Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets September 30, 2023 December 31, 2022 (unaudited) Assets Current Assets: Cash and cash equivalents $ 25,759,887 $ 24,571,557 Investments 108,180,417 144,015,954 Other current assets 7,771,131 6,603,026 Total current assets 141,711,435 175,190,537 Property and equipment, net 223,378 260,294 Operating lease right-of-use assets 449,368 246,266 Total Assets $ 142,384,181 $ 175,697,097 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $ 5,634,806 $ 2,627,076 Finance lease liabilities - 2,449 Operating lease liabilities 188,100 191,749 Accrued expenses 6,887,136 4,060,280 Total current liabilities 12,710,042 6,881,554 Operating lease liabilities 270,925 61,002 Note payable, non-current 36,506,774 34,983,074 Total Liabilities 49,487,741 41,925,630 Commitments and Contingencies (Note 5) - - Stockholders’ Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 1,060,873 and 1,120,873 shares issued and outstanding as of September 30, 2023 and December 31, 2022 1,061 1,121 Common stock, $ 0.001 par value: 65,000,000 shares authorized as of September 30, 2023 and December 31, 2022, respectively; 22,369,393 and 21,667,250 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 22,369 21,667 Additional paid-in capital 234,100,541 230,045,566 Accumulated deficit ( 141,227,531 ) ( 96,296,887 ) Total Stockholders’ Equity 92,896,440 133,771,467 Total Liabilities and Stockholders’ Equity $ 142,384,181 $ 175,697,097 See accompanying notes to the financial statements 3 Celcuity Inc. Condensed Statements of Operations (unaudited) 2023 2022 2023 2022 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating expenses: Research and development $ 17,488,236 $ 9,621,505 $ 42,512,811 $ 24,685,505 General and administrative 1,409,801 1,022,050 3,988,248 3,066,382 Total operating expenses 18,898,037 10,643,555 46,501,059 27,751,887 Loss from operations ( 18,898,037 ) ( 10,643,555 ) ( 46,501,059 ) ( 27,751,887 ) Other income (expense) Interest expense ( 1,372,132 ) ( 537,661 ) ( 3,929,140 ) ( 1,428,108 ) Interest income 1,865,629 287,495 5,499,555 391,301 Other income (expense), net 493,497 ( 250,166 ) 1,570,415 ( 1,036,807 ) Net loss before income taxes ( 18,404,540 ) ( 10,893,721 ) ( 44,930,644 ) ( 28,788,694 ) Income tax benefits - - - - Net loss $ ( 18,404,540 ) $ ( 10,893,721 ) $ ( 44,930,644 ) $ ( 28,788,694 ) Net loss per share, basic and diluted $ ( 0.83 ) $ ( 0.75 ) $ ( 2.05 ) $ ( 1.95 ) Weighted average common shares outstanding, basic and diluted 22,117,626 14,938,224 21,920,147 14,928,727 See accompanying notes to the financial statements 4 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three and Nine Months Ended September 30, 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 Stock-based compensation 1,958 2 - - 1,276,980 - 1,276,982 Employee stock purchases 17,477 17 102,621 - 102,638 Conversion of preferred to common stock 100,000 100 ( 10,000 ) ( 10 ) ( 90 ) - - Exercise of common stock options, net of shares withheld for exercise price 21,086 22 - - 113,618 - 113,640 Net loss - - - - - ( 14,587,687 ) ( 14,587,687 ) Balance at June 30, 2023 (unaudited) 22,081,893 $ 22,082 1,085,873 $ 1,086 $ 232,932,164 $ ( 122,822,991 ) $ 110,132,341 Stock-based compensation - - - - 1,108,637 - 1,108,637 Conversion of preferred to common stock 250,000 250 ( 25,000 ) ( 25 ) ( 225 ) - - Exercise of common stock options, net of shares withheld for exercise price 37,500 37 - - 59,965 - 60,002 Net loss - - - - - ( 18,404,540 ) ( 18,404,540 ) Balance at September 30, 2023 (unaudited) 22,369,393 $ 22,369 1,060,873 $ 1,061 $ 234,100,541 $ ( 141,227,531 ) $ 92,896,440 See accompanying notes to the financial statements 5 Celcuity Inc. Condensed Statements of Changes in Stockholders’ Equity Three and Nine Months Ended September 30, 2022 Shares Amount Capital Deficit Total Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2021 14,918,887 $ 14,919 $ 124,622,405 $ ( 55,926,847 ) $ 68,710,477 Stock-based compensation - - 756,271 - 756,271 Exercise of common stock options, net of shares withheld for exercise price 1,415 1 7,413 - 7,414 Net loss - - - ( 7,934,447 ) ( 7,934,447 ) Balance at March 31, 2022 (unaudited) 14,920,302 $ 14,920 $ 125,386,089 $ ( 63,861,294 ) $ 61,539,715 Stock-based compensation 3,273 3 1,519,456 - 1,519,459 Employee stock purchases 15,888 16 80,525 - 80,541 Exercise of common stock options, net of shares withheld for exercise price 1,871 2 9,540 - 9,542 Net loss - - - ( 9,960,526 ) ( 9,960,526 ) Balance at June 30, 2022 (unaudited) 14,941,334 $ 14,941 $ 126,995,610 $ ( 73,821,820 ) $ 53,188,731 Stock-based compensation 250 - 1,223,054 - 1,223,054 Exercise of common stock options, net of shares withheld for exercise price 1,374 2 7,275 - 7,277 Net loss - - - ( 10,893,721 ) ( 10,893,721 ) Balance at September 30, 2022 (unaudited) 14,942,958 $ 14,943 $ 128,225,939 $ ( 84,715,541 ) $ 43,525,341 See accompanying notes to the financial statements 6 Celcuity Inc. Condensed Statements of Cash Flows (unaudited) 2023 2022 Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 44,930,644 ) $ ( 28,788,694 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 114,824 161,981 Stock-based compensation 3,658,902 3,498,784 Amortization of debt issuance costs and discount 177,939 284,184 Payment-in-Kind interest 1,345,760 311,764 Non-cash operating lease, net 3,171 ( 2,791 ) Change in accrued interest income ( 439,331 ) - Changes in operating assets and liabilities: Other current assets ( 1,065,732 ) ( 5,817,737 ) Accounts payable 3,031,923 1,553,176 Accrued expenses 2,826,856 2,270,422 Net cash used for operating activities ( 35,276,332 ) ( 26,528,911 ) Cash flows from investing activities: Proceeds from maturities of investments 221,054,402 - Purchases of investments ( 184,779,534 ) - Purchases of property and equipment ( 64,945 ) ( 46,724 ) Net cash provided by (used for) investing activities 36,209,923 ( 46,724 ) Cash flows from financing activities: Proceeds from exercise of employee stock options 285,564 24,233 Proceeds from employee stock purchases 102,638 80,541 Payments for secondary registration statement costs ( 128,298 ) ( 318,897 ) Payments for debt issuance costs ( 2,716 ) ( 8,463 ) Payments for finance leases ( 2,449 ) ( 4,384 ) Net cash provided by (used for) financing activities 254,739 ( 226,970 ) Net change in cash and cash equivalents 1,188,330 ( 26,802,605 ) Cash and cash equivalents: Beginning of period 24,571,557 84,286,381 End of period $ 25,759,887 $ 57,483,776 Supplemental disclosure of cash flow information: Interest paid $ 2,405,441 $ 832,161 Supplemental disclosures of non-cash investing and financing activities: Offering and registration statement costs included in accounts payable $ 13,865 $ 11,230 Deferred financing costs and offering and registration statement costs included in accrued expenses - 205,000 Property and equipment included in accounts payable 12,961 104,818 See accompanying notes to the financial statements 7 CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three and Nine Months Ended September 30, 2023 and 2022) 1. Organization Nature of Business Celcuity Inc., a Delaware corporation (the “Company”), is a clinical-stage biotechnology company pursuing development for oncology. 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. A Phase 1b/2 clinical trial, CELC-G-201, evaluating gedatolisib in combination with darolutamide in patients with metastatic castration resistant prostate cancer, is expected to be initiated in the first quarter of 2024. The company’s 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 and nine months ended September 30, 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 and initial drug product, gedatolisib, the clinical and commercial success of 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. 8 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. 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 preferred stock, options, warrants, and restricted stock have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share is the same. For the three and nine months ended September 30, 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 10,608,730 and zero shares of common stock, respectively, options to purchase 2,702,629 and 1,919,114 shares of common stock, respectively, warrants to purchase 7,266,102 and 309,652 shares of common stock, respectively, and 1,958 and 3,273 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 September 30, 2023 and December 31, 2022: Schedule of Investment Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value September 30, 2023 Amortized Cost, as Adjusted Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value U.S. Treasury Bills $ 108,180,417 $ 5,138 $ - $ 108,185,555 Total $ 108,180,417 $ 5,138 $ - $ 108,185,555 9 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 Bills 97,785,061 41,639 - 97,826,700 Total $ 144,015,954 $ 71,156 $ - $ 144,087,110 The fair value of the Company’s held-to-maturity debt securities is 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. 5. Commitments Operating Lease The Company leases its corporate space in Minneapolis, Minnesota, with an operating lease in place through April 30, 2026. The lease provides for monthly rent, real estate taxes, and operating expenses. Rent expense is recorded on a straight-line basis over the lease term. 