Celcuity Inc. 10-Q

ITEM 1. Financial Statements Celcuity Inc. Condensed Balance Sheets September 30, 2020 December 31, 2019 (unaudited) Assets Current Assets: Cash and cash equivalents $ 13,696,387 $ 18,735,002 Deposits 22,009 22,009 Deferred transaction costs - 28,743 Payroll tax receivable 190,000 190,000 Prepaid assets 103,610 274,600 Total current assets 14,012,006 19,250,354 Property and equipment, net 626,271 833,463 Operating lease right-of-use assets 275,696 196,983 Total Assets $ 14,913,973 $ 20,280,800 Liabilities and Stockholders' Equity: Current Liabilities: Accounts payable $ 83,130 $ 142,773 Finance lease liabilities 5,799 5,769 Operating lease liabilities 189,400 178,466 Accrued expenses 756,873 584,319 Total current liabilities 1,035,202 911,327 Finance lease liabilities 9,756 14,109 Operating lease liabilities 107,040 57,793 Total Liabilities 1,151,998 983,229 Stockholders' Equity: Preferred stock, $ 0.001 par value: 2,500,000 shares authorized; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 - - Common stock, $ 0.001 par value: 25,000,000 shares authorized; 10,289,253 and 10,253,988 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 10,289 10,254 Additional paid-in capital 37,522,374 36,134,723 Accumulated deficit ( 23,770,688 ) ( 16,847,406 ) Total Stockholders' Equity 13,761,975 19,297,571 Total Liabilities and Stockholders' Equity $ 14,913,973 $ 20,280,800 See accompanying notes to the financial statements 3 Table of Contents Celcuity Inc. Condensed Statements of Operations (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 1,962,610 $ 1,711,597 $ 5,576,250 $ 4,772,286 General and administrative 517,465 379,718 1,428,578 1,135,251 Total operating expenses 2,480,075 2,091,315 7,004,828 5,907,537 Loss from operations ( 2,480,075 ) ( 2,091,315 ) ( 7,004,828 ) ( 5,907,537 ) Other income (expense) Interest expense ( 28 ) ( 39 ) ( 93 ) ( 123 ) Interest income 5,805 107,100 81,639 357,321 Other income, net 5,777 107,061 81,546 357,198 Net loss before income taxes ( 2,474,298 ) ( 1,984,254 ) ( 6,923,282 ) ( 5,550,339 ) Income tax benefits - - - - Net loss $ ( 2,474,298 ) $ ( 1,984,254 ) $ ( 6,923,282 ) $ ( 5,550,339 ) Net loss per share, basic and diluted $ ( 0.24 ) $ ( 0.19 ) $ ( 0.67 ) $ ( 0.54 ) Weighted average common shares outstanding, basic and diluted 10,273,567 10,239,957 10,262,636 10,217,443 See accompanying notes to the financial statements 4 Table of Contents Celcuity Inc. Condensed Statements of Changes in Stockholders' Equity Three and Nine Months Ended September 30, 2020 Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2019 10,253,988 $ 10,254 $ 36,134,723 $ ( 16,847,406 ) $ 19,297,571 Stock-based compensation - - 464,649 - 464,649 Net loss - - - ( 2,246,995 ) ( 2,246,995 ) Balance at March 31, 2020 (unaudited) 10,253,988 10,254 36,599,372 ( 19,094,401 ) 17,515,225 Stock-based compensation 15,686 16 423,177 - 423,193 Employee stock purchases 4,678 4 23,893 - 23,897 Issuance of common stock in an at-the-market ("ATM") offering 14,901 15 154,127 - 154,142 Issuance costs associated with ATM offering - - ( 52,110 ) - ( 52,110 ) Net loss - - - ( 2,201,989 ) ( 2,201,989 ) Balance at June 30, 2020 (unaudited) 10,289,253 10,289 37,148,459 ( 21,296,390 ) 15,862,358 Stock-based compensation - - 448,947 - 448,947 Issuance costs associated with ATM offering - - ( 75,032 ) - ( 75,032 ) Net loss - - - ( 2,474,298 ) ( 2,474,298 ) Balance at September 30, 2020 (unaudited) 10,289,253 $ 10,289 $ 37,522,374 $ ( 23,770,688 ) $ 13,761,975 See accompanying notes to the financial statements 5 Table of Contents Celcuity Inc. Condensed Statements of Changes in Stockholders' Equity Three and Nine Months Ended September 30, 2019 Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2018 10,186,382 $ 10,186 $ 34,827,467 $ ( 9,488,042 ) $ 25,349,611 Stock-based compensation - - 184,645 - 184,645 Exercise of common stock options 22,733 23 174,934 - 174,957 Net loss - - - ( 1,845,908 ) ( 1,845,908 ) Balance at March 31, 2019 (unaudited) 10,209,115 10,209 35,187,046 ( 11,333,950 ) 23,863,305 Stock-based compensation - - 192,246 - 192,246 Exercise of common stock options, net of shares withheld for exercise price 4,325 4 ( 4 ) - - Employee stock purchases 6,876 7 58,058 - 58,065 Net loss - - - ( 1,720,177 ) ( 1,720,177 ) Balance at June 30, 2019 (unaudited) 10,220,316 10,220 35,437,346 ( 13,054,127 ) 22,393,439 Stock-based compensation - - 303,244 - 303,244 Exercise of common stock options, net of shares withheld for exercise price 28,274 29 ( 29 ) - - Net loss - - - ( 1,984,254 ) ( 1,984,254 ) Balance at September 30, 2019 (unaudited) 10,248,590 $ 10,249 $ 35,740,561 $ ( 15,038,381 ) $ 20,712,429 See accompanying notes to the financial statements 6 Table of Contents Celcuity Inc. Condensed Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 6,923,282 ) $ ( 5,550,339 ) Adjustments to reconcile net loss to net cash used for operations: Depreciation 287,701 245,689 Stock-based compensation 1,336,789 680,134 Non-cash interest income, net of cash received - 29,082 Changes in operating assets and liabilities: Prepaid assets and deposits 170,990 144,743 Accounts payable ( 64,657 ) 102,977 Accrued expenses 172,554 70,571 Non-cash operating lease, net ( 18,533 ) ( 17,810 ) Net cash used for operating activities ( 5,038,438 ) ( 4,294,953 ) Cash flows from investing activities: Proceeds from sale of investments - 4,745,000 Purchases of property and equipment ( 75,494 ) ( 352,490 ) Net cash provided by (used for) investing activities ( 75,494 ) 4,392,510 Cash flows from financing activities: Proceeds from exercise of employee stock options - 174,957 Proceeds from employee stock purchases 23,897 58,065 Gross proceeds from an ATM offering 154,142 - Payments for secondary registration statement costs ( 98,399 ) ( 1,300 ) Payments for finance leases ( 4,323 ) ( 4,293 ) Net cash provided by financing activities 75,317 227,429 Net change in cash and cash equivalents ( 5,038,615 ) 324,986 Cash and cash equivalents: Beginning of period 18,735,002 15,944,609 End of period $ 13,696,387 $ 16,269,595 Supplemental disclosures of non-cash investing and financing activities: Property and equipment included in accounts payable $ 7,714 $ 2,005 See accompanying notes to the financial statements 7 Table of Contents CELCUITY INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) (For the Three and Nine Months Ended September 30, 2020 and 2019) 1. Organization Nature of Business Celcuity Inc., a Delaware corporation (the “Company”), is a clinical stage biotechnology company translating discoveries of new cancer sub-types into pioneering companion diagnostics and expanded therapeutic options for cancer patients. The Company’s proprietary CELsignia diagnostic platform analyzes living tumor cells to untangle the complexity of the cellular activity driving a patient’s cancer. This allows Celcuity to discover new cancer sub-types molecular diagnostics cannot detect. Celcuity is driven to improve outcomes for patients and to transform how pharmaceutical companies define the patient populations for their 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. Summary of Significant Accounting Policies 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, 2019 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, 2019 and the related footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the three and nine months ended September 30, 2020 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 need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition. Clinical Trial Costs The Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers, which includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with service agreements with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its prepaid assets or accrued expenses. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in an adjustment to expense in future periods. Changes in these estimates that result in material changes to the Company’s prepaid assets or accrued expenses could materially affect the Company’s results of operations. 8 Table of Contents Application of New or Revised Accounting Standards Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements. The Company is an emerging growth company but has irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. Recently Adopted Accounting Pronouncements Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition, which the Company elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (ROU) assets of $ 356,539 and lease liabilities of $ 404,931 and eliminated deferred rent of $ 63,875 and prepaid rent of $ 15,483 . The adoption of ASC 842 had no impact on the Company’s Condensed Statement of Operations and Condensed Statement of Cash Flows for the three- and nine-month period ended September 30, 2020. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed the Company to carry forward the historical lease classification. Additional information and disclosures required by this new standard are contained in Note 4. 