Context Therapeutics Inc. 10-K

Item 8. Financial Statements and Supplementary Data Context Therapeutics Inc. Index To Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 596 ) 66 Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statement of Changes in Stockholders’ Equity 69 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 72 65 Table of Conten ts REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of Context Therapeutics Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Context Therapeutics Inc. and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ 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, 2022 and 2021 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ CohnReznick LLP We have served as the Company’s auditor since January 2021. Parsippany, New Jersey March 22, 2023 66 Table of Conten ts Context Therapeutics Inc. Consolidated Balance Sheets December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 35,497,445 $ 49,635,197 Prepaid expenses and other current assets 2,356,213 1,620,164 Total current assets 37,853,658 51,255,361 Operating lease right-of-use asset 51,967 — Property and equipment, net 27,568 — Other assets 32,750 — Restricted cash — 50,389 Total assets $ 37,965,943 $ 51,305,750 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 936,330 $ 1,826,294 Accrued expenses and other current liabilities 2,216,169 1,207,121 Operating lease liability - current 55,078 — Total current liabilities 3,207,577 3,033,415 Total liabilities 3,207,577 3,033,415 Commitments and contingencies (Note 9) Stockholders' equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.001 par value; 100,000,000 shares authorized; 15,966,053 issued and outstanding at December 31, 2022 and December 31, 2021 15,966 15,966 Additional paid-in capital 78,832,779 77,510,809 Accumulated deficit ( 44,090,379 ) ( 29,254,440 ) Total stockholders' equity 34,758,366 48,272,335 Total liabilities and stockholders' equity $ 37,965,943 $ 51,305,750 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Conten ts Context Therapeutics Inc. Consolidated Statements of Operations Year ended December 31, 2022 2021 Operating expenses: Acquired in-process research and development $ 500,000 $ 3,087,832 Research and development 7,091,163 3,805,067 General and administrative 7,790,040 3,632,920 Loss from operations ( 15,381,203 ) ( 10,525,819 ) Interest income (expense), net 547,268 ( 64,240 ) Change in fair value of convertible promissory notes — 9,317 Other (expense) income ( 2,004 ) 123,872 Net loss $ ( 14,835,939 ) $ ( 10,456,870 ) Net loss per common share, basic and diluted $ ( 0.93 ) $ ( 3.69 ) Weighted average shares outstanding, basic and diluted 15,966,053 2,833,674 The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Conten ts Context Therapeutics Inc. Consolidated Statement of Changes in Stockholders’ Equity Series A Preferred Stock Series Seed Preferred Stock Redeemable Common Stock Common stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Balance at January 1, 2021 210,715 1,400,935 2,624,324 6,341,288 16,666 29,000 331,789 332 1,876,159 ( 18,797,570 ) ( 16,921,079 ) Sale of Series A preferred shares, net of offering costs of $ 310,021 738,445 4,982,835 — — — — — — — — — Conversion of Senior Convertible Notes, including accrued interest, to Series A preferred stock 844,824 5,728,793 — — — — — — 137,497 — 137,497 Fair value of Series A preferred stock issued in conjunction with collaboration and licensing agreement 418,559 2,837,832 — — — — — — — — — Fair value of warrants issued in conjunction with the Series A preferred stock — ( 265,593 ) — — — — — — 265,593 — 265,593 Fair value of warrants issued as placement agent fees — ( 43,797 ) — — — — — — 43,797 — 43,797 Fair value of warrants issued for services — — — — — — — — 371,895 — 371,895 Change in fair value of redeemable common stock to redemption value — — — — — 53,330 — — ( 53,330 ) — ( 53,330 ) Conversion of convertible preferred shares and redeemable common shares upon initial public offering ( 2,212,543 ) ( 14,641,005 ) ( 2,624,324 ) ( 6,341,288 ) ( 16,666 ) ( 82,330 ) 4,853,533 4,853 21,059,770 — 21,064,623 Cashless exercise of warrants upon initial public offering — — — — — — 9,816 10 ( 10 ) — — Sale of common stock in initial public offering, net of issuance costs of $ 4,321,374 — — — — — — 5,750,000 5,750 24,422,876 — 24,428,626 Sale of common stock in private placement, net of issuance costs of $ 2,369,496 — — — — — — 5,000,000 5,000 28,875,504 — 28,880,504 Share-based compensation expense, including vesting of restricted stock and issuance of common stock — — — — — — 20,915 21 511,058 — 511,079 Net loss — — — — — — — — — ( 10,456,870 ) ( 10,456,870 ) Balance at December 31, 2021 — $ — — $ — — $ — 15,966,053 $ 15,966 $ 77,510,809 $ ( 29,254,440 ) $ 48,272,335 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Conten ts Context Therapeutics Inc. Consolidated Statement of Changes in Stockholders’ Equity Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at January 1, 2022 15,966,053 $ 15,966 $ 77,510,809 $ ( 29,254,440 ) $ 48,272,335 Fair value of warrants issued for services — — 345,530 — 345,530 Share-based compensation expense — — 976,440 — 976,440 Net loss — — — ( 14,835,939 ) ( 14,835,939 ) Balance at December 31, 2022 15,966,053 $ 15,966 $ 78,832,779 $ ( 44,090,379 ) $ 34,758,366 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Conten ts Context Therapeutics Inc. Consolidated Statements of Cash Flows Year ended December 31, 2022 2021 Net loss $ ( 14,835,939 ) $ ( 10,456,870 ) Adjustments to reconcile net loss to net cash used in operating activities: Acquired