NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND ORGANIZATION
Cellectar Biosciences, Inc. (the “Company”) is a late-stage
clinical biopharmaceutical company focused on the discovery and development of drugs for the treatment of cancer leveraging our proprietary
phospholipid drug conjugate™ (PDC™) delivery platform that are designed to specifically targets cancer cells and deliver
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 $133,132,597 at March 31, 2021.
During the three months ended March 31, 2021, the Company generated a net loss of approximately $6,357,170 and expects that it will
continue to generate operating losses for the foreseeable future. However, the Company believes that its cash balance at March 31,
2021 is adequate to fund our basic budgeted operations for at least 12 months from the filing of these financial statements. 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 otherwise. The Company plans to continue to actively pursue financing alternatives, but there can be no
assurance that it will obtain the necessary funding.
The accompanying Condensed Consolidated Balance Sheet as of December 31,
2020 has been derived from the Company’s audited financial statements. The accompanying unaudited Condensed Consolidated Balance
Sheet as of March 31, 2021, and the Condensed Consolidated Statements of Operations, the Condensed Statements of Stockholders’
Equity and, the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020, and the related
interim information contained within the notes to the Condensed Consolidated Financial Statements, have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and
with the instructions, rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial
information. Accordingly, they do not include all the information and the notes required by U.S. GAAP for complete financial statements.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments which are of a
nature necessary for the fair presentation of the Company’s consolidated financial position at March 31, 2021 and consolidated
results of its operations, stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. The results
for the three months ended March 31, 2021 are not necessarily indicative of future results.
These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Form 10-K
for the fiscal year ended December 31, 2020, which was filed with the SEC on March 2, 2021.
Principles
of Consolidation — The consolidated financial statements include the accounts of the Company and the accounts of
its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Fixed
Assets — Property and equipment are stated at cost. Depreciation on property and equipment is provided using the
straight-line method over the estimated useful lives of the assets (3 to 10 years). Because of the significant value of leasehold improvements
purchased, leasehold improvements are depreciated over 64 months (their estimated useful life), which represents the full term of the
lease. Our only long-lived assets are property and equipment. The Company periodically evaluates long-lived assets for potential impairment.
Whenever events or circumstances change, an assessment is made as to whether there has been impairment to the value of long-lived assets
by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment
date. There were no long-lived fixed asset impairment charges recorded during the three months ended March 31, 2021 or year ended
December 31, 2020.
Right-of-Use
(ROU) Asset and Lease Liabilities —On January 1, 2019, the Company adopted FASB Accounting Standards Codification
(“ASC”) Topic 842 using the modified retrospective method for all material leases that existed at or commenced after January
1, 2019. ROU Assets are amortized over their estimated useful life, which represents the full term of the lease.
Stock-Based
Compensation — The Company uses the Black-Scholes option-pricing model to calculate the grant-date fair value of
stock option awards. The resulting compensation expense for awards that are not performance-based is recognized on a straight-line basis
over the service period of the award, which for grants issued in 2021 and 2020 ranged from one year to three years for stock options.
Research
and Development — Research and development costs are expensed as incurred. To the extent that such costs are reimbursed
by the federal government on a fixed price, best efforts basis and the federal government is the sole customer for such research and development,
the funding is recognized as a reduction of research and development expenses.
Income
Taxes — Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax
assets and liabilities are determined based on temporary differences between the financial statement basis and tax basis of assets and
liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred
tax assets will not be realized. Management has provided a full valuation allowance against the Company’s gross deferred tax asset.
Tax positions taken or expected to be taken in the course of preparing tax returns are required to be evaluated to determine whether the
tax positions are “more likely than not” to be sustained by the applicable tax authority. Tax positions deemed not to meet
a more-likely-than-not threshold would be recorded as tax expense in the current year. There were no uncertain tax positions that require
accrual to or disclosure in the financial statements as of March 31, 2021 and December 31, 2020.