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 and nine months ended September 30, 2020 and 2019, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were options to purchase 810,725 and 577,469 shares of common stock, respectively, warrants to purchase 353,585 and 353,980 shares of common stock, respectively, and 15,686 and 0 shares of restricted common stock, respectively. 4. Commitments Operating and Finance Leases The Company leases its corporate space in Minneapolis, Minnesota. In September 2017, the Company entered into a non-cancelable operating lease agreement for building space. The 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. The original lease agreement was set to terminate on April 30, 2021, but in July 2020 the Company signed an amendment to extend the 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 ROU asset and lease liability. The lease amendment includes the option to extend the term for one additional year. The option to extend is at the Company’s discretion and because it has not been determined if the option to extend will be exercised, the extended lease term is not included in the ROU assets and lease liabilities. The Company regularly evaluates the renewal option and when it is reasonably certain of exercise, the Company will include the renewal period in the lease term. In May 2018, the Company entered into a non-cancelable finance lease agreement for office equipment with a five-year term. The underlying assets are included in furniture and equipment. The lease contains a bargain purchase option at the end of the lease. 9 Table of Contents 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 September 30, 2020: Operating Lease Right-of-use assets $ 275,696 Operating lease liability $ 296,440 Less: short term portion ( 189,400 ) Long term portion $ 107,040 Finance Lease Furniture and equipment $ 28,932 Less: Accumulated depreciation ( 13,502 ) Net book value of property and equipment under finance lease $ 15,430 Finance lease liability $ 15,555 Less: short term portion ( 5,799 ) Long term portion $ 9,756 Maturity analysis under lease agreements consisted of the following as of September 30, 2020: Operating Leases Finance Leases 2020 $ 48,705 $ 1,814 2021 194,821 7,255 2022 64,940 7,255 2023 - 3,022 Total minimum lease payments 308,466 19,346 Less: Present value discount ( 12,026 ) ( 149 ) Less amount representing services ( 3,642 ) Present value of net minimum lease payments $ 296,440 $ 15,555 Weighted Average Remaining Lease Term Discount Rate Operating lease 1.6 years 4.0 % Finance lease 2.7 years 1.0 % Lease costs for the period ended September 30, 2020: Three-month Period Nine-month Period Operating lease cost $ 43,974 $ 126,100 Finance lease cost: Amortization 1,447 4,340 Interest 28 93 Variable lease cost 20,300 64,965 $ 65,749 $ 195,498 Supplemental cash flow information related to leases for the period ended September 30, 2020: Three-month Period Nine-month Period Cash paid for amounts included in operating and finance leases: Operating cash outflow from operating leases $ 46,003 $ 209,598 Operating cash outflow from finance leases 28 93 Financing cash outflow from finance leases 1,444 4,323 $ 47,475 $ 214,014 10 Table of Contents Clinical Research Studies In May 2017, the Company entered into an agreement with a clinical research organization to conduct a clinical research study. The Company made payments of $ 50,000 , $ 200,000 and $ 350,000 in 2019, 2018 and 2017, respectively. Additional payments will be due as certain milestones are met and clinical sites are added. The maximum amount of these additional payments is estimated to be approximately $ 2,720,000 over the course of the agreement. In October 2018, the Company entered into an agreement with a biopharmaceutical company and a cancer research center to conduct a clinical research study. The Company made payments of approximately $ 70,000 in 2019. Additional payments of approximately $ 112,000 will be due as certain milestones are met. 5. Stockholders’ Equity On June 5, 2020, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley FBR, Inc. (the “Agent”). Pursuant to the ATM Agreement, the Company may offer and sell from time to time, at its option, shares of common stock having an aggregate offering price of up to $ 10,000,000 , par value $ 0.001 per share (the “Placement Shares”), through the Agent. The Placement Shares have been registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (File No. 333-227466), which was originally filed with the SEC on September 21, 2018 and declared effective by the SEC on October 4, 2018, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed on June 5, 2020. Sales of the Company’s common stock, if any, under this prospectus supplement may be made by any method deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the three months ended September 30, 2020, the Company sold zero shares of common stock pursuant to the ATM Agreement. During the nine months ended September 30, 2020, the Company sold 14,901 shares of common stock pursuant to the ATM Agreement, at an average selling price of $ 10.34 per share. 