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 Expanded Access study, are generally based on time and material. In addition, contracts related to the Company’s Phase 3 (VIKTORIA-1) and Phase 1b/2 (CELC-G-201) clinical trials are generally cancelable with reasonable notice within 120 days and the Company’s obligations under these contracts are primarily based on services performed through termination dates plus certain cancelation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties. As of September 30, 2023, the Company had two material non-cancelable contractual commitments with respect to these arrangements, which totaled approximately $ 2.3 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. On June 29, 2023, one of the Company’s preferred shareholders elected to convert 10,000 shares of Series A Convertible Preferred Stock into 100,0000 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. On September 21, 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 September 30, 2023, the Company’s authorized capital stock consisted of 65,000,000 shares of common stock, of which 22,369,393 shares were outstanding, and 2,500,000 shares of preferred stock, including 1,850,000 shares designated as Series A Preferred Stock, of which 1,060,873 shares were outstanding. As of September 30, 2023, no dividends have been declared on the Company’s capital stock. 10 7. Stock-Based Compensation The following table summarizes the activity for all stock options outstanding for the nine months ended September 30: Schedule of Stock Options Activity 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 874,548 10.13 720,047 7.19 Exercised ( 82,708 ) 3.65 ( 4,660 ) 5.20 Forfeited ( 65,797 ) 7.45 ( 111,594 ) 10.86 Balance at September 30 2,702,629 $ 7.63 1,919,114 $ 6.08 Options exercisable at September 30: 1,440,231 $ 6.26 882,215 $ 5.92 Weighted Average Grant Date Fair Value for options granted during the period: $ 7.09 $ 4.87 The following table summarizes additional information about stock options outstanding and exercisable at September 30, 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 2,702,629 8.09 $ 7.63 $ 5,355,467 1,440,231 $ 6.26 $ 4,470,641 The Company recognized stock-based compensation expense for stock options of $ 1,065,568 and $ 1,162,751 for the three months ended September 30, 2023 and 2022, respectively, and $ 3,516,180 and $ 3,329,969 for the nine months ended September 30, 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 $ 30,188 and $ 49,088 for the three months ending September 30, 2023 and 2022, respectively, and $ 107,490 and $ 477,431 for the nine months ending September 30, 2023 and 2022, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 190,000 . 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 $ 15,773 and $ 21,778 for the three months ended September 30, 2023 and 2022, respectively, and $ 49,617 and $ 75,562 for the nine months ended September 30, 2023 and 2022, respectively. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 114,000 . 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 $ 3,041 and $ 7,681 for the three months ended September 30, 2023 and 2022, respectively, and $ 16,975 and $ 30,897 for the nine months ended September 30, 2023 and 2022. The effect of this modification on stock-based compensation over the remaining service period will be approximately $ 3,000 . 11 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 nine months ended September 30: Schedule of Assumptions for Fair Value of Equity-based Awards 2023 2022 Risk-free interest rate 3.41 % - 4.61 % 1.68 % - 3.93 % Expected volatility 78.0 to 79.8 % 76.2 % - 79.6 % Expected life (years) 5.25 to 6.08 5.29 to 6.25 Expected dividend yield 0 % 0 % The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s initial public offering, the price per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the initial public offering, the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility since being publicly traded. All assumptions used to calculate the grant date fair value of non-employee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options issued in connection with the agreements would also be cancelled. The Company had 1,958 and 3,273 shares of restricted stock outstanding as of September 30, 2023 and 2022, respectively, and 0 and 250 shares of restricted stock vested during the three months ended September 30, 2023 and 2022, respectively. The Company recognized stock-based compensation expense for restricted stock of $ 4,903 and $ 7,245 for the three months ended September 30, 2023 and 