Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets March 31, 2023 December 31, 2022 (unaudited) Assets Current Assets: Cash and cash equivalents $ 33,639,218 $ 24,571,557 Investments 123,839,227 144,015,954 Deposits 22,009 22,009 Deferred transaction costs 35,597 33,195 Payroll tax receivable 38,263 203,665 Prepaid assets 6,525,368 6,344,157 Total current assets 164,099,682 175,190,537 Property and equipment, net 223,343 260,294 Operating lease right-of-use assets 551,933 246,266 Total Assets $ 164,874,958 $ 175,697,097 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 2,569,913 $ 2,627,076 Finance lease liabilities 981 2,449 Operating lease liabilities 194,895 191,749 Accrued expenses 3,040,178 4,060,280 Total current liabilities 5,805,967 6,881,554 Operating lease liabilities 363,961 61,002 Note payable, non-current 35,478,262 34,983,074 Total Liabilities 41,648,190 41,925,630 Commitments and Contingencies (Note 5) - - Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 1,095,873 and 1,120,873 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 1,096 1,121 Common stock, $ 0.001 par value: 65,000,000 shares authorized; 21,941,372 and 21,667,250 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 21,941 21,667 Additional paid-in capital 231,439,035 230,045,566 Accumulated deficit ( 108,235,304 ) ( 96,296,887 ) Total Stockholders’ Equity 123,226,768 133,771,467 Total Liabilities and Stockholders’ Equity $ 164,874,958 $ 175,697,097 See accompanying notes to the financial statements 3 Celcuity Inc. Condensed Statements of Operations (unaudited) 2023 2022 Three Months Ended March 31, 2023 2022 Operating expenses: Research and development $ 11,278,493 $ 6,696,313 General and administrative 1,269,044 811,292 Total operating expenses 12,547,537 7,507,605 Loss from operations ( 12,547,537 ) ( 7,507,605 ) Other income (expense) Interest expense ( 1,242,012 ) ( 435,001 ) Interest income 1,851,132 8,159 Other income (expense), net 609,120 ( 426,842 ) Net loss before income taxes ( 11,938,417 ) ( 7,934,447 ) Income tax benefits - - Net loss $ ( 11,938,417 ) $ ( 7,934,447 ) Net loss per share, basic and diluted $ ( 0.55 ) $ ( 0.53 ) Weighted average common shares outstanding, basic and diluted 21,680,877 14,917,187 See accompanying notes to the financial statements 4 Celcuity Inc. Statements of Changes in Stockholders’ Equity Three Months Ended March 31,2023 Shares Amount Shares Amount Capital Deficit Total Common Stock Preferred Stock Additional Paid-In Accumulated Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2022 21,667,250 $ 21,667 1,120,873 $ 1,121 $ 230,045,566 $ ( 96,296,887 ) $ 133,771,467 Stock-based compensation - - - - 1,273,282 - 1,273,282 Exercise of common stock options, net of shares withheld for exercise price 24,122 24 - - 127,898 - 127,922 Conversion of preferred to common stock 250,000 250 ( 25,000 ) ( 25 ) ( 225 ) - - Issuance costs associated with private placement offering - - - - ( 7,486 ) - ( 7,486 ) Net loss - - - - - ( 11,938,417 ) ( 11,938,417 ) Balance at March 31, 2023 (unaudited) 21,941,372 $ 21,941 1,095,873 $ 1,096 $ 231,439,035 $ ( 108,235,304 ) $ 123,226,768 See accompanying notes to the financial statements 5 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three Months Ended March 31,2022 Shares Amount Capital Deficit Total Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2021 14,918,887 $ 14,919 - $ 124,622,405 $ ( 55,926,847 ) $ 68,710,477 Stock-based compensation - - 756,271 - 756,271 Exercise of common stock options, net of shares withheld for exercise price 1,415 1 - 7,413 - 7,414 Net loss - - - ( 7,934,447 ) ( 7,934,447 ) Balance at March 31, 2022 (unaudited) 14,920,302 $ 14,920 - $ 125,386,089 $ ( 63,861,294 ) $ 61,539,715 See accompanying notes to the financial statements 6 Celcuity Inc. Condensed Statements of Cash Flows (unaudited) 2023 2022 Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 11,938,417 ) $ ( 7,934,447 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 43,938 55,989 Stock-based compensation 1,273,282 756,271 Amortization of debt issuance costs and discount 57,004 95,012 PIK interest 438,184 102,086 Non-cash operating lease, net 438 ( 58 ) Change in accrued interest income ( 1,697,811 ) - Changes in operating assets and liabilities: Payroll tax receivable 165,402 105,730 Prepaid assets and deposits ( 181,211 ) ( 40,205 ) Accounts payable ( 8,545 ) 513,091 Accrued expenses ( 1,020,102 ) 413,499 Net cash used for operating activities ( 12,867,838 ) ( 5,933,032 ) Cash flows from investing activities: Purchases of investments ( 3,125,462 ) - Proceeds from maturities of investments 25,000,000 - Purchases of property and equipment ( 6,987 ) ( 11,635 ) Net cash provided by (used for) investing activities 21,867,551 ( 11,635 ) Cash flows from financing activities: Proceeds from exercise of employee stock options 127,922 7,414 Payments for secondary registration statement costs ( 55,789 ) ( 52,244 ) Payments for debt issuance costs ( 2,716 ) - Payments for finance leases ( 1,469 ) ( 1,458 ) Net cash provided by (used for) financing activities 67,948 ( 46,288 ) Net change in cash and cash equivalents 9,067,661 ( 5,990,955 ) Cash and cash equivalents: Beginning of period 24,571,557 84,286,381 End of period $ 33,639,218 $ 78,295,426 Supplemental disclosure of cash flow information: Interest paid $ 746,824 $ 237,903 Supplemental disclosures of non-cash investing and financing activities: Offering and registration statement costs included in accounts payable $ 2,402 $ 104,237 Property and equipment included in accounts payable - 22,987 See accompanying notes to the financial statements 7 CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three Months Ended March 31, 2023 and 2022) 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. 