6. Stock-Based Compensation The following table summarizes the activity for all stock options outstanding for the nine months ended September 30: 2020 2019 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 585,215 $ 14.37 478,503 $ 9.73 Granted 238,762 6.67 236,701 20.07 Exercised - - ( 62,388 ) 5.21 Forfeited ( 13,252 ) 11.54 ( 75,347 ) 10.53 Balance at September 30 810,725 $ 9.29 577,469 $ 14.35 Options exercisable at September 30: 371,550 $ 10.28 250,202 $ 8.82 Weighted Average Grant Date Fair Value for options granted during the period: $ 4.29 $ 13.75 The following table summarizes additional information about stock options outstanding and exercisable at September 30, 2020: 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 810,725 8.07 $ 9.29 $ 401,866 371,550 $ 10.28 $ 231,702 11 Table of Contents The Company recognized stock-based compensation expense for stock options of $ 410,544 and $ 288,087 for the three months ended September 30, 2020 and 2019, respectively, and $ 1,275,481 and $ 625,785 for the nine months ended September 30, 2020 and 2019, respectively. 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 for the three and nine months ended September 30, 2020 was approximately $ 19,000 and $ 70,000 , respectively. The effect on stock-based compensation over the remaining service period will be approximately $ 149,000 . 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 nine months ended September 30: 2020 2019 Risk-free interest rate 0.35 % - 1.66 % 1.42 % - 2.47 % Expected volatility 73.3 % - 77.1 % 78.1 % - 80.0 % Expected life (years) 5.5 to 6.12 5.5 to 6.32 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. Restricted stock awards were granted to two members of the Company’s board during the nine months ended September 30, 2020. The Company had 15,686 and 0 shares of restricted stock outstanding as of September 30, 2020 and 2019, respectively, and 0 and 2,571 shares of restricted stock vested during the nine months ended September 30, 2020 and 2019. The Company recognized stock-based compensation expense for restricted stock of $ 20,904 and $ 0 for the three months ended September 30, 2020 and 2019, respectively, and $ 31,815 and $ 17,047 for the nine months ended September 30, 2020 and 2019, respectively. The Company initially reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Stock Incentive Plan (the “2017 Plan”). The number of shares reserved for issuance was automatically increased by 102,540 shares on January 1, 2020 and will increase automatically on January 1 of each of 2021 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. The total remaining shares available for grant under the Company’s 2017 Plan as of September 30, 2020 is 238,146 . Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows: 2020 $ 412,433 2021 1,299,933 2022 997,358 2023 644,448 2024 145,405 Total estimated compensation cost to be recognized $ 3,499,577 The Company recognized stock-based compensation expense related to its employee stock purchase plan of $ 17,499 and $ 15,157 for the three months ended September 30, 2020 and 2019, respectively and $ 29,493 and $ 37,302 for the nine months ended September 30, 2020 and 2019, respectively. The Company initially reserved a total of 100,000 shares for issuance under the employee stock purchase plan. The number of shares reserved for issuance was automatically increased by 51,270 shares on January 1, 2020 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, 2020 is 119,956 . The Company recognized total stock-based compensation expense as follows for the three and nine months ended September 30: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Stock-based compensation expense in operating expenses: Research and development $ 254,537 $ 163,343 $ 813,099 $ 364,902 General and administrative 194,410 139,901 523,690 315,232 Total $ 448,947 $ 303,244 $ 1,336,789 $ 680,134 12 Table of Contents