in-process research and development charge 500,000 3,087,832 Fair value of warrants for services provided — 371,895 Share-based compensation expense 976,440 511,079 Depreciation and amortization expense 9,268 — Non-cash interest expense — 46,315 Change in fair value of convertible promissory notes — ( 9,317 ) Reduction in the carrying amount of operating lease right-of-use asset 78,521 — Gain on extinguishment of debt — ( 125,577 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 736,049 ) ( 1,611,492 ) Other assets ( 32,750 ) — Accounts payable ( 787,893 ) ( 866,007 ) Accrued expenses and other current liabilities 1,354,578 252,655 Operating lease liability ( 75,410 ) — Cash used in operating activities ( 13,549,234 ) ( 8,799,487 ) Cash flows from investing activities: Acquired in-process research and development ( 500,000 ) ( 250,000 ) Purchase of property and equipment ( 36,836 ) — Cash used in investing activities ( 536,836 ) ( 250,000 ) Cash flows from financing activities: Payments for offering costs related to the December 2021 private placement ( 102,071 ) — Proceeds from the sale of common stock related to the private placement, net — 28,982,575 Proceeds from the sale of Series A preferred stock, net — 4,982,835 Proceeds from the sale of common stock related to IPO, net — 24,428,626 Cash (used in) provided by financing activities ( 102,071 ) 58,394,036 Net (decrease) increase in cash, cash equivalents and restricted cash ( 14,188,141 ) 49,344,549 Cash, cash equivalents and restricted cash at beginning of year 49,685,586 341,037 Cash, cash equivalents and restricted cash at end of year $ 35,497,445 $ 49,685,586 Supplemental disclosure of non-cash activities: Issuance of warrants for services provided $ 345,530 $ — Right-of-use asset obtained in exchange for lease obligation $ 130,488 $ — Conversion of convertible promissory notes, including accrued interest, to Series A preferred stock $ — $ 5,866,290 Issuance of warrants in conjunction with Series A preferred stock $ — $ 309,390 Series A preferred stock issued for acquired in-process research and development $ — $ 2,837,832 Deferred offering costs in accounts payable and accrued expenses $ — $ 102,071 Change in fair value of redeemable common stock to redemption value $ — $ 53,330 Conversion of preferred stock and redeemable common stock upon IPO $ — $ 21,064,623 The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Conten ts CONTEXT THERAPEUTICS INC. Notes to Consolidated Financial Statements (1) Organization and Description of Business Context Therapeutics Inc. (the “Company”) is a biopharmaceutical company dedicated to improving the lives of patients living with solid tumors. The Company was organized in April 2015 under the laws of the State of Delaware. The Company’s operations are located in Philadelphia, Pennsylvania. In April 2021, the Company completed a reverse triangular merger, which resulted in Context Therapeutics Inc. becoming the sole holder of 100 % of the membership interests in Context Therapeutics LLC. In connection with the merger, all common units, preferred units, options, warrants or other rights to purchase common or preferred units of Context Therapeutics LLC converted into common stock, preferred stock, options, warrants or other rights to purchase common or preferred stock of Context Therapeutics Inc. As this was a transaction between entities under common control, the carryover basis of accounting was used to record the assets, liabilities and equity of Context Therapeutics LLC. Further, as a common control transaction, the consolidated financial statements of the Company reflect the merger transaction as if it had occurred as of the earliest period presented herein. (2) Risks and Liquidity The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $ 44.1 million as of December 31, 2022. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. The Company has funded operations through the sale of convertible debt, convertible preferred stock, common stock and warrants. In the first half of 2021, the Company raised $ 5.0 million in net proceeds related to the sale of its Series A convertible preferred stock (“Series A Stock”) and warrants for common stock. In October 2021, the Company closed an initial public offering (“IPO”), in which it issued and sold 5,750,000 shares at a public offering price of $ 5.00 per share. In addition, at the closing of the IPO, the Company issued warrants to purchase up to 250,000 shares of common stock to designees of the placement agent. The placement agent's warrants have an exercise price of $ 6.25 per share and a term of five years from the date of issuance. Immediately prior to the completion of the IPO, all of the Company’s preferred stock and redeemable common stock converted into an aggregate of 4,853,533 shares of common stock and 480,415 warrants converted into 9,816 shares of common stock. The Company received net proceeds of approximately $ 24.4 million as a result of the offering. In December 2021, the Company sold 5,000,000 shares of its common stock together with warrants to purchase 5,000,000 shares of common stock in a private placement and received net proceeds of approximately $ 28.9 million. Each share of common stock and accompanying warrant were sold together at a combined offering price of $ 6.25 . The warrants have a term of 5.5 years and an exercise price of $ 6.25 per share. In addition, at the closing of the private placement, the Company issued warrants to purchase up to 250,000 shares of common stock to designees of the placement agent. The placement agent’s warrants have an exercise price of $ 6.25 