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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, 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 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. 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. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Boulay PLLP We have served as the Company’s auditor since 2017. Minneapolis, Minnesota March 23, 2023 PCAOB ID: 542 68 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Celcuity Inc. Balance Sheets December 31, 2022 December 31, 2021 Assets Current Assets: Cash and cash equivalents $ 24,571,557 $ 84,286,381 Investments 144,015,954 - Deposits 22,009 22,009 Deferred transaction costs 33,195 22,144 Payroll tax receivable 203,665 298,764 Prepaid assets 6,344,157 722,677 Total current assets 175,190,537 85,351,975 Property and equipment, net 260,294 312,444 Operating lease right-of-use assets 246,266 241,901 Total Assets $ 175,697,097 $ 85,906,320 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 2,627,076 $ 1,507,099 Finance lease liabilities 2,449 5,850 Operating lease liabilities 191,749 189,858 Accrued expenses 4,060,280 802,893 Total current liabilities 6,881,554 2,505,700 Finance lease liabilities - 2,449 Operating lease liabilities 61,002 61,771 Note payable, non-current 34,983,074 14,625,923 Total Liabilities 41,925,630 17,195,843 Commitments and Contingencies (Note 10) - - Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 1,120,873 and 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021 1,121 - Common stock, $ 0.001 par value: 65,000,000 and 25,000,000 shares authorized; 21,667,250 and 14,918,887 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 21,667 14,919 Additional paid-in capital 230,045,566 124,622,405 Accumulated deficit ( 96,296,887 ) ( 55,926,847 ) Total Stockholders’ Equity 133,771,467 68,710,477 Total Liabilities and Stockholders’ Equity $ 175,697,097 $ 85,906,320 See accompanying notes to the financial statements 69 Celcuity Inc. Statements of Operations Years Ended December 31, 2022 2021 Operating expenses: Research and development $ 35,289,548 $ 25,758,006 General and administrative 4,101,543 2,597,909 Total operating expenses 39,391,091 28,355,915 Loss from operations ( 39,391,091 ) ( 28,355,915 ) Other income (expense) Interest expense ( 2,106,111 ) ( 1,262,350 ) Interest income 1,127,162 13,262 Loss on sale of fixed assets - ( 263 ) Other income (expense), net ( 978,949 ) ( 1,249,351 ) Net loss before income taxes ( 40,370,040 ) ( 29,605,266 ) Income tax benefits - - Net loss $ ( 40,370,040 ) $ ( 29,605,266 ) Net loss per share, basic and diluted $ ( 2.64 ) $ ( 2.21 ) Weighted average common shares outstanding, basic and diluted 15,418,543 13,382,553 See accompanying notes to the financial statements 70 Celcuity Inc. Statements of Changes in Stockholders’ Equity Common Stock Preferred Stock Additional Paid-In Accumulated Shares Amount 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 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 Balance 14,918,887 14,919 - - 124,622,405 ( 55,926,847 ) 68,710,477 Stock-based compensation 3,523 2 - - 4,638,203 - 4,638,205 Employee stock purchases 32,669 33 - - 171,677 - 171,710 Exercise of common stock options, net of shares withheld for exercise price 29,597 30 - - 152,382 - 152,412 Issuance of common and preferred stock upon closing of private placement offering 6,182,574 6,183 1,120,873 1,121 99,992,696 - 100,000,000 Issuance costs associated with private placement offering - - - - ( 4,316,534 ) - ( 4,316,534 ) Issuance of common stock in an ATM offering 500,000 500 - - 5,174,500 - 5,175,000 Issuance costs associated with an ATM offering - - - - ( 389,763 ) - ( 389,763 ) Net loss - - - - - ( 40,370,040 ) ( 40,370,040 ) Balance at December 31, 2022 21,667,250 $ 21,667 1,120,873 $ 1,121 $ 230,045,566 $ ( 96,296,887 ) $ 133,771,467 Balance 21,667,250 $ 21,667 1,120,873 $ 1,121 $ 230,045,566 $ ( 96,296,887 ) $ 133,771,467 See accompanying notes to the financial statements 71 Celcuity Inc. Statements of Cash Flows Years Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 40,370,040 ) $ ( 29,605,266 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 210,918 303,235 Stock-based compensation 4,638,205 2,609,935 Issuance of common stock, licensing agreement - 5,000,000 Amortization of debt issuance costs and discount 395,757 267,821 PIK interest 455,074 300,001 Non-cash operating lease, net ( 3,243 ) ( 7,740 ) Loss on sale of fixed assets - 263 Change in accrued interest income ( 142,928 ) - Changes in operating assets and liabilities: Payroll tax receivable 95,099 ( 108,764 ) Prepaid assets and deposits ( 5,621,480 ) ( 405,637 ) Accounts payable 1,077,080 1,305,932 Accrued expenses 3,257,387 28,280 Net cash used for operating activities ( 36,008,171 ) ( 20,311,940 ) Cash flows from investing activities: Purchases of investments ( 143,873,026 ) - Purchases of property and equipment ( 158,768 ) ( 81,898 ) Proceeds from sale of property and equipment - 500 Net cash used for investing activities ( 144,031,794 ) ( 81,398 ) Cash flows from financing