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Item 8. Financial Statements and Supplementary Data

2024-03-27 compared with 2023-03-09 · 191 added, 105 removed, 355 unchanged (45% of the section changed)

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INDEX TO FINANCIAL STATEMENTS FOR CELLECTAR BIOSCIENCES, INC.

Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Philadelphia, Pennsylvania, PCAOB ID No.

Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Madison, Wisconsin , PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

To the Board of Directors and Stockholders of

Cellectar Biosciences, Inc.

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We have audited the accompanying consolidated balance sheets of Cellectar Biosciences, Inc.

and Subsidiary (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiary (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

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Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("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.

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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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgements.

We determined that there are no critical audit matters.

Baker Tilly US, LLP

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Preferred Stock and Warrants in connection with the September 2023 Private Placement

Critical Audit Matter Description

As described in Note 6 to the consolidated financial statements, the Company issued shares of Series E-1 preferred stock, along with Tranche A warrants and Tranche B warrants to purchase Series E-3 and E-4 preferred stock, respectively.

The Series E-1 was classified as mezzanine equity at its issuance date, upon requisite shareholder approval this was determined to be classified as permanent equity in the fourth quarter of 2023, and the warrants issued by the Company are classified as liabilities and are recorded at fair value at each reporting period.

The principal considerations for our determination that the accounting for these instruments constituted a critical audit matter included the significant complexity of the relevant accounting guidance as well as the extent of management judgments and certain assumptions involved in the application of that guidance.

In addition, gathering certain audit evidence of the Company’s valuation of the warrant liability was especially challenging as the fair value is based on the selection of fair value methodologies as well as various inputs, significant assumptions and estimation uncertainty used in that fair value determination.

Lastly, the audit effort included the use of firm personnel with relevant expertise to assist in auditing this transaction and the related valuation.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

● Assessing the design and implementation of management’s controls over the accounting for these instruments, which included controls over the proper selection of fair value methodologies and assumptions used to determine fair value of warrant liability.

● Reading the agreements and comparing the relevant terms to management’s analysis of the transactions.

● Utilizing the assistance of firm personnel having expertise in the accounting for these instruments, we evaluated management’s conclusions regarding the balance sheet classification and fair value determination of the two separate freestanding instruments included in the capital raise, the Series E preferred stock and the Tranche A and Tranche B warrants.

● Involving firm valuation specialists in evaluating the Company’s determination of fair value, including the appropriateness of the fair value methodologies.

● Testing the Company’s determination of fair value for the transaction, as well as the respective relative fair value allocations.

Our testing included assessing the reasonableness of certain assumptions used by the Company, as well as the completeness and accuracy of the data and estimates utilized.

● Performing a sensitivity analysis to evaluate the reasonableness management’s assumptions.

● Assessing the required financial statement disclosures related to the transaction.

/s/ Baker Tilly US, LLP

We have served as the Company's auditor since 2016.

Philadelphia, Pennsylvania

Madison, Wisconsin

March 27, 2024

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Long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

CURRENT LIABILITIES:

Accounts payable and accrued liabilities

Warrant liability

Lease liability

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COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ EQUITY:

Series D preferred stock:

111 shares issued and outstanding as of December 31, 2022 and 2021, respectively

STOCKHOLDERS’ (DEFICIT) EQUITY:

Series D preferred stock, 111.11 shares authorized;

111.11 shares issued and outstanding as of December 31, 2023 and 2022

Series E-2 preferred stock, 1,225.00 shares authorized;

319.76 and 0.00 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Common stock, $ 0.00001 par value;

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( 179,499,043 )

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

Total stockholders’ (deficit) equity

( 1,356,047 )

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

See report of independent registered public accounting firm and accompanying notes to the consolidated financial statements.

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( 28,813,773 )

OTHER INCOME:

OTHER INCOME (EXPENSE):

Warrant issuance expense

Gain on valuation of warrants

Interest income, net

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CELLECTAR BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

Preferred Stock

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Paid-In Capital

(Deficit) Equity

BALANCE AT DECEMBER 31, 2021

( 150,897,789 )

Issuance of common stock, pre-funded warrants and warrants, net of issuance costs

Stock-based compensation

Retired shares

Conversion of preferred into common shares

( 28,601,254 )

Conversion of warrants into common shares

Issuance of common stock, net of issuance costs

( 28,601,254 )

( 24,122,362 )

BALANCE AT DECEMBER 31, 2022

( 179,499,043 )

Issuance of common stock, pre-funded warrants and warrants, net of issuance costs

Stock-based compensation

Retired shares

Exercise of warrants into common stock

Issuance of preferred stock, net of issuance costs (Note 6)

Conversion of preferred stock to common stock

( 13,242,368 )

Stock awards (Note 7)

( 37,983,496 )

BALANCE AT DECEMBER 31, 2023

( 217,482,539 )

( 1,356,047 )

See report of independent registered public accounting firm and accompanying notes to the consolidated financial statements.