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, 2022 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, 2022 and the related footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. Accounting Estimates Management uses estimates and assumptions in preparing these unaudited condensed financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates and the difference could be material. Significant items subject to such estimates and assumptions include the valuation of stock-based compensation and prepaid or accrued clinical trial costs. Risks and Uncertainties The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and commercial success of its diagnostic tests, ability to obtain regulatory approval of its diagnostic tests, the clinical and commercial success of its initial drug product, gedatolisib, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition. Clinical Trial Costs The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development expenses. The Company 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. 8 Recently Adopted Accounting Pronouncements In June 2016 and related amendments, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). This guidance changes the methodology to be used to measure credit losses for certain financial instruments and financial assets. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. The Company adopted this standard effective January 1, 2023. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements. 3. Net Loss Per Common Share Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period. For all periods presented, the common shares underlying the options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share are the same. For the three months ended March 31, 2023 and 2022, 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 10,958,730 and zero shares of common stock, respectively, options to purchase 2,068,458 and 1,353,406 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. 4. Investments Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at historical cost adjusted for amortization of premiums and accretion of discounts. Expected credit losses, if any, are recorded through the establishment of an allowance for credit losses. All of the Company’s held-to-maturity investment securities are U.S. Treasury and agencies securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly, the Company does not expect to incur any credit losses on held-to-maturity investment securities and has no allowance for credit losses recorded for these securities. The following table summarizes the Company’s held-to-maturity investment securities at amortized cost as of March 31, 2023 and December 31, 2022: Schedule of Investment Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value March 31, 2023 Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Governmental Agency Securities $ 21,755,483 $ 2,077 $ - $ 21,757,560 U.S. Treasury Notes 102,083,744 11,822 - 102,095,566 Total $ 123,839,227 $ 13,899 $ - $ 123,853,126 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 March 31, 2022. 9 5. Commitments Operating and Finance Leases The Company leases its corporate space in Minneapolis, Minnesota. In March 2023, the Company signed the fourth amendment to extend this lease through April 30, 2026. This amendment provides for monthly rent, real estate taxes and operating expenses. The Company recorded an incremental $ 355,578 in the operating right-of-use (“ROU”) asset and lease liability pertaining to this amendment. 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 March 31, 2023, the Company had only one material non-cancelable contractual commitment with respect to these arrangements, which totaled approximately $ 2.2 million. 6. Stockholders’ Equity Capital Stock At December 31, 2022, the Company’s authorized capital stock consisted of 65,000,000 shares of $ .001 par value common stock, of which 21,667,250 shares were outstanding, and 2,500,000 shares of $ .001 par value preferred stock, of which 1,120,873 shares were outstanding. On March 31, 2023, one of the Company’s preferred shareholders elected to convert 25,000 shares of Series A Convertible Preferred Stock into 250,0000 shares of Common Stock, in accordance with the Securities Purchase Agreement dated May 15, 2022. The cost basis of the shares transferred is $ 5.75 per share. At March 31, 2023, the Company’s authorized capital stock consisted of 65,000,000 shares of common stock, of which 21,941,372 shares were outstanding, and 2,500,000 shares of preferred stock, including 1,850,000 shares designated as Series A Preferred Stock, of which 1,095,873 shares were outstanding. As of March 31, 2023, no dividends have been declared on the Company’s capital stock. 