activities: Proceeds from exercise of common stock warrants - 18,762 Proceeds from exercise of employee stock options 152,412 63,420 Proceeds from employee stock purchases 171,710 65,839 Proceeds from follow-on offering, net of underwriting discounts and offering costs - 78,530,585 Proceeds from an ATM offering, net of commission fees and offering costs 4,776,046 21,073 Proceeds from note payable, net of debt issuance and discount costs 19,509,037 14,347,939 Proceeds from a private placement offering, net of discounts and offering costs 95,721,786 - Payments for finance leases ( 5,850 ) ( 5,810 ) Net cash provided by financing activities 120,325,141 93,041,808 Net change in cash and cash equivalents ( 59,714,824 ) 72,648,470 Cash and cash equivalents: Beginning of period 84,286,381 11,637,911 End of period $ 24,571,557 $ 84,286,381 Supplemental disclosure of cash flow information: Interest paid $ 1,255,280 $ 694,528 Supplemental disclosures of non-cash investing and financing activities: Deferred financing costs and offering and registration statement costs included in accounts payable $ 51,020 $ 8,123 Issuance of common stock warrants and final fee recognized as discount to note payable - 964,839 See accompanying notes to the financial statements 72 CELCUITY INC. NOTES TO FINANCIAL STATEMENTS 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 pan-PI3K and mTOR inhibitor. 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. A Phase 3 clinical trial, VIKTORIA-1, evaluating gedatolisib in combination with fulvestrant with or without palbociclib in patients with HR+/HER2- advanced breast cancer is currently enrolling patients. 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. Private Placement Offering On December 9, 2022, the Company completed the closing (funding) of its private placement offering 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 exercisable for common stock for $ 100 million in the aggregate, before deducting placement agent fees and other offering expenses of $ 4.3 million. The closing followed dosage of the first patient in Celcuity’s Phase 3 clinical trial, VIKTORIA-1. 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, 2022 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, 2022 and December 31, 2021, the Company had $ 24,571,557 and $ 84,286,381 , respectively, in business checking accounts and money market funds that are considered cash equivalents and not insured by the Federal Deposit Insurance Corporation. Investments The Company maintains its investments in U.S. governmental agency securities and U.S. treasury bills and has classified them as held-to-maturity at the time of purchase. Held-to-maturity purchases are those securities in which the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security using a straight-line method. The difference between the carrying value, which is based on cost, and the aggregate fair value of the held-to-maturity securities, was immaterial as of December 31, 2022. At December 31, 2022 and December 31, 2021, the Company had $ 144,015,954 and $ 0 , respectively, of short-term investments. 73 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 Estimated Asset Description Lives Furniture and Equipment 4 - 5 Leasehold Improvements 2 - 3 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 for the year ended December 31, 2022, primarily consist of legal fees that were capitalized as incurred and will be offset against the proceeds from future ATM offerings. 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, but not accounted for as a reduction in equity, were $ 33,195 and $ 22,144 as of December 31, 2022 and 2021, 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 for gedatolisib and 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. 74 The carrying values of cash equivalents, accounts payable, accrued expenses and other financial working capital items approximate fair value at December 31, 2022 and December 31, 2021, 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. 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 $ 35,289,548 , for the year ended December 31, 2022 and $ 25,758,006 , for the year ended December 31, 2021. 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 primarily relies on a compilation of progress reports from third-party service providers, including the respective invoicing, to record actual expenses, along with determining changes to prepaid assets and accrued liabilities. To date, the Company believes utilization of third-party reports most accurately reflects expenses incurred. As the current VIKTORIA-1 Phase 3 trial ramps up site activation and patient enrollment, the Company’s estimated expenses in future periods and actual services performed may vary from these estimates, and these estimates may become more significant. 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. Recently Adopted Accounting Pronouncements In May 2021, the FASB issued Accounting Standards Update (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 . 