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Loss on disposal of asset

Costs to issue warrants

Gain on valuation of warrants

( 1,000,000 )

Noncash lease expense

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net of underwriting issuance costs

Proceeds from issuance of preferred stock and warrants, net of issuance costs

Proceeds from exercise of warrants

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Conversion of preferred stock to common stock

Conversion of mezzanine equity to permanent equity (Note 6)

See report of independent registered public accounting firm and accompanying notes to the consolidated financial statements.

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Cellectar Biosciences, Inc.

(the Company, our, we) is a late-stage clinical biopharmaceutical company focused on the discovery, development and commercialization of drugs for the treatment of cancer leveraging our proprietary phospholipid drug conjugate™ (PDCs™) delivery platform that specifically targets cancer cells and deliver improved efficacy and better safety as a result of fewer off-target effects.

(Cellectar or the Company) is a late-stage clinical biopharmaceutical company focused on the discovery, development and commercialization of drugs for the treatment of cancer, leveraging our proprietary phospholipid drug conjugate™ (PDC™) delivery platform that specifically targets cancer cells and delivers improved efficacy and better safety as a result of fewer off-target effects.

The Company has incurred losses since inception in devoting substantially all of its efforts toward research and development and has an accumulated deficit of approximately $ 217,483,000 as of December 31, 2023.

During the year ended December 31, 2023, the Company generated a net loss of approximately $ 37,983,000 and the Company expects that it will continue to generate operating losses for the foreseeable future.

However, the Company believes that its cash balance as of December 31, 2022 is adequate to fund its basic budgeted operations into the fourth quarter of 2023.

In October 2022, the Company completed a registered direct offering and concurrent private placement of shares of the Company’s common stock, prefunded warrants and common warrants.

The offering and private placements resulted in total gross proceeds of approximately $ 10.7 million with net proceeds to the Company of approximately $ 9.6 million after deducting estimated offering expenses (see Note 8).

The Company believes that its cash balance as of December 31, 2023, when combined with funds generated by the exercise of warrants in January 2024 (see Note 13), is adequate to fund its basic budgeted operations into the fourth quarter of 2024.

The Company’s ability to execute its current operating plan depends on its ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or other source of capital.

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Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities.

On an on-going basis, management evaluates its estimates including those related to unbilled vendor amounts and share-based compensation.

requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities and expenses and disclosure of contingent assets and liabilities.

On an on-going basis, management evaluates its estimates including those related to potential accrued liabilities, valuation of warrant and equity-based instruments, and share-based compensation.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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The Company recognizes revenue and cost reimbursements from government grants when it is probable that the Company will comply with the conditions attached to the grant arrangement and the grant proceeds will be received.

Government grants are recognized in the Consolidated Statements of Operations on a systematic basis over the periods in which the Company recognizes the related costs for which the government grant is intended to compensate.

Specifically, when government grants are related to reimbursements for cost of revenues or operating expenses, the government grants are recognized as a reduction of the related expense in the Consolidated Statements of Operations.

Government grants are recognized on a systematic basis over the periods in which the Company recognizes the related costs for which the government grant is intended to compensate.

Specifically, when government grants are related to reimbursements for cost of revenues or operating expenses, the government grants are recognized as a reduction of the related expense.

Income Taxes — Income taxes are accounted for using the liability method of accounting.

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Fair Value of Financial Instruments — The guidance under FASB ASC Topic 825, Financial Instruments , requires disclosure of the fair value of certain financial instruments.

Financial instruments in the accompanying consolidated financial statements consist of cash equivalents, prepaid expenses and other assets, accounts payable and long-term obligations.

The carrying amount of cash equivalents, prepaid expenses and accounts payable approximate their fair value due to their short-term nature.

Financial instruments in the accompanying consolidated financial statements consist of cash equivalents, prepaid expenses and other assets, accounts payable, warrant liabilities and long-term obligations.

The carrying amount of cash equivalents, prepaid expenses, other current assets and accounts payable approximate their fair value as a result of their short-term nature.

See Note 11 regarding long-term obligations .

Warrants — The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Valuation changes, as well as the cost to issue the warrants, are included in Other (Expense) Income in the accompanying Consolidated Statements of Operations.

If these instruments are initially classified as liabilities and subsequently meet the requirements for equity classification, the Company reclassifies the fair value to equity.