per share and a term of 5.5 years from the date of issuance. As of December 31, 2021, there was $ 0.1 million of offering costs included in accounts payable that were subsequently paid in the first quarter of 2022. The Company believes its cash and cash equivalents at December 31, 2022 are sufficient to fund its projected operations for at least the next 12 months from the issuance date of these consolidated financial statements. However, substantial additional capital will be needed by the Company to fund its operations and to commercially develop its current and any future product candidates. There is no assurance that such financing will be available when needed or on acceptable terms. The Company plans to secure additional capital in the future through equity and/or debt financings, partnerships, collaborations, or other sources to carry out the Company’s planned development activities. If additional capital is not available when required, the Company may need to delay or curtail its operations until such funding is received. Various internal and external factors will affect whether and when the Company’s current and any future product candidates it may pursue become approved for marketing and successful commercialization. The 72 Table of Conten ts regulatory approval and market acceptance of the Company’s current and any future product candidates it may pursue, length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the approval process will materially affect the Company’s financial condition and future operations. The Company faces risks associated with companies whose products are in development. These risks include the need for additional financing to complete its research and development, achieving its research and development objectives, defending its intellectual property rights, recruiting and retaining skilled personnel, and dependence on key members of management, among others. The spread of COVID-19 has caused worldwide economic downturn and significant volatility in the financial markets. There is significant uncertainty as to the likely effects of this disease should novel outbreaks emerge, which may, among other things, materially impact the Company’s planned clinical trials. This pandemic and/or periodic outbreaks could result in difficulty securing clinical trial site locations, contract research organizations, and/or trial monitors and other critical vendors and consultants supporting the trials. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact the Company’s ability to enroll patients. These situations, or others associated with COVID-19, could cause delays in the Company’s clinical trial plans and could increase expected costs, all of which could have a material adverse effect on the Company’s business and its financial condition. At the current time, the Company is unable to quantify the potential effects of this pandemic on its future consolidated financial statements. (3) Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of the Company, Context Therapeutics LLC, Context Biopharma, Inc. and Context Ireland Ltd., the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of the revisions are reflected in the accompanying consolidated financial statements in the period they are determined to be necessary. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited 73 Table of Conten ts to, the fair value of common stock, share-based compensation arrangements, the fair value of warrants, the fair value of convertible debt, and in recording the prepayments, accruals and associated expense for certain research and development activities performed for the Company by third parties. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment. Fair Value of Financial Instruments The carrying amount of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, and accounts payable, approximate their fair values given their short-term nature. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments that have original maturities of three months or less when acquired to be cash equivalents. Cash equivalents consist of amounts invested in money market accounts. At December 31, 2022, the Company’s cash and cash equivalent balances exceeded federally insured limits by approximately $ 35 million. The Company maintained approximately $ 50,000 as collateral for the Company’s credit card program at December 31, 2021, which is reported as restricted cash on its consolidated balance sheets. There were no amounts restricted as of December 31, 2022, as the collateral was released to the Company in the first quarter of 2022. The following table presents the Company’s cash, cash equivalents, and restricted cash as of December 31, 2022 and 2021: December 31, 2022 2021 Cash and cash equivalents $ 35,497,445 $ 49,635,197 Restricted cash — 50,389 Total cash, cash equivalents and restricted cash $ 35,497,445 $ 49,685,586 Deferred Offering Costs The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, the costs are recorded as a reduction of additional paid-in capital generated as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. Property and Equipmen t Property and equipment consist of office equipment, furniture, and leasehold improvements and is recorded at cost. Property and equipment is depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the shorter of their economic lives or the remaining lease term. 74 Table of Conten ts Leases The Company determines if an arrangement is a lease at inception. Balances recognized related to operating leases are included in operating lease right-of-use assets and operating lease liabilities in the Consolidated Balance Sheets. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.The Company recognizes rent expense on a straight-line basis over the lease period and accrues for rent expense incurred but not yet paid. Acquired In-Process Research and Development Costs Acquired in-process research and development (IPR&D) expense consists of payments incurred in connection with the acquisition or licensing of products or technologies that do not meet the definition of a business under FASB ASC Topic 805, Business Combinations. Payments for product development milestones are initially treated as the acquisition of an asset but then immediately expensed as there is no future alternative use for the asset. These development milestone payments are reflected as an investing activity outflow on the Company’s consolidated statements of cash flows due to the nature of the underlying acquisition of an asset . See Note 9 for further discussion. Research and Development Costs Research and development costs are expensed as incurred. Research and development costs include external costs of outside vendors engaged to conduct clinical studies and other research and development activities, salaries, share-based compensation, and other operational costs related to the Company’s research and development activities. Costs for certain development activities, such as the provision of services for product candidate development, clinical and preclinical development and related supply and manufacturing costs, are estimated based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to the Company by its vendors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued research and development expense, as the case may be. The estimates are adjusted to reflect the best information available at the time of the financial statement issuance. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company's estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary. Nonrefundable advance payments for goods and services, including fees for clinical trial expenses, process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed. Patent Costs Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain. Share-Based Compensation The Company measures and recognizes share-based compensation expense for both employee and non-employee awards based on the grant date fair value of the awards. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Company recognizes forfeitures as they occur. 75 Table of Conten ts The Company classifies share-based compensation expense in its consolidated statements of operations in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified. The Company estimates the fair value of employee and non-employee stock awards as of the date of grant using the Black-Scholes option pricing model. The Company lacks Company-specific historical and implied volatility information. Therefore, management estimates the expected share price volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own publicly traded share price. The expected term of the Company’s stock awards has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” stock awards. The risk-free interest rate is determined by reference to the yield curve of a zero-coupon U.S. Treasury bond on the date of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future. In addition, the Company measures and recognizes share-based compensation expense for advisors, officers and director restricted share-based awards based on the grant date fair value of the awards. Income Taxes Income taxes are recorded in accordance with ASC Topic 740, Income Taxes ( “ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. To date, the Company has not taken any uncertain tax position or recorded any reserves, interest or penalties. Net Loss Per Share Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible promissory notes, preferred stock, warrants and share-based awards, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive: December 31, 2022 2021 Stock options 1,341,504 506,691 Warrants 5,860,000 5,500,000 7,201,504 6,006,691 76 Table of Conten ts Amounts in the above table reflect common stock equivalents. Recently Adopted Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) the lease classification or (c) the determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted this standard on January 1, 2022 and the adoption did not have a material impact on its consolidated financial statements due to the fact that the Company did not have any material long-term leasing arrangements as of the date of adoption. (4) Fair Value Measurements The Company utilizes a valuation hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques related to its financial assets and financial liabilities. The three levels of inputs used to measure fair value are described as follows: Level 1 – Observable inputs such as quoted prices in active markets. Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3 – Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. In accordance with the fair value hierarchy described above, the following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis: December 31, 2022 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash equivalents (Money Market Accounts) $ 1,723,893 $ 1,723,893 $ — $ — December 31, 2021 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash equivalents (Money Market Accounts) $ 49,051,061 $ 49,051,061 $ — $ — 77 Table of Conten ts (5) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, 2022 2021 Compensation and benefits $ 770,055 $ 436,990 Research and development costs 1,358,707 339,072 Professional fees 3,951 345,530 Other 83,456 85,529 Total $ 2,216,169 $ 1,207,121 (6) Convertible Promissory Notes and Other Debt Senior Convertible Notes The Company previously issued certain convertible promissory notes to various investors which were converted into Senior Convertible Notes (the “Senior Convertible Notes”, and collectively, the “Convertible Promissory Notes”). All of the outstanding principal and accrued but unpaid interest associated with the Senior Convertible Notes converted into 844,824 shares of Series A Stock in February 2021, of which 430,467 shares were issued to the Company's Chief Executive Officer and an immediate family member (the "Related Party"). Due to certain embedded features within the Senior Convertible Notes, the Company elected to account for these notes and all their embedded features under the fair value option. At the time of conversion, the estimated fair value of the Senior Convertible Notes was $ 5.7 million and was reclassified to Series A Stock. The Company recorded a non-cash credit of $ 9,000 in the consolidated statements of operations for the year ended December 31, 2021 related to the decrease in fair value of the Senior Convertible Notes. For the year ended December 31, 2021, the Company recognized $ 46,000 of interest expense in connection with the Senior Convertible Notes, including $ 23,000 payable to the Related Party, respectively. Paycheck Protection Program In May 2020, the Company entered into an original loan agreement with Pacific Western Bank as the lender for a loan in an aggregate principal amount of $ 0.1 million (the “Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act implemented by the U.S. Small Business Administration. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which among other things, extended the deferral period for loan payments to either (1) the date that the Small Business Administration remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Loan was set to mature in two years and bore interest at a rate of 1.0 % per year, with all payments deferred through September 5, 2021. The outstanding principal balance of the Loan of $ 0.1 million was forgiven in July 2021 and was recognized as a gain on extinguishment of debt within other income in the consolidated statements of operations during the year ended December 31, 2021. (7) Convertible Preferred Stock, Redeemable Common Stock and Common Stock Series A convertible preferred stock and Series Seed convertible preferred stock In February, March and April 2021, the Company sold 738,445 shares of Series A Stock for $ 7.168 per share for net proceeds of $ 5.0 million. The Company also issued 184,597 warrants to purchase common stock at an exercise price of $ 7.168 to the Series A stockholders as part of the Series A Stock financing. Additionally, the Company issued 24,134 warrants to purchase common stock at an exercise price of $ 7.168 to placement agents as a part of the Series A Stock financing. 78 Table of Conten ts In February 2021, the Company converted $ 6.1 million of principal and interest related to Senior Convertible Notes into 844,824 shares of Series A Stock at a price of $ 7.168 per share. In addition, warrants with a fair value of $ 0.1 million associated with the Senior Convertible Notes were reclassified into additional paid-in capital. In October 2021, the Company completed its IPO in which the Company sold 5,750,000 shares at a public offering price of $ 5.00 per share. Immediately prior to the completion of the IPO, all of the Company’s preferred stock and redeemable common stock converted into an aggregate of 4,853,533 shares of common stock and all of the outstanding warrants converted into 9,816 shares of common stock. The Company received net proceeds of $ 24.4 million as a result of the offering. The Company issued 250,000 warrants to a placement agent as part of the offering with an exercise price of $ 6.25 per share and a term of 5.0 years. In December 2021, the Company sold 5,000,000 shares of common stock together with warrants to purchase 5,000,000 shares of common stock and received net proceeds of $ 28.9 million in a private placement. Each share of common stock and accompanying warrant were sold together at a combined offering price of $ 6.25 . The warrants have a term of 5.5 years and an exercise price of $ 6.25 per share. The Company also issued 250,000 warrants to a placement agent as part of the offering with an exercise price of $ 6.25 per share and a term of 5.5 years. Warrants for Common Stock In March 2022, the Company issued 360,000 warrants to purchase common stock with an exercise price of $ 10.00 per share and a term of 5.76 years as compensation for professional consulting services performed in 2021. The estimated fair value of the warrants of $ 0.3 million was recorded in general and administrative expense during the year ended December 31, 2021 and was also reflected as a liability on the consolidated balance sheets as of December 31, 2021. The liability was reclassified into additional paid-in capital in March 2022 upon the issuance of the warrants. At December 31, 2022, the Company had the following warrants outstanding to acquire common stock: Outstanding Exercise price Expiration dates Issued in connection with 2021 IPO 250,000 $ 6.25 October 2026 Issued in connection with 2021 private placement 5,250,000 $ 6.25 June 2027 Issued in 2022 for consulting services 360,000 $ 10.00 December 2027 5,860,000 (8) Share-based Compensation In April 2021, the Company adopted the 2021 Long-Term Performance Incentive Plan (“2021 Incentive Plan”). Under the 2021 