75 3. Liquidity Based on the Company’s cash and cash equivalents and short-term investments on hand at December 31, 2022 of $ 24,571,557 and $ 144,015,954 , respectively, the Company believes that its cash and short-term investments 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 preferred stock, 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, 2022 and 2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were preferred stock on an as-if-converted to common stock basis of 11,208,730 and zero shares of common stock, respectively, options to purchase 1,976,586 and 1,315,321 shares of common stock, respectively, warrants to purchase 7,266,102 and 377,652 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 year ended December 31, 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 11. This adjustment increased the basic and diluted net loss per share by $ 0.02 for the year ending December 31, 2022. 5. Investments The following table summarizes the Company’s held-to-maturity investment securities at amortized cost as of December 31, 2022: Schedule of Investments Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value December 31, 2022 Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Governmental Agency Securities $ 46,230,893 $ 29,517 $ - $ 46,260,410 U.S. Treasury Notes 97,785,061 41,639 - 97,826,700 Total $ 144,015,954 $ 71,156 $ - $ 144,087,110 The Company had no investments as of December 31, 2021. The fair value of the Company’s held-to-maturity debt securities are determined based upon inputs, other than the quoted prices in active markets, that are observable either directly or indirectly and are classified as level 2 fair value instruments. 6. Payroll Tax Receivable The payroll tax receivable 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, 2022 was $ 203,665 and December 31, 2021 was $ 298,764 . 7. Prepaid Assets Prepaid assets consisted of the following at December 31: Schedule of Prepaid Assets 2022 2021 Current: Directors & officers’ insurance $ 173,416 $ 313,958 Prepaid research & development 421,800 338,760 Clinical trial 5,656,737 - Other 92,204 69,959 Total $ 6,344,157 $ 722,677 76 8. Property and Equipment Property and equipment consisted of the following at December 31: Summary of Property and Equipment 2022 2021 Leasehold improvements $ 302,577 $ 302,848 Furniture and equipment 1,676,935 1,517,896 Property and equipment, Gross 1,979,512 1,820,744 Less: Accumulated depreciation ( 1,719,218 ) ( 1,508,300 ) Total $ 260,294 $ 312,444 Depreciation expense was $ 210,918 and $ 303,235 for the years ended December 31, 2022 and 2021, respectively. 9. Accrued Expenses Accrued expenses consisted of the following at December 31: Schedule of Accrued Expenses 2022 2021 Accrued compensation $ 929,216 $ 438,477 Employee Stock Purchase Plan 38,967 34,455 Clinical trial costs 2,246,573 138,788 Other 845,524 191,173 Total $ 4,060,280 $ 802,893 10. 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. 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. 77 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, 2022: Schedule of Supplemental Balance Sheet Information Related to Leases Operating Lease Right-of-use assets $ 246,266 Operating lease liability $ 252,751 Less: short term portion ( 191,749 ) Long term portion $ 61,002 Finance Lease Furniture and equipment $ 28,932 Less: Accumulated depreciation ( 26,521 ) Net book value of property and equipment under finance lease $ 2,411 Finance lease liability $ 2,449 Less: short term portion ( 2,449 ) Long term portion $ - Maturity analysis under lease agreements consisted of the following as of December 31, 2022: Schedule of Maturity Analysis Under Lease Agreements Operating Leases Finance Leases 2023 $ 206,957 $ 3,023 2024 69,439 - Total minimum lease payments 276,396 3,023 Less: Present value discount ( 23,645 ) ( 5 ) Less amount representing services - ( 569 ) Present value of net minimum lease payments $ 252,751 $ 2,449 Weighted Average Remaining Lease Term Discount Rate Operating lease 1.3 years 8.0 % Finance lease 0.3 years 1.0 % Lease costs for the years ended December 31: Schedule of Lease Costs 2022 2021 Operating lease cost $ 197,767 $ 185,379 Finance lease cost: Amortization 5,786 5,786 Interest 39 79 Variable lease cost 81,077 79,477 Total lease cost $ 284,669 $ 270,721 78 Supplemental cash flow information related to leases for the years ended December 31: Schedule of Supplemental Cash Flow Information Related to Leases 2022 2021 Cash paid for amounts included in operating and finance leases: Operating cash outflow from operating leases $ 282,086 $ 274,297 Operating cash outflow from finance leases 39 79 Financing cash outflow from finance leases 5,850 5,810 Total cash paid for amounts included in operating and finance leases $ 287,975 $ 280,186 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 four 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 December 31, 2022, the Company had only one material non-cancelable contractual commitment with respect to these arrangements, which totaled approximately $ 2.3 million. 