Preferred Stock — The Company accounts for preferred stock based upon their specific terms and the authoritative guidance in ASC 480 and ASC 815, including whether they are freestanding instruments, whether any redemption or conversion aspects exist and how they are required to be settled (particularly if there is a cash settlement aspect), whether they contain characteristics that are predominantly debt-like or equity-like, whether they have embedded derivatives, and if they have redemption features.

Based upon analysis of these criteria, the preferred stock will be classified as either debt, temporary (or “mezzanine”) equity, or permanent equity.

The resultant classification is then evaluated quarterly to determine whether any change to the classification is required.

Concentration of Credit Risk — Financial instruments that subject the Company to credit risk consist of cash and cash equivalents on deposit with financial institutions.

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As of December 31, 2023, uninsured cash balances totaled approximately $ 9,123,000 .

Recently Adopted Accounting Pronouncements — For the fiscal year beginning January 1, 2021, management adopted ASU 2020-06 using the modified retrospective method.

ASU 2020-06 simplifies entities’ accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature (BCF) models outlined in ASC 470-20.

Under ASU 2020-06, convertible instruments that would have previously been subject to the BCF or cash conversion guidance no longer require separate accounting for the conversion feature.

For the fiscal year beginning January 1, 2022, management adopted ASU 2021-10, Government Assistance (Topic 832), which aims to provide increased transparency by requiring business entities to disclose information about certain type of government assistance they receive in the notes to the financial statements.

Recently Adopted Accounting Pronouncements — For the fiscal year beginning January 1, 2022, management adopted ASU 2021-10, Government Assistance (Topic 832), which aims to provide increased transparency by requiring business entities to disclose

information about certain type of government assistance they receive in the notes to the financial statements.

Reimbursements of eligible expenditures pursuant to government assistance programs are recorded as reductions of operating costs when there is reasonable assurance that the Company will comply with the conditions attached to the grant arrangement and when the reimbursement has been claimed.

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The Company currently has a cancer treatment research award through the National Cancer Institute (NCI) totaling approximately $ 2.0 million over a period of approximately three years.

During the year ended December 31, 2022, the Company received approximately $ 697,000 in NCI grants, all of which was reported as a reduction of research and development (R&D) expenses.

In September 2022, the Company was awarded $ 1.98 million in additional grant funding to expand our ongoing Phase 1 study of iopofosine I 131 in children and adolescents with inoperable relapsed or refractory high-grade gliomas (HGGs).

The grant was awarded by the NCI based upon the initial signals of efficacy in the Phase 1 study, which is an international, open-label, dose escalation, safety study.

The funding allows for an expansion from Part 1a into the Part 1b portion of our ongoing Phase 1 pediatric study.

During the twelve months ended December 31, 2023, the Company received approximately $ 1,759,000 in NCI grant funding under the grants described above, all of which was reported as a reduction of research and development (R&D) expenses.

During the twelve months ended December 31, 2022, the Company received approximately $ 697,000 in NCI grant funding under the grants described above, all of which was reported as a reduction of research and development (R&D) expenses.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (ASU 2023-09), which is intended to enhance the transparency and decision usefulness of income tax disclosures.

Public business entities are required to adopt this standard for annual fiscal periods beginning after December 31, 2024, and early adoption is permitted.

The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.

The Company evaluates all Accounting Standards Updates (ASUs) issued by the FASB for consideration of their applicability to our consolidated financial statements.

We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

In accordance with Fair Value Measurements and Disclosures Topic of the FASB ASC 820, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.

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The carrying amounts reported for other current financial assets and liabilities approximate fair value because of their short-term nature.

In September 2023 the Company issued warrants to purchase shares of preferred stock which, on an as-converted basis, represent an aggregate of 21,025,641 shares of common stock (the September 2023 Warrants) (see Note 6).

The fair value of the September 2023 Warrants was determined using a probability-weighted expected return method (PWERM) with a scenario-based Monte Carlo simulation and Black-Scholes model.

The PWERM is a scenario-based methodology that estimates the fair value of the Company’s different classes of equity based upon an analysis of future values for the Company, assuming various outcomes.

Under both models, assumptions and estimates are used to value the preferred stock warrants.

The Company assesses these assumptions and estimates on a quarterly basis as additional information that impacts the assumptions is obtained.

The quantitative elements associated with the inputs

impacting the fair value measurement of the September 2023 Warrants include the value per share of the underlying common stock, the timing, form and overall value of the expected exits for the stockholders, the risk-free interest rate, the expected dividend yield and the expected volatility of the Company’s shares.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants.

The Company estimated a 0 % dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared cash dividends.