7. Stock-Based Compensation The following table summarizes the activity for all stock options outstanding for the three months ended March 31: Schedule of Stock Options Activity 2023 2022 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 1,976,586 $ 6.34 1,315,321 $ 11.97 Granted 119,985 11.36 119,500 10.01 Exercised 24,122 5.30 ( 1,415 ) 5.24 Forfeited ( 3,991 ) 6.55 ( 80,000 ) 13.01 Balance at March 31 2,068,458 $ 6.65 1,353,406 $ 11.75 Options exercisable at March 31: 1,114,767 $ 5.91 625,912 $ 9.68 Weighted Average Grant Date Fair Value for options granted during the period: $ 7.81 $ 6.72 10 The following table summarizes additional information about stock options outstanding and exercisable at March 31, 2023: 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 2,068,458 7.85 $ 6.65 $ 7,795,439 1,114,767 $ 5.91 $ 5,004,674 The Company recognized stock-based compensation expense for stock options of $ 1,222,328 and $ 709,509 for the three months ended March 31, 2023 and 2022, 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 $ 39,612 and $ 0 for the three months ending March 31, 2023 and 2022, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 277,000 . 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 $ 16,924 and $ 28,029 for the three months ended March 31, 2023 and 2022, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 156,000 . 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 $ 7,108 and $ 11,614 for the three months ended March 31, 2023 and 2022, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 13,000 . The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the three months ended March 31: Schedule of Assumptions for Fair Value of Equity-based Awards 2023 2022 Risk-free interest rate 3.64 % - 4.14 % 1.68 % - 2.41 % Expected volatility 79.8 % 76.2 % - 76.5 % Expected life (years) 5.25 to 6.08 6.04 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. No restricted stock awards were granted during the three months ended March 31, 2023 and 2022. The Company had 3,273 and 2,964 shares of restricted stock outstanding as of March 31, 2023 and 2022, respectively, and 0 shares of restricted stock vested during the three months ended March 31, 2023 and 2022. The Company recognized stock-based compensation expense for restricted stock of $ 4,642 and $ 20,344 for the three months ended March 31, 2023 and 2022, 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 102,998 , 149,189 and 216,673 shares on January 1, 2021, 2022 and 2023, respectively, and will increase automatically on January 1 of each year from 2024 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 of 1,000,000 increase, to the number of shares reserved for issuance under the 2017 Plan. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for grant under the Company’s 2017 Plan as of March 31, 2023 was 343,114 . 11 Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2023 $ 2,781,277 2024 2,291,390 2025 1,474,943 2026 435,113 2027 6,198 Total estimated compensation cost to be recognized $ 6,988,921 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 46,312 and $ 26,148 for the three months ended March 31, 2023 and 2022, 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 51,499 , 74,594 and 108,337 shares on January 1, 2021, 2022 and 2023, respectively, and will increase automatically on each subsequent January 1 by the number of shares equal to 0.5% of the total outstanding number of shares of Company common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for issuance under the employee stock purchase plan as of March 31, 2023 was 300,485 . The Company recognized total stock-based compensation expense as follows for the three months ended March 31: Schedule of Stock-based Compensation Expense 2023 2022 Three Months Ended March 2023 2022 Stock-based compensation expense in operating expenses: Research and development $ 654,471 $ 450,520 General and administrative 618,811 305,751 Total $ 1,273,282 $ 756,271 8. 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. 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. As of March 31, 2023, 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. Long-term debt consisted of the following at March 31, 2023 and December 31, 2022: Schedule of Long-term Debt March 31, 2023 December 31, 2022 Note payable $ 35,000,000 $ 35,000,000 Add: PIK interest (added to principal) 1,193,259 755,075 Add: final fee - - Less: unamortized debt issuance costs ( 653,555 ) ( 707,001 ) Less: unamortized debt discount ( 61,442 ) ( 65,000 ) Total long-term debt $ 35,478,262 $ 34,983,074 Future principal payments, including the incurred PIK interest, are as follows: Schedule of Long Term Debt Future Principal Payments Years Ending December 31, 2025 $ 13,572,473 2026 18,096,629 2027 4,524,157 Total $ 36,193,259 12