Incentive Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and stock grants. The 2021 Incentive Plan allows for the issuance of up to 1,266,092 shares of common stock (the “Share Limit”). The Share Limit automatically increases on January 1st of each year, during the term of the 2021 Incentive Plan, commencing on January 1 of the year following the year in which the effective date occurs, in an amount equal to four percent ( 4 %) of the total number of shares of the Company’s common stock outstanding on December 31 st of the preceding calendar year; provided that the Board may determine that there will be no such increase or a smaller increase for any particular year. As of December 31, 2022, 546,535 shares remained available for future grants. Share-based awards generally vest over a period of one year to four years , and share-based awards that lapse or are forfeited are available to be granted again. The contractual life of all share-based awards is ten years . The expiration dates of the outstanding share-based awards range from January 2028 to August 2032. The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the service period of the awards. Share-based compensation is allocated to employees and consultants based on their respective departments. All board of directors’ compensation is charged to general and administrative expense. 79 Table of Conten ts Share-based compensation expense related to the issuance of stock options was as follows for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 Research and development 96,311 73,945 General and administrative 880,129 403,915 $ 976,440 $ 477,860 The weighted average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option awards granted during 2022 and 2021 were as follows: 2022 2021 Expected stock price volatility 87.02 % 97.06 % Expected term (in years) 5.95 5.78 Risk-free interest rate 2.17 % 1.07 % Expected dividend yield — — As the Company began trading publicly in October 2021, there is a lack of company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption for employee grants is based on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term under this method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table summarizes the share-based award activity for the periods presented: Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2022 506,691 $ 5.68 9.3 Granted 890,058 $ 1.85 Forfeited ( 55,245 ) $ 2.52 Outstanding at December 31, 2022 1,341,504 $ 3.27 8.9 $ — Vested and exercisable at December 31, 2022 322,031 $ 5.71 8.3 $ — Vested and expected to vest at December 31, 2022 1,341,504 $ 3.27 8.9 $ — The aggregate intrinsic value in the above table is calculated as the difference between fair market value of the Company’s common stock price and the exercise price of the stock options. The weighted average fair value of share-based awards granted during the years ended December 31, 2022 and 2021 was $ 1.38 and $ 3.84 , respectively. As of December 31, 2022, the unrecognized compensation cost related to outstanding share-based awards was $ 1.6 million and is expected to be recognized as expense over a weighted-average period of approximately 2.1 years. 80 Table of Conten ts Restricted Stock Units The Company issues RSUs to employees and consultants that generally vest monthly over one to three-year periods. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over the service period. The Company recorded share-based compensation expense of approximately $ 33,000 in research and development expense for the year ended December 31, 2021 related to RSUs. There were no RSUs outstanding as of December 31, 2022 or December 31, 2021. (9) Commitments and Contingencies Patent License Agreement with Drexel University In November 2015, the Company entered into a patent license agreement, as amended, (the “Drexel License Agreement”) with Drexel University (“Drexel”) for license rights to patents for certain intellectual property and know-how related to certain technology. As part of the Drexel License Agreement, the Company issued Drexel 16,666 shares of common stock. In partial consideration of the Drexel License Agreement, the Company is required to pay to Drexel certain milestone payments, ranging from $ 10,000 to $ 0.2 million on the achievement of certain milestone events for each licensed product. The Company has agreed to pay Drexel a royalty in the low single digits of net sales for each licensed product on a country-by-country, licensed product-by-licensed product basis on issued or pending valid claims. The Company may credit against amounts payable to Drexel, on a country-by-country, licensed product-by-licensed product basis up to 50 % of any third-party payments which the Company must make on account of third-party license agreements. In partial consideration of the Drexel License Agreement, the Company will pay to Drexel a de-escalating sublicense fee on a quarterly basis of a high single-digit percentage that decreases to a mid-single digit percentage as time passes. In addition, the Company will make payments of the fair market value of all other consideration received by the Company from sublicensees during the quarter, other than: (a) royalties paid to the Company by a sublicensee based upon sales or net sales by the sublicensee; (b) equity investments in the Company by a sublicensee up to the amount of fair market value of the equity purchased on the date of the investment; (c) loan proceeds paid to the Company by a sublicensee in an arm’s length, full recourse debt financing to the extent that such loan is not forgiven; and (d) sponsored research funding, paid to the Company