Expected volatility was determined based upon the historical volatility of the Company’s common stock.

These warrants are classified within the Level 3 hierarchy because of the nature of these inputs and the valuation technique utilized.

The Warrant Liability of $ 3,700,000 presented on the accompanying balance sheet as of December 31, 2023, consists entirely of the estimated value of the September 2023 Warrants.

The following table summarizes the modified option-pricing assumptions used on September 8, 2023, which was the date of issuance, and December 31, 2023:

Risk-free interest rate

Expected life (years)

The following table summarizes the changes in the fair market value of the warrants which are classified within the Level 3 fair value hierarchy from September 8, 2023, which was the date of issuance, through December 31, 2023:

Beginning fair value of warrants

Gain from change in fair value

( 1,000,000 )

December 31, 2023 fair value of warrants

Fixed assets consisted of the following as of December 31:

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Fixed assets, net

For the years ended December 31, 2022 and 2021, the Company recorded approximately $ 148,000 and $ 150,000 of depreciation and amortization expense, respectively.

For the years ended December 31, 2023 and 2022, the Company recorded approximately $ 192,000 and $ 148,000 of fixed asset depreciation and amortization expense, respectively.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities approximately consist of the following as of December 31:

Accounts payable and accrued liabilities consist of the following as of December 31:

Incentive compensation

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STOCKHOLDERS’ EQUITY

September 2023 Private Placement

On September 8, 2023, in a private placement with certain institutional investors, the Company issued 1,225 shares of Series E-1 preferred stock, along with Tranche A warrants to purchase 2,205 shares of Series E-3 preferred stock and Tranche B warrants to purchase 1,715 shares of Series E-4 preferred stock.

Shares of Series E preferred stock were issued at a fixed price of $ 20,000 per share, resulting in gross proceeds of $ 24.5 million and net proceeds of approximately $ 22.2 million after placement agent fees and other customary expenses.

The conversion prices for the preferred stock are as follows:

for the Series E-1 or E-2 preferred stock, $ 1.82 per share of common stock, or a total of 13,461,538 shares of common stock;

for the Series E-3 preferred stock, $ 3.185 per share of common stock, or a total of 13,846,154 shares of common stock;

and for the Series E-4 preferred stock, $ 4.7775 per share of common stock, or a total of 7,179,487 shares of common stock, in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization.

The warrants are exercisable as follows:

● Tranche A warrants, for an aggregate exercise price of $ 44.1 million, exercisable for Series E-3 preferred stock until the earlier of September 6, 2026, or 10 trading days after the Company's announcement of positive topline data from the Waldenstrom's macroglobulinemia CLOVER WaM pivotal trial;

● Tranche B warrants, for an aggregate exercise price of $ 34.3 million, exercisable for Series E-4 preferred stock until the earlier of September 6, 2028, or 10 days following the Company’s public announcement of its receipt of written approval from the FDA of its New Drug Application for iopofosine I 131.

The Tranche A and Tranche B warrants do not qualify as derivatives;

however, they do not meet the requirements necessary to be considered indexable in the Company’s stock.

As a result, and in accordance with the guidance in FASB ASC 815, the warrants continue to be deemed liabilities.

All such liabilities are required to be presented at fair value, with changes reflected in financial results for the period.

When issued, the Series E-1 preferred stock had a redemption feature;

therefore, it was classified as mezzanine equity as of September 30, 2023.

The Series E-1 preferred stock also had a liquidation preference, which was calculated as an amount per share equal to the greater of (i) two times (2X) the Original Per Share Price, together with any declared, unpaid dividends, or (ii) such amount per share as would have been payable had all shares of Series E-1 preferred stock been converted into Common Stock immediately prior to such Liquidation.

While the Series E-1 preferred was outstanding, this resulted in both the Tranche A and Tranche B warrants being considered puttable by virtue of the liquidation preference impacting the disposition of these warrants in the event of a liquidation.

In accordance with the guidance in Accounting Standards Codification section 480, a puttable warrant is deemed to be a liability.

These features only applied to the Series E-1 preferred stock when it was outstanding;

upon stockholder approval of the transaction, which was obtained by the Company at a special meeting of stockholders held on October 25, 2023, the Series E-1 preferred stock immediately converted into either Series E-2 preferred stock and/or common stock, dependent upon the beneficial ownership position of the holder.

The net proceeds from the September 2023 Private Placement were allocated first to the fair value of the Tranche A and Tranche B warrants, which had a fair value upon issuance of $ 4,700,000 , with the remainder, or $ 17,920,000 , allocated to the Series E-1 preferred stock.