11. Stockholders’ Equity Capital Stock At December 31, 2021, the Company’s authorized capital stock consisted of 25,000,000 shares of $ .001 par value common stock, of which 14,918,887 shares were outstanding, and 2,500,000 shares of $ .001 par value preferred stock, of which 0 were outstanding. The authorized number of shares of common stock was increased to 30,000,000 shares on May 12, 2022 and to 65,000,000 shares on September 1, 2022. On May 16, 2022, the Company designated 1,850,000 shares of the authorized preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The Series A Preferred Stock is non-voting, and each share is convertible at the option of the holder, subject to certain limitations, into 10 shares of common stock. Holders of Series A Preferred Stock are entitled to receive dividends, on an as-if-converted-to-common stock basis, when, as and if, and in the same form as, dividends are actually paid on the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or in the event of a Deemed Liquidation Event (as defined in the Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock), the holders of Series A Preferred Stock are entitled to be paid from assets of the Company available for distribution to its stockholders, before any payment is made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the original issue price ($ 5.75 on an as-converted-to-common stock basis), plus all accrued and unpaid dividends and (ii) the amount that the holder would have been entitled to receive at such time if the Series A Preferred Stock were converted into common stock. The Company may not, without the consent of holders of a majority of the outstanding shares of Series A Preferred Stock, amend its charter in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock or issue or obligate itself to issue shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company and the payment of dividends. At December 31, 2022, the Company’s authorized capital stock consisted of 65,000,000 shares of common stock, of which 21,667,250 shares were outstanding, and 2,500,000 shares of preferred stock, including 1,850,000 shares designated as Series A Preferred Stock, of which 1,120,873 shares were outstanding. As of December 31, 2022, no dividends have been declared on the Company’s capital stock. 79 Sale and Issuance of Stock On December 9, 2022, the Company issued 6,182,574 shares of common stock, 1,120,873 shares of Series A Preferred Stock and warrants exercisable for 6,956,450 shares of common stock to certain institutional and other accredited investors pursuant to a securities purchase agreement entered into on May 15, 2022. Pursuant to the securities purchase agreement, the closing (funding) of the private placement occurred following dosage of the first patient in the Company’s Phase 3 study, VIKTORIA-1. Investors purchased shares of common stock and Series A Preferred Stock at a price of $ 5.75 per share (on an as converted to common stock basis), with forty percent ( 40 %) warrant coverage (on an as converted to common stock basis) and customary resale registration rights. The private placement generated gross proceeds of approximately $ 100 million before deducting placement agent fees and other offering expenses of $ 4.3 million. On February 4, 2022, the Company entered into an Open Market Sale Agreement SM with Jefferies LLC, as agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of 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 before deducting commissions and other offering expenses of $ 0.4 million. On February 26, 2021, the Company completed a follow-on offering in which 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 offering generated gross proceeds of approximately $ 27.6 million before deducting underwriting discounts and other offering expenses of approximately $ 1.8 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 349,406 shares of the Company’s common stock at a price of $ 14.31 per share, for an aggregate price of $ 5.0 million. On July 1, 2021, the Company completed a follow-on offering in which it sold 2,250,000 shares of common stock at a public offering price of $ 25.00 per share. The offering generated gross proceeds of approximately $ 56.3 million before deducting underwriting discounts and other offering expenses of approximately $ 3.5 million. Warrants Schedule of Warrants At December 31, 2022: Issue Date Expiration Date # of Warrants Outstanding Exercise Price Offering 1/21/2016 1/14/2026 33,719 $ 7.56 private placement offering - issued to placement agent 5/2/2016 5/2/2026 21,530 $ 7.56 private placement offering - issued to placement agent 4/28/2017 4/28/2027 33,250 $ 8.42 private placement offering - issued to placement agent 5/17/2017 5/17/2027 15,365 $ 8.42 private placement offering - issued to placement agent 9/22/2017 9/22/2024 109,746 $ 9.50 purchasers of convertible notes 9/22/2017 9/19/2025 70,000 $ 10.45 IPO - issued to underwriter 4/8/2021 4/8/2031 26,042 $ 14.40 debt financing - issued to lender 12/9/2022 see below 6,956,450 $ 8.05 securities purchase agreement - issued to institutional and other accredited investors Total Warrants Outstanding 7,266,102 On December 9, 2022, in connection with entering into a securities purchase agreement