by a sublicensee in a bona fide transaction for future research to be performed by the Company. As part of a strategic review of its pipeline, the Company terminated the Drexel License Agreement, effective as of April 27, 2022. Collaboration Agreement with Tyligand Bioscience In March 2020, the Company entered into a process development agreement (the “Tyligand Process Development Agreement”) with Tyligand Bioscience (Shanghai) Limited (“Tyligand”) for the development, manufacturing, registration and future commercialization of onapristone extended release (“ONA-XR”). Under the terms of the Tyligand Process Development Agreement, Tyligand was solely responsible for the design and optimization of an improved manufacturing process for ONA-XR. Upon completion of specific performance-based milestones, Tyligand and the Company entered into a license agreement (the “Tyligand License Agreement”) whereby Tyligand was granted the exclusive right to ONA-XR and is solely responsible for the development and commercialization of ONA-XR in China, Hong Kong and Macau (the “Territory”). The Company retains rights in the rest of the world to commercialize ONA-XR. 81 Table of Conten ts Under the Tyligand Process Development Agreement, the Company paid Tyligand $ 0.8 million and issued 111,576 warrants to purchase shares of common stock at an exercise price of $ 7.17 per share upon successful completion of the manufacturing development plan in 2021. The warrants were cancelled in connection with the Company’s IPO. In addition, $ 2.0 million will be payable upon the completion of scale-up of the first cumulative 100 kilograms of the Good Manufacturing Practices (“GMP”)-grade compound and $ 3.0 million upon the Company’s completion of scale-up of the first cumulative 300 kilograms of the GMP-grade compound. In consideration of and upon Tyligand’s successful completion of the development plan, within 30 days at the end of each calendar quarter, the Company shall pay Tyligand 1 % of net sales of finished product utilizing the compound substantially manufactured in accordance with the process and specifications outlined in the Tyligand Process Development Agreement. Per the Tyligand License Agreement, Tyligand shall pay the Company a non-refundable, non-creditable royalty at a rate in the mid-single digits of the net sales of each product in the Territory in each calendar quarter commencing with the first commercial sale of such product in the field in the Territory and ending upon the latest of (i) the sale of a generic product in the Territory and (ii) 15 years after the date of the first commercial sale of product in the Territory. Collaboration and Licensing Agreement with Integral Molecular In April 2021, the Company entered into a collaboration and licensing agreement with Integral Molecular, Inc. (“Integral”) for the development of an anti-claudin 6 (“CLDN6”) bispecific monoclonal antibody for cancer therapy. Under the terms of the agreement, Integral and the Company will develop CLDN6 bispecific antibodies that trigger the activation of T cells and eliminate cancer cells displaying CLND6. The Company will conduct preclinical and all clinical development, as well as regulatory and commercial activities through exclusive worldwide rights to develop and commercialize the novel CLDN6 candidates. The Company paid an upfront license fee of $ 0.3 million, granted 418,559 shares of Series A Stock with a fair market value of approximately $ 2.8 million, and expensed these costs to acquired in-process research and development during the year ended December 31, 2021. As a part of the agreement, Integral will be eligible to receive remaining development and regulatory milestone payments totaling approximately $ 55 million, sales milestone payments totaling up to $ 130.0 million, and tiered royalties of up to 12 % of net sales of certain products developed under this agreement. During the year ended December 31, 2022, the Company expensed $ 0.5 million in acquired in-process research related to a development milestone achieved under the agreement with Integral. On March 20, 2023, the Company amended the Integral License Agreement to remove the previously agreed to second milestone payment and to change the amount of the third milestone payment to increase such payment by the amount of the prior second milestone payment and to add payment for third party research funding obtained and used by Integral in connection with the development of CTIM-76. Research and Development Arrangements In the course of normal business operations, the Company enters into agreements with universities and contract research organizations to assist in the performance of research and development activities and contract manufacturers to assist with chemistry, manufacturing, and controls related expenses. Expenditures to contract research organizations represent a significant cost in clinical development for the Company. The Company could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and long-term commitments of cash. Operating Leases Prior to January 2022, the Company leased its corporate offices in Philadelphia, Pennsylvania under a month-to-month lease arrangement. In January 2022, the Company entered into a noncancellable operating sublease for corporate office space in Philadelphia, Pennsylvania. The sublease for this space commenced on February 1, 2022 and is set to expire on July 30, 2023. As of December 31, 2022, the operating lease right-of-use asset and the operating lease liabilities were $ 52,000 and $ 55,000 , respectively. The discount rate used to account for the Company’s