Upon stockholder approval of the transaction, the entire amount that had been assigned to mezzanine equity was

reclassified to Series E-2 preferred stock and is a component of permanent equity, as is reflected in the financial statements.

As a result of the stockholder approval, Series E-1 preferred stock was fully extinguished in accordance with the terms of the financing.

Series E-2 preferred stock is convertible to common stock at the request of the holder, subject to the holder not exceeding certain beneficial ownership percentages as stipulated in the financing agreement.

Subsequent to the issuance of the Series E-2 preferred stock and prior to December 31, 2023, preferred holders converted 905.24 shares of preferred stock into 9,947,684 shares of common stock at the stated rate of $ 1.82 per common share.

October 2022 Public Offering and Private Placement

On October 25, 2022, we completed a registered direct offering of 3,275,153 shares of the Company’s common stock at $ 2.085 per share and warrants to purchase up to an aggregate of 3,275,153 shares of common stock in a concurrent private placement priced at-the-market under Nasdaq rules.

On October 25, 2022, the Company completed a registered direct offering of 3,275,153 shares of the Company’s common stock at $ 2.085 per share and warrants to purchase up to an aggregate of 3,275,153 shares of common stock in a concurrent private placement priced at-the-market under Nasdaq rules.

In a separate concurrent private placement transaction, the Company offered and sold pre-funded warrants to purchase an aggregate of 1,875,945 shares of common stock and warrants to purchase an aggregate of 1,875,945 shares of common stock.

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The registered direct offering and private placements resulted in total gross proceeds of approximately $ 10.7 million with net proceeds to the Company of approximately $ 9.6 million after deducting estimated offering expenses.

In accordance with the concept of ASC 820 regarding the October 2022 public offering, the Company allocated the value of the proceeds to the common stock, common warrants, and pre-funded warrants utilizing a relative fair value basis.

Using the Nasdaq closing trading price for our stock on October 20, 2022, the Company computed the fair value of the shares sold.

During the twelve months ended December 31, 2023, 355,235 pre-funded warrants were converted into 355,235 shares of common stock.

During the twelve months ended December 31, 2023, 177,877 common warrants were exercised for proceeds of $ 348,638 .

There were no common warrants exercised during the twelve months ended December 31, 2022.

In accordance with the concept of FASB ASC 820 regarding the October 2022 public offering, the Company allocated the value of the proceeds to the common stock, common warrants, and pre-funded warrants utilizing a relative fair value basis.

Using the closing trading price for our stock on October 20, 2022, the Company computed the fair value of the shares sold.

This valuation did not impact the total gross increase to Stockholders’ Equity of $ 10.7 million, but is an internal, proportionate calculation allocating gross proceeds of approximately $ 4.0 million to common stock, $ 4.4 million to common warrants and $ 2.3 million to pre-funded warrants.

2022 Reverse Stock Split

At the annual stockholders’ meeting held on June 24, 2022, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse split of the Company’s common stock at a ratio between 1 -for-5 to 1 -for-10 in order to satisfy requirements for the continued listing of the Company’s common stock on Nasdaq.

At the annual stockholders’ meeting held on June 24, 2022, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse split of the Company’s common stock at a ratio between 1 -for-5 to 1 -for-10 in order to satisfy requirements for continued listing of the Company’s common stock on Nasdaq.

The board of directors authorized the 1 -for-10 ratio of the reverse split on June 27, 2022, and effective at the close of business on July 21, 2022, the Company’s certificate of incorporation was amended to effect a 1 -for-10 reverse split of the Company’s common stock (the “Reverse Stock Split”).

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Authorized Share Increase

At a special meeting held on February 25, 2021, the Company’s stockholders approved the amendment of the Company’s Second Amended and Restated Certificate of Incorporation, as amended, to increase the authorized common stock from 80,000,000 shares to 160,000,000 shares.

Equity Distribution Agreement

On August 11, 2020, the Company entered into an equity distribution agreement (the Sales Agreement) with Oppenheimer & Co.

(the Sales Agent).

Pursuant to the Sales Agreement, the Company may offer and sell from time-to-time through the Sales Agent, up to $ 14.5 million shares of the Company’s common stock, par value $ 0.00001 per share (the ATM Shares).

The Sales Agent will receive from the Company a commission of 3.0 % of the gross proceeds from the sales of the ATM Shares pursuant to the terms of the Sales Agreement.

The offering of the ATM Shares pursuant to the Sales Agreement will terminate upon the earliest of (i) the sale of all ATM Shares subject to the Sales Agreement, and (ii) the termination of the Sales Agreement by the Company or the Sales Agent.