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 financial statements consist of cash equivalents,
prepaid expenses and other assets, accounts payable and long-term obligations. The carrying amount of cash equivalents and accounts payable
approximate their fair value as a result of their short-term nature. (See Note 2)
Concentration
of Credit Risk — Financial instruments that subject the Company to credit risk consist of cash and equivalents on
deposit with financial institutions. The Company’s excess cash as of March 31, 2021 and December 31, 2020 is on deposit
in interest-bearing transaction accounts with well-established financial institutions. At times, such amounts may exceed the FDIC insurance
limits. As of March 31, 2021, and December 31, 2020, uninsured cash balances totaled approximately $53,100,000 and $56,700,000,
respectively.
Recently
Adopted Accounting Pronouncements - For the fiscal year beginning January 1, 2021, management early adopted Accounting
Standards Update (“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 Debt-Debt with Conversion and Other Options. 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. Entities may elect to
early adopt ASU 2020-06 for fiscal years beginning after December 15, 2020. Since the Company early adopted ASU 2020-06 beginning
January 1, 2021, the Company would no longer be required to recognize a BCF even when shareholder approval is received. In December 2020,
the Company completed a private placement where we issued Series D convertible preferred stock. The preferred shares are convertible
into shares of 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. The shareholders approved this conversion on February 25,
2021. As such, management will continue to account for the Series D Preferred Stock in equity without any separate accounting for
the conversion options.
2. FAIR VALUE
In accordance with the 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:
|
·
|
Level 1: Input prices quoted in an active market for identical financial assets or liabilities.
|
|
·
|
Level 2: Inputs other than prices quoted in Level 1, such as prices quoted for similar financial assets and liabilities in active markets, prices for identical assets, and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
|
|
·
|
Level 3: Input prices quoted that are significant to the fair value of the financial assets or liabilities which are not observable or supported by an active market.
|
To the extent that the valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of
judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The
carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. The carrying amounts reported
on the Consolidated Balance sheets for other current financial assets and liabilities approximate fair value because of their short-term
nature.
3. STOCKHOLDERS’ EQUITY
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.
December 2020 Public Offering and Private Placement
On December 23, 2020, the Company issued and sold 18,148,136 shares
of common stock, par value $0.00001 per share, at a public offering price of $1.35 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 1,518.518
shares of Series D convertible preferred stock. The preferred shares are convertible into a number of shares of common stock equal
to $13,500 divided by $1.35 (or 10,000 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 will only be 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 quarter ended March 31, 2021, 574.0736 shares of our Series D
convertible preferred stock were converted into 5,740,736 Common Stock at a rate of 1 to 10,000 shares.
The net proceeds of the offerings to the Company, after deducting the
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 total Stockholders’
Equity of $45.0 million, but is an internal proportionate calculation allocating the gross proceeds of approximately $24.5 million to
common stock and $20.5 million to preferred stock.
June 2020 Public Offering
On June 5, 2020, the Company issued and sold 14,601,628 shares of common
stock, 2,789,700 pre-funded warrants exercisable for one share of our common stock at an exercise price of $0.00001 per share and 8,695,664
Series H warrants to purchase 8,695,664 shares of common stock. The public offering price of a share of common stock together with one-half
of a Series H warrant to purchase one share of common stock was $1.15. The public offering price of a pre-funded warrant together with
one-half of a Series H Warrant was $1.1499. The Series H warrants have an exercise price of $1.2075 per share and are exercisable for
five years from the date of issuance. As of March 31, 2021, all 2,789,700 pre-funded warrants have been exercised. During the three months
ended 1,005,320 series H warrants were exercised. As of March 31, 2021, a total of 1,487,695 Series H warrants have been exercised.
In accordance with the concept of ASC 820 regarding the June 2020
public offering, the Company allocated value of the proceeds to the common stock and warrants utilizing a relative fair value basis. Using
the Nasdaq closing trading price for our stock on June 5, 2020, the Company computed the fair value of the shares sold. The fair
value of the warrants was estimated using the Black-Scholes option-pricing model at that same date. This valuation did not impact total
Stockholders’ Equity of $20.0 million, but is an internal proportionate calculation allocating the gross proceeds of approximately
$12.1 million to common stock and $7.9 million to warrants.