on May 15, 2022, the Company issued warrants to certain institutional and other accredited investors to purchase 6,956,450 shares of the Company’s common stock at a price of $ 8.05 . The warrants may be exercised at any time or from time to time on or after the date of issuance and on or before the earlier of (i) 5:00 p.m. (New York City time) on December 9, 2027 or (ii) seventy-five (75) days after the Company publicly announces (x) whether the progression-free survival (PFS) of gedatolisib in combination with palbociclib and fulvestrant (Arm A) to fulvestrant (Arm C) in the Phase 3 study met its primary endpoint target, (y) whether the PFS of gedatolisib in combination with fulvestrant (Arm B) to fulvestrant (Arm C) in the Phase 3 study met its primary endpoint target, and (z) the associated hazard ratios and median PFS values for each of Arm A, Arm B, and Arm C. The warrants are equity classified and the $ 21.8 million of fair value allocated to the warrants is reflected as Additional Paid-in Capital. 80 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 April 8, 2021, 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, 2022 and 2021, the Company had warrants to purchase 7,266,102 and 377,652 shares of common stock outstanding, at a weighted average exercise price of $ 8.12 and $ 9.76 , respectively. A total of 0 and 1,975 warrants were exercised in the years ended December 31, 2022 and 2021, respectively. 12. 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 149,189 and 102,998 shares on January 1, 2022 and 2021, 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. 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 and May 12, 2022, the stockholders approved a one-time, 500,000 increase each year for a total of 1,000,000 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. 81 The following table summarizes the activity for all stock options outstanding for the years ended December 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 843,797 7.64 538,567 16.09 Exercised ( 29,597 ) 5.15 ( 44,828 ) 7.06 Forfeited ( 152,935 ) 9.70 ( 28,367 ) 18.72 Balance at December 31: 1,976,586 $ 6.34 1,315,321 $ 11.97 Options exercisable at December 31: 995,629 $ 5.91 592,141 $ 9.53 Weighted Average Grant Date Fair Value for options granted during the period: $ 5.22 $ 14.93 The following table summarizes additional information about stock options outstanding and exercisable at December 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 1,976,586 7.86 $ 6.34 $ 15,246,085 995,629 $ 5.91 8,157,756 The Company recognized stock-based compensation expense for stock options of $ 4,415,415 and $ 2,448,742 for the years ended December 31, 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 $ 517,000 for the year ended December 31, 2022. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 317,000 . 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 on stock-based compensation was $ 92,000 and $ 53,000 for the years ended December 31, 2022 and 2021, respectively. The effect on stock-based compensation over the remaining service period will be approximately $ 173,000 . 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 $ 38,000 and $ 46,000 for the years ended December 31, 2022 and 2021, respectively. The effect on stock-based compensation over the remaining service period will be approximately $ 20,000 . 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 Assumptions for Fair Value of Equity-based Awards 2022 2021 Risk-free interest rate 1.68 % - 4.22 % 0.63 % - 1.39 % Expected volatility 76.2 % - 79.6 % 76.6 % - 76.9 % Expected life (years) 5.29 to 6.25 5.0 to 6.11 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. 82 The Company had 3,273 and 2,964 shares of restricted stock outstanding for the years ended December 31, 2022 and 2021, respectively, and 3,214 and 15,686 shares of restricted stock vested during the years ended December 31, 2022 and 2021, respectively. The Company recognized stock-based compensation expense for restricted stock of $ 41,431 and $ 80,150 for the years ended December 31, 2022 and 2021, respectively. The total remaining shares available for grant under the Company’s 2017 Plan as of December 31, 2022 was 242,435 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2023 $ 3,347,255 2024 2,161,383 2025 1,405,076 2026 365,245 Total estimated compensation cost to be recognized $ 7,278,959 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 74,595 and 51,499 shares on January 1, 2022 and 2021, 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, 2022 is 192,148 . 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 $ 181,359 and $ 41,043 for the years ended December 31, 2022 and 2021, respectively. The Company recognized total stock-based compensation expense as follows for the years ended December 31: Schedule of Stock-based Compensation Expense 2022 2021 Year Ended December 31, 2022 2021 Stock-based compensation expense in operating expenses: Research and development $ 2,563,291 $ 1,645,353 General and administrative 2,074,914 964,582 Total $ 4,638,205 $ 2,609,935 83 13. 