Net proceeds from the sale of the ATM Shares will be used for general corporate purposes, including working capital.

The ATM Shares issued under the Sales Agreement are offered pursuant to a registration statement on Form S-3, which was declared effective by the U.S.

Securities and Exchange Commission (SEC) on August 20, 2020.

In June 2021, the Company issued and sold an aggregate of 4,169 ATM Shares pursuant to the Sales Agreement and received gross proceeds of approximately $ 69,000 and net proceeds of $ 35,000 after deducting commissions to the Sales Agent and other offering expenses.

In conjunction with the October 2022 offering, the Company filed a prospectus supplement suspending the ATM program.

The Company will not make any sales of its common stock pursuant to the Equity Distribution Agreement unless and until a new prospectus supplement is filed with the SEC;

however, the Equity Distribution Agreement remains in full force and effect.

December 2020 Public Offering and Private Placement

On December 23, 2020, the Company issued and sold 1,814,813 shares of common stock, par value $ 0.00001 per share, at a public offering price of $ 13.50 per share of common stock, prior to deducting underwriting discounts and commissions and estimated offering expenses.

In a concurrent private placement, the Company issued and sold 1,518.5180 shares of Series D convertible preferred stock.

These preferred shares are convertible into a number of shares of common stock equal to $ 13,500 divided by $ 13.50 (or 1,000 shares of common stock for each share of Series D preferred stock converted) and were issued at a price of $ 13,500 per share of Series D preferred stock.

The preferred shares were only convertible into common stock upon receipt of stockholder approval of the issuance of the underlying shares of common stock as required by Nasdaq Marketplace Rule 5635(d) at a special stockholder meeting to be called for that purpose.

At a special meeting of stockholders held on February 25, 2021, the stockholders approved, in accordance with Nasdaq Listing Rule 5635(d), the issuance of shares of the Company’s common stock upon the conversion of the Series D preferred stock.

During the twelve months ended December 31, 2021, 1,407.4036 shares of our Series D convertible preferred stock were converted into 1,407,404 shares of common stock at the established conversion rate.

There were no preferred stock conversions in the twelve months ended December 31, 2022.

The net proceeds of the December 2020 public offering and private placement to the Company, after deducting underwriting discounts and commissions, placement agency fees, and estimated offering expenses payable by the Company, were approximately $ 41.4 million.

The common stock issued in the public offering was offered by the Company pursuant to a registration statement on Form S-3, which was declared effective by the SEC on August 20, 2020.

The common stock issuable upon conversion of the Series D preferred stock in the private placement was offered by the Company pursuant to a registration statement on Form S-3, which was declared effective by the SEC on February 1, 2021.

In accordance with the concept of ASC 820 regarding the December 2020 public offering, the Company allocated the value of the proceeds to the common stock and preferred stock utilizing a relative fair value basis.

Using the Nasdaq closing trading price for our stock on December 28, 2020, the Company computed the fair value of the shares sold.

The fair value of the preferred stock was estimated on a relative fair value basis.

This valuation did not impact the total increase to Stockholders’ Equity of $ 45.0 million, but is an internal, proportionate calculation allocating gross proceeds of approximately $ 24.5 million to common stock and $ 20.5 million to preferred stock.

At a special meeting of stockholders held on October 25, 2023, the Company’s stockholders approved an amendment of the Company’s Second Amended and Restated Certificate of Incorporation, as amended, to increase the authorized common stock from 160,000,000 shares to 170,000,000 shares.

Common Stock Warrants

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Expiration Date

2023 Tranche A Preferred Warrants

September 8, 2026

2023 Tranche B Preferred Warrants

September 8, 2028

2022 Common Warrants

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May 2019 Series G Warrants

July 2018 Series E Warrants

July 31, 2023

October 2017 Series D Warrants

October 14, 2024

(1) These warrants are described further under the caption “September 2023 Private Placement” above.

STOCK-BASED COMPENSATION

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2021 Stock Incentive Plan

The 2021 Stock Incentive Plan (the “2021 Plan”) was adopted on June 23, 2021, authorizing an aggregate of 600,000 shares of common stock for grants of incentive or nonqualified stock options, rights to purchase restricted and unrestricted shares of common stock, stock appreciation rights and performance share grants.

The Company’s Compensation Committee determines exercise prices, vesting periods and any performance requirements on the date of grant, subject to the provisions of the 2021 Plan.

Options are granted at or above the fair market value of the common stock at the grant date and expire on the tenth anniversary of the grant date.

Vesting periods are generally between one and three years .

Options granted pursuant to the 2021 Plan generally will become fully vested upon a termination event occurring within one year following a change in control, as defined.