2022, respectively, and $ 13,597 and $ 36,686 for the nine months ended September 30, 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, subject to the board’s discretion to reduce the amount of the increase in any particular year. At the Annual Meetings 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. At the Annual Meeting held on May 11, 2023, the stockholders approved a one-time, 1,500,000 increase to the number of shares reserved for issuance under the 2017 plan. The total remaining shares available for grant under the Company’s 2017 Plan as of September 30, 2023 was 1,147,899 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: Schedule of Unrecognized Compensation Cost 2023 $ 1,177,419 2023 $ 1,177,419 2024 3,679,163 2025 2,465,972 2026 1,515,642 2027 635,575 Total estimated compensation cost to be recognized $ 9,473,771 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 38,167 and $ 53,058 for the three months ended September 30, 2023 and 2022, respectively and $ 129,125 and $ 132,129 for the nine months ended September 30, 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 September 30, 2023 was 283,008 . 12 The Company recognized total stock-based compensation expense as follows for the three and nine months ended September 30: Schedule of Stock-based Compensation Expense 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Stock-based compensation expense in operating expenses: Research and development $ 660,706 $ 676,524 $ 1,954,689 $ 1,937,707 General and administrative 447,931 546,530 1,704,213 1,561,077 Total $ 1,108,637 $ 1,223,054 $ 3,658,902 $ 3,498,784 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 September 30, 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 September 30, 2023 and December 31, 2022: Schedule of Long-term Debt September 30, 2023 December 31, 2022 Note payable $ 35,000,000 $ 35,000,000 Add: PIK interest (added to principal) 2,100,835 755,075 Less: unamortized debt issuance costs ( 540,392 ) ( 707,001 ) Less: unamortized debt discount ( 53,669 ) ( 65,000 ) Total long-term debt $ 36,506,774 $ 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 $ 13,912,813 2026 18,550,418 2027 4,637,604 Total $ 37,100,835 9. Subsequent Events On October 18, 2023, the Company entered into a securities purchase agreement with certain investors (the “Investors”) pursuant to which the Company agreed to sell to the Investors in a private placement (the “Private Placement”) pre-funded warrants (the “Warrants”) to purchase up to 5,747,787 shares of the Company’s common stock, par value $ 0.001 per share (the “Common Stock”). Each Warrant is immediately exercisable and will not expire. Each warrant to purchase one share has a purchase price of $ 8.699 per share, and an exercise price of $ 0.001 per share for the Common Stock issuable upon exercise of the Warrant. The closing of the Private Placement occurred on October 20, 2023 and resulted in gross proceeds to the Company of approximately $ 50 million, before deducting offering expenses payable by the Company. In connection with the Private Placement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company has agreed to file, no later than 30 days following the Closing Date of the Private Placement, a registration statement covering the resale by the Investors of the shares issued or issuable upon exercise or exchange of the Warrants (as defined more specifically in the Registration Rights Agreement, the “Registrable Securities”). In the event that a registration statement covering the Registrable Securities is not filed with the SEC on or prior to the filing deadline as set forth in the Registration Rights Agreement, or is not declared effective within the timeframe provided therein, or if certain other circumstances occur, as described in the Registration Rights Agreement, that prevent the Investors from selling securities pursuant to the registration statement, the Company has agreed to make pro rata payments to each holder as liquidated damages in an amount equal to 1.0 % of the aggregate amount paid pursuant to the Securities Purchase Agreement by such Investor for each 30-day period or pro rata for any portion thereof for each such month during which such event continues, provided that the maximum aggregate amounts payable as liquidated damages shall not exceed 6.0 % of the aggregate amount invested by each such holder in the Registrable Securities then held by the holder. On October 13, 2023, one of the Company’s preferred shareholders elected to convert 181,739 shares of Series A Convertible Preferred Stock into 1,817,390 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. 13