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 with a deadline of March 31, 2022 and (iii) a $ 5 million term C loan to be funded upon request, subject to our ability to achieve certain milestones, no later than March 31, 2023 (collectively the “Term Loans”). 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. 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. As of December 31, 2022, term loans totaling $ 35 million are outstanding under the Loan Agreement, including the initial Term A loan of $ 15 million which was funded on April 8, 2021, and a $ 20 million Term B loan which was funded on December 22, 2022 following the closing of the $ 100 million private placement described above. 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. In connection with the original and amended Loan Agreement and the funding of the first and second tranche of the Term Loans, the Company incurred debt issuance costs of approximately $ 1.1 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, 2022. 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. No additional warrants are required to be issued under the funding of term B, C, D, and E. 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. 84 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. Long-term debt consisted of the following at December 31, 2022 and 2021: Schedule of Long-term Debt 2022 2021 Note payable $ 35,000,000 $ 15,000,000 Add: PIK interest (added to principal) 755,075 300,001 Add: final fee - 675,000 Less: unamortized debt issuance costs ( 707,001 ) ( 386,578 ) Less: unamortized debt discount ( 65,000 ) ( 962,500 ) Total long-term debt $ 34,983,074 $ 14,625,923 Future principal payments are as follows: Schedule of Long Term Debt Future Principal Payments Years Ending December 31, 2025 $ 13,408,153 2026 17,877,538 2027 4,469,384 Total $ 35,755,075 14. 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. 85 15. 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 2022 and 2021, 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 2022 2021 Tax benefit at statutory federal rate $ ( 8,478,000 ) $ ( 6,217,000 ) State income tax benefit, net of federal tax effect ( 64,000 ) ( 49,000 ) Change in valuation allowance on deferred tax assets 9,543,000 6,330,000 Research & Development Credits ( 1,347,000 ) ( 222,000 ) Other permanent items 346,000 158,000 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. As part of Tax Act, for tax years beginning on or after January 1, 2022, Congress requires taxpayers to capitalize research and experimental expenditures that qualify as section 174 costs and recover them over 5 years for domestic expenditures, and 15 years for expenditures attributed for foreign research . The Inflation Reduction Act of 2022 (the “IRA”) was signed into law on August 16, 2022. Among other things, the IRA contained three key changes for corporations—a corporate minimum tax, a one percent excise tax on certain stock buybacks and certain clean energy incentives and initiatives. The enactment of the IRA did not result in any material impact to the Company’s income tax provision. On August 9, 2022, President Biden signed the CHIPS and Science Act of 2022 into law, which provides certain financial incentives with the intention of increasing American semi-conductor research, development and production and promoting domestic scientific and technological advances. The enactment of the CHIPS 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, 2022. 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 2022 2021 Deferred tax assets (liabilities): Accrued expenses $ 103,000 $ 50,000 Share-based compensation 1,419,000 796,000 Property and equipment 364,000 319,000 Right-of-use assets ( 52,000 ) ( 51,000 ) Lease liability 53,000 53,000 IRC 174 Expenditures 3,326,000 - Start-up expenditures 10,333,000 6,966,000 Net operating losses and tax credits 7,045,000 4,915,000 Valuation allowance ( 22,591,000 ) ( 13,048,000 ) Net deferred tax assets $ - $ - At December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $ 19.3 million and $ 0.5 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, 2022 and December 31, 2021. 86 At December 31, 2022, the Company had federal and state research and development tax credit carryforwards resulting in deferred tax assets of approximately $ 2.2 million and $ 1.0 million, respectively. The federal and state credit carryforwards will begin to expire in the years ending December 31, 2038 and December 31, 2033, respectively. These deferred tax assets were subject to a full valuation allowance as of December 31, 2022 and December 31, 2021. 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, 2022, and 2021, 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 2018, 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. 16. Subsequent Event On March 13, 2023, the Company signed an amendment to extend its operating lease for a period of two years . The commencement of the extended period is May 1, 2024 and will terminate on April 30, 2026 . This amendment provides for monthly rent, real estate taxes and operating expenses. 87 ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.