operating lease is the Company’s 82 Table of Conten ts estimated incremental borrowing rate of 5.0 %. The remaining term of the Company’s noncancellable operating lease is 0.58 years. Future minimum lease payments under the sublease are $ 56,000 at December 31, 2022. Rent expense was approximately $ 84,000 and $ 10,000 for the years ended December 31, 2022 and 2021, respectively. In March 2023, the Company entered into a direct lease for this same office space that commences on August 1, 2023 and is set to expire on August 31, 2024, pursuant to which the Company retains the right to renew the lease for an additional one-year term. Employee Benefit Plans In the first quarter of 2022, the Company established a defined contribution 401(k) plan in which employees may contribute up to 100 % of their salary and bonus, subject to statutory maximum contribution amounts. The Company contributes a safe harbor minimum contribution equivalent to 3 % of employees’ compensation. The Company generally assumes all administrative costs of the plan. For the year ended December 31, 2022, the Company provided contributions of approximately $ 62,000 . Litigation Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company believes no matters existed at either December 31, 2022 or 2021 that will have a material impact to the Company’s financial position, results of operations or cash flows. (10) Income Taxes Prior to April 2021, the Company was a limited liability company that was treated as a pass-through entity for income tax purposes. In April 2021, upon the completion of its reverse triangular merger, the Company converted to a corporation and is subject to federal, state and local corporate income taxes which have been provided for in the financial statements based upon ASC 740. Context BioPharma, Inc. has always been subject to corporate income taxes. The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2022 and 2021. The Company had also not recorded any income tax benefits for the net operating losses incurred in 83 Table of Conten ts each period due to its uncertainty of realizing a benefit from those items. All of the Company’s losses before income taxes were generated in the United States. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows: December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 5,865,305 $ 4,983,415 Research and development credits 703,630 421,880 Capitalized research and development Section 174 expense 2,091,787 — Share-based compensation 527,146 249,874 Other accruals 268,105 147,659 Gross deferred tax assets 9,455,973 5,802,828 Deferred tax liabilities: Prepaid expenses ( 256,052 ) ( 527,181 ) Property and equipment ( 8,181 ) — Net deferred tax assets 9,191,740 5,275,647 Less: valuation allowance ( 9,191,740 ) ( 5,275,647 ) $ — $ — In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2022 and 2021. The valuation allowance increased by $ 3.9 million and $ 1.7 million during the years ended December 31, 2022 and 2021, respectively. A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows: Year ended December 31, 2022 2021 Federal income tax benefit at statutory rate 21.0 % 21.0 % State income tax, net of federal benefit 3.7 2.5 Non-taxable partnership income — ( 7.5 ) Permanent differences — ( 0.5 ) Research and development credit 1.9 0.9 Other — ( 0.1 ) Change in valuation allowance ( 26.6 ) ( 16.3 ) Effective income tax rate — % — % 84 Table of Conten ts The following table summarizes carryforwards of federal, state and local net operating losses (“NOL”) and research tax credits: December 31, 2022 2021 NOL carryforwards—Federal $ 20,543,576 $ 14,887,383 NOL carryforwards—State 20,543,576 14,887,383 NOL carryforwards—Local 15,665,662 13,926,879 Research tax credits—Federal 703,630 421,880 The NOL carryforwards begin expiring in 2037 for federal and state income tax purposes; however, all federal NOL carryforwards generated subsequent to January 1, 2018, are able to be carried forward indefinitely. Local NOL carryforwards expire after three years with the 2020 NOL set to expire in 2023. As of December 31, 2022 and 2021, the Company had federal research and development tax credit carryforwards of $ 0.7 million and $ 0.4 million, respectively, that will begin to expire in 2037, unless previously utilized. The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards 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, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. To date, the Company has not performed an analysis to determine whether or not ownership changes have occurred since inception. State and local NOLs may also be limited. As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statement of operations. Due to NOLs and tax credit carry forwards that remain unutilized, income tax returns for tax years from all years remain subject to examination by the taxing jurisdictions. The NOL carryforwards remain subject to review until utilized. (11) Related Party Transactions Since inception, the Company entered into various convertible note agreements with the Related Party. The subsequent conversion of the convertible notes are further described in more detail in Note 6. (12) Subsequent Event On March 22, 2023, the Company announced a portfolio prioritization and capital allocation strategy, including discontinuing the development of its clinical stage product candidate, ONA-XR, and a focus on the development of its preclinical stage product candidate, CTIM-76. The Company will cease development and explore strategic options for ONA-XR. 85 Table of Conten ts Item 9. Changes in and Disagreements With Accountants None.