A termination event is defined as either termination of employment or services other than for cause or constructive termination of employees or consultants resulting from a significant reduction in either the nature or scope of duties and responsibilities, a reduction in compensation or a required relocation.

All outstanding awards under the 2015 Stock Incentive Plan (the “2015 Plan”) remained in effect according to the terms of the 2015 Plan and the respective agreements relating to such awards.

In addition, any shares that are currently available under the 2015 Plan and any shares underlying awards under the 2015 Plan which are forfeited, cancelled, reacquired by the Company or otherwise terminated will be added to the number of shares available for grant under the 2021 Plan.

As of December 31, 2022, there are an aggregate of 635,753 shares available for future grants under the 2021 Plan.

At the 2022 annual meeting of stockholders held on June 24, 2022, the Company’s stockholders approved an increase in the number of shares of common stock available for issuance under our 2021 Stock Incentive Plan by 500,000 .

The Company maintains the 2021 Stock Incentive Plan (the “2021 Plan”).

The Company utilizes stock-based compensation incentives as a component of its employee and non-employee director and officer compensation philosophy.

A committee of the Board of Directors determines the terms of the awards granted and may grant various forms of equity-based incentive compensation.

Currently, these incentives consist principally of stock options and restricted shares.

All outstanding awards under the 2015 Stock Incentive Plan (the “2015 Plan”) remained in effect according to the terms of the 2015 Plan.

Any shares that are currently available under the 2015 Plan and any shares underlying 2015 Plan awards which are forfeited, cancelled, reacquired by the Company or otherwise terminated are added to the shares available for grant under the 2021 Plan.

Under the current stock option award program, all options become exercisable between one and three years after issuance and expire after ten years.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model.

Volatility is based on the Company’s historical common stock volatility.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time.

The expected term of stock options granted is based on an estimate of when options will be exercised in the future.

Forfeitures are recorded as they occur.

No dividends have been recorded historically.

At the annual meeting of stockholders held on June 23, 2023, the Company’s stockholders approved an increase in the number of shares of common stock available for issuance under our 2021 Stock Incentive Plan by 1,100,000 to 2,368,000 .

During the twelve-months ended December 31, 2023 and 2022, stock options granted were 1,617,000 and 440,250 , respectively.

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Twelve Months Ended

Employee and director stock option grants:

Employee and director stock option and stock grants:

Research and development

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Total stock-based compensation

On March 4, 2021, we granted 281,000 contingent non-statutory stock option awards at an exercise price of $ 17.40 per share to our employees.

Each of these grants was contingent on approval of the 2021 Plan that was voted on and approved by the stockholders at the Annual Meeting of Stockholders held on June 23, 2021.

In accordance with the timing of the stockholder approval, the Company recognized the compensation expense of the contingent non-statutory stock option awards issued in March 2021 beginning in June 2021 and continuing through the vesting period.

In January 2023, the Company granted 609,000 non-statutory stock option awards at an exercise price of $ 1.68 per share to employees.

These grants were contingent upon the approval of the increase in the number of shares available for issuance under the 2021 Plan that was approved by the stockholders at the Annual Meeting of Stockholders held on June 23, 2023.

In accordance with the removal of the contingency, the Company began recognizing the expense for these awards beginning in June 2023.

In December 2023, the Company granted 2,776,000 contingent, non-statutory stock option awards at an exercise price of $ 2.65 per share to our employees and our directors.

Each of these grants is contingent on approval of an increase in the shares available in the 2021 Stock Incentive Plan that is to be voted on by the stockholders at the annual meeting of stockholders expected to be held in June 2024.

Until such time that the contingent non-statutory stock option awards are approved by stockholders, no expense will be recognized by the Company.

In December 2023, the Company awarded $ 434,132 in cash and 213,532 shares of stock, valued at $ 565,868 , to certain employees as a result of the attainment of milestones established and approved by a committee of the Board of Directors.

Due to the contingent nature of those awards, which were fully vested upon milestone attainment, the expense was recognized by the Company upon grant.

Assumptions Used in Determining Fair Value

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The Company applied the simplified method to non-employees who have a truncation of term based on termination of service and utilizes the contractual life of the stock options granted for those non-employee grants which do not have a truncation of service.

The Company records stock-based compensation expense only for those awards that are expected to vest.

The Company only records stock-based compensation expense for those awards that are expected to vest.

The Company accounts for forfeitures as they occur.

The Company has not historically recorded dividends related to stock options.

The Company has not historically issued dividends.

The following table summarizes the assumptions used for stock options granted to employees and directors in the periods indicated:

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Shares of common stock issued upon the exercise of options are from authorized but unissued shares.

