2021, respectively and $ 132,129 and $ 18,397 for the nine months ended September 30, 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 September 30, 2022 was 208,929 . 12 The Company recognized total stock-based compensation expense as follows for the three and nine months ended September 30: Schedule of Stock-based Compensation Expense 2022 2021 2022 2021 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Stock-based compensation expense in operating expenses: Research and development $ 676,524 $ 434,597 $ 1,937,707 $ 1,017,855 General and administrative 546,530 265,319 1,561,077 671,476 Total $ 1,223,054 $ 699,916 $ 3,498,784 $ 1,689,331 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”). The Company is no longer eligible to draw on the term B loan. Funding of the term C is subject to the Company’s ability to achieve certain milestones. 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 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 C loan . 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. 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 as a debt discount, and a facility fee of approximately $ 0.1 million was recorded as additional debt discount. The Company is also required to maintain a minimum cash balance in agreement with the term loans’ default terms. On August 9, 2022, the Company amended the Loan Agreement. Under the amended Loan Agreement, Innovatus, as Lender, has agreed to loan up to $ 75 million, a $ 50 million increase from the original Loan Amount, in five tranches consisting of: (i) a $ 15 million term A loan that was funded on April 8, 2021 upon entering into the original Loan Agreement, (ii) a $ 20 million term B loan to be funded upon request of the Company no later than December 31, 2022, with such funding conditioned upon the closing of the Company’s $ 100 million private placement announced on May 16, 2022, (iii) a $ 10 million term C loan to be funded upon request of the Company no later than April 1, 2024, (iv) a $ 20 million term D loan to be funded upon request of the Company no later than November 1, 2024, and (v) a $ 10 million term E loan to be funded upon request of the Company no later than February 28, 2025. Funding of the term B loan is conditioned upon the closing of the Company’s $ 100 million private placement announced on May 16, 2022, and funding of the term C, D, and E loans are conditioned upon satisfaction of certain clinical trial milestones and certain financial covenants determined on a pro forma as-funded basis. Under the amended Loan Agreement, Innovatus has the right, at its election and until August 9, 2025, the third anniversary of the loan amendment date, to convert into Common Stock up to (1) 20% of the outstanding principal amount of term A loan, and (ii) an additional 7% of the amount by which the aggregate principal amount of the funded term B, C, D, and E loans exceed $35 million, provided that the aggregate outstanding principal amount of all term loans is at least $35 million, which such conversion based upon a price per share equal to $10.00 . 13 The Company is entitled to make interest-only payments for forty-eight months, or up to sixty months from the original Loan Agreement date if certain conditions are met. The Term Loans will mature on April 8, 2027, the sixth anniversary of the initial funding date, and will bear interest at a rate equal to the sum of (a) the greater of (i) Prime Rate (as defined in the amended Loan Agreement) or (ii) 3.25%, plus 5.7%. Additionally, the Company elected to make 4.95% of the interest rate as payable in-kind, which shall accrue as principal monthly. The Amended Loan Agreement includes certain other fees, such as a final fee of 4.5% of the funded loan amounts not converted into equity by the lender, which apply if prepayment, an event of default, or change of control occurs prior to August 9, 2025, the third anniversary of the Amendment date . Subject to certain other conditions, no final fee will be payable after August 9, 2025. The Company has the option to prepay the loan at any time following the first anniversary of the amended loan agreement date, with tiered prepayment fees ranging from 0 to 1% based on when the prepayment occurs. Upon a change in control or event of default, mandatory prepayment will be required, and if such an event occurs prior to the first anniversary of the Amendment date, an additional prepayment fee of 3.0 % applies. The amended Loan Agreement remains secured by all assets of the Company. Proceeds will be used for working capital purposes and to fund the Company’s general business requirements. The amended Loan Agreement contains customary representations and warranties and covenants, subject to customary carve outs, and includes financial covenants related to or based upon liquidity, trailing twelve months revenue and the funded loan amounts. In connection with the original and amended Loan Agreement and the funding of the first tranche of the Term Loans, the Company incurred debt issuance costs of approximately $ 0.7 million. The debt issuance costs, and the debt discount are amortized to interest expense using the effective interest method over the life of the Term Loans. The carrying value of the debt approximates fair value as of September 30, 2022. Long-term debt consisted of the following: Schedule of Long-term Debt September 30, 2022 Note payable $ 15,000,000 Add: Payment-in-Kind interest (added to principal) 611,765 Add: final fee 675,000 Less: unamortized debt issuance costs ( 481,304 ) Less: unamortized debt discount ( 792,054 ) Total long-term debt $ 15,013,407 Future principal payments, including the final fee, are as follows: Schedule of Long Term Debt Future Principal Payments Years Ending December 31, 2024 $ 5,854,412 2025 7,805,882 2026 2,626,471 Total $ 16,286,765 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 selectively targets all Class I PI3K isoforms and mTOR. The Company paid Pfizer $ 5.0 million in upfront fees and issued to Pfizer $ 5.0 million of shares of the Company’s common stock pursuant to an Equity Grant Agreement. The upfront payment and the issuance of shares were expensed to research & development in full for the three months ending June 30, 2021. The Company is also required to make milestone payments to Pfizer upon achievement of certain development and commercial milestone events, up to an aggregate of $ 335.0 million. Additionally, the Company will pay Pfizer tiered royalties on sales of gedatolisib at percentages ranging from the low to mid-teens, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. Unless earlier terminated, the license agreement will expire upon the expiration of all royalty obligations. The royalty period will expire on a country-by-country basis upon the later of (a) 12 years following the date of first commercial sale of such product in such country, (b) the expiration of all regulatory or data exclusivity in such country for such product or (c) the date upon which the manufacture, use, sale, offer for sale or importation of such product in such country would no longer infringe, but for the license granted in the license agreement, a valid claim of a licensed patent right. The Company has the right to terminate the license agreement for convenience upon 90 days’ prior written notice. Pfizer may not terminate the agreement for convenience. Either the Company or Pfizer may terminate the license agreement if the other party is in material breach and such breach is not cured within the specified cure period. In addition, either the Company or Pfizer may terminate the license agreement in the event of specified insolvency events involving the other party. 14