At December 31, 2023, we had 116,579 shares available for grant under the 2021 Option Plan.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2023 and 2022 was $ 1.35 and $ 3.49 , respectively.

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As of December 31, 2023, the Company also had state credit carryforwards of approximately $ 1,045,000 which will expire in 2025 through 2038 .

As of December 31, 2022, the Company had federal NOLs and R&D credit carryforwards of $ 404,570 and $ 24,742 , respectively, that expired in 2022 .

The NOL and R&D credit carryforwards may be, or may become subject to, an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions.

The Company had federal NOLs and R&D credit carryforwards of $ 502,000 and $ 13,000 , respectively, that expired in 2023 .

The NOL, R&D and orphan drug credit carryforwards may have, or may become subject to, an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions.

This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities.

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The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized.

Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against all of its net deferred tax assets.

When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.

As a result of uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against all of its net deferred tax assets.

When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to the valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.

The Company did not have unrecognized tax benefits or accrued interest and penalties at any time during the years ended December 31, 2023 or 2022, and does not anticipate having unrecognized tax benefits over the next twelve months.

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Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock and pre-funded warrants outstanding during the period.

The pre-funded warrants are considered common shares outstanding for the purposes of the basic net loss per share calculation due to the nominal cash consideration and lack of other contingencies for issuance of the underlying common shares.

The pre-funded warrants are considered common shares outstanding for the purposes of the basic net loss per share calculation because of the nominal cash consideration and lack of other contingencies for issuance of the underlying common shares.

Diluted net loss attributable to common stockholders per share is computed by dividing net loss attributable to common stockholders, as adjusted, by the sum of the weighted average number of shares of common stock and the dilutive potential common stock equivalents then outstanding.

Potential common stock equivalents consist of stock options, warrants, and convertible preferred shares.

Since there is a net loss attributable to common stockholders for the years ended December 31, 2022 and 2021, the inclusion of common stock equivalents in the computation for those periods would be antidilutive.

Since there is a net loss attributable to common stockholders for the years

ended December 31, 2023 and 2022, the inclusion of common stock equivalents in the computation for those periods would be antidilutive.

Accordingly, basic and diluted net loss per share is the same for all periods presented.

The following potentially dilutive securities have been excluded from the computation of diluted net loss per share since their inclusion would be antidilutive:

The following potentially dilutive securities have been excluded from the computation of diluted net loss per share since their inclusion would have been antidilutive:

Year Ended December 31,

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On December 30, 2022, the Company entered into an Amended Agreement of Lease, with CAMPUS 100 LLC (the “Landlord”).

Under the Amended Lease, which was accounted for as a modification of the initial lease, as the Company will continue to lease 3,983 square feet of rentable area on the second floor of a building located at 100 Campus Drive in Florham Park, New Jersey, commencing on March 1, 2023 until April 30, 2029.

The Company also has an option to extend the term of the Amended Lease for one additional 60 -month period.

Under the terms of the Amended Lease, the Company’s previously paid security deposit of $ 75,000 will be reduced to $ 23,566 and the aggregate rent due over the term of the Amended Lease is approximately $ 918,000 , which will be reduced to approximately $ 893,000 after certain rent abatements.

Under the terms of the Amended Lease, the Company’s previously paid security deposit of $ 75,000 was reduced to $ 23,566 and the aggregate rent due over the term of the Amended Lease is approximately $ 918,000 , which will be reduced to approximately $ 893,000 after certain rent abatements.

The Company will also be required to pay its proportionate share of certain operating expenses and real estate taxes applicable to the leased premises.

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EMPLOYEE RETIREMENT PLAN

The Company has a defined contribution plan under Section 401(k) of the Internal Revenue Code that allows eligible employees who meet minimum age requirements to contribute a portion of their annual compensation on a pre-tax basis.

The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code that allows eligible employees to contribute a portion of their annual compensation on a pre-tax basis.

The Company has not made any matching contributions under this plan.

SUBSEQUENT EVENT

In January 2024, the Company released topline data from its pivotal, Phase 2b CLOVER WaM trial.

In accordance with the terms of the September 2023 financing, the Tranche A warrant expiration accelerated to 10 trading days after the topline data release.

Warrant holders exercised the Tranche A warrants in their entirety, resulting in the Company issuing 2,205 shares of Series E-3 preferred stock, which are convertible to common stock at the stated rate of $ 3.185 per share, and receiving gross proceeds of $ 44.1 million and net proceeds of $ 42.8 million.

Additionally, during January and February 2024, 547,177 warrants issued in October 2022 were exercised for net proceeds of approximately $ 1.1 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data