Gross offering proceeds to the Company were $20.0 million, with net
proceeds to the Company of approximately $18.3 million after deducting placement agent fees and related offering expenses. The Company
intends to use the net proceeds from the offering for research and development, funding clinical studies, working capital and general
corporate purposes.
The common stock, pre-funded warrants and Series H warrants were
offered by the Company pursuant to a registration statement on Form S-1, which was declared effective by the SEC on June 2,
2020 and an additional registration statement filed on June 2, 2020 pursuant to Rule 462(b) under the Act.
Common Stock Warrants
The following table summarizes information with regard to outstanding
warrants to purchase common stock as of March 31, 2021.
Offering
|
|
Number of
Shares
Issuable
Upon
Exercise of
Outstanding
Warrants
|
|
|
Exercise
Price
|
|
|
Expiration Date
|
June 2020 Series H Warrants
|
|
|
7,207,969
|
|
|
$
|
1.2075
|
|
|
June 5, 2025
|
May 2019 Series F Warrants
|
|
|
1,957,000
|
|
|
$
|
2.40
|
|
|
May 20, 2024
|
May 2019 Series G Warrants
|
|
|
2,018,000
|
|
|
$
|
2.40
|
|
|
May 20, 2024
|
July 2018 Series E Warrants
|
|
|
4,140,000
|
|
|
$
|
4.00
|
|
|
July 31, 2023
|
October 2017 Series D Warrants
|
|
|
310,856
|
|
|
$
|
17.80
|
|
|
October 14, 2024
|
November 2016 Public Offering Series C
|
|
|
415,785
|
|
|
$
|
15.00
|
|
|
November 29, 2021
|
April 2016 Underwritten Registered Series A
|
|
|
362,694
|
|
|
$
|
30.40
|
|
|
April 20,2021
|
October 2015 Incremental Series A
|
|
|
30,006
|
|
|
$
|
21.30
|
|
|
October 20,2021
|
October 2015 Private Placement Series A
|
|
|
8,636
|
|
|
$
|
21.30
|
|
|
April 1, 2021
|
Total
|
|
|
16,450,946
|
|
|
|
|
|
|
|
4. STOCK-BASED COMPENSATION
Accounting for Stock-Based Compensation
During the three-month periods ended March 31, 2021 and 2020,
options granted were 208,500 and 273,750, respectively. The following table summarizes amounts charged to expense for stock-based compensation
related to employee and director stock option:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Employee and director stock option grants:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
29,395
|
|
|
$
|
23,735
|
|
General and administrative
|
|
|
95,169
|
|
|
|
120,411
|
|
Total stock-based compensation
|
|
$
|
124,564
|
|
|
$
|
144,146
|
|
On March 4, 2021, the Company granted 2,810,000 contingent non-statutory
stock option awards at an exercise price of $1.74 per share to our employees. Each of these grants is contingent on approval of the 2021
Stock Incentive Plan that is to be voted upon by the stockholders at the Annual Meeting of Stockholders to be held on June 23, 2021.
Until such time that the contingent non-statutory stock option awards are approved by stockholders, no expense will be accrued by the
Company.
Assumptions Used in Determining Fair Value
Valuation
and amortization method. The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing
model. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the required service
period which is generally the vesting period. The estimated fair value of the non-employee options is amortized to expense over the period
during which a non-employee is required to provide services for the award (usually the vesting period).
Volatility.
The Company estimates volatility based on the Company’s historical volatility since its common stock is publicly traded.
Risk-free
interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate
with the expected term assumption.
Expected
term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future. The
Company applies the simplified method of estimating the expected term of the options, as described in the SEC’s Staff Accounting
Bulletins 107 and 110, as the historical experience is not indicative of the expected behavior in the future. The expected term, calculated
under the simplified method, is applied to groups of stock options that have similar contractual terms. Using this method, the expected
term is determined using the average of the vesting period and the contractual life of the stock options granted. 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.
Forfeitures.
The Company records stock-based compensation expense only for those awards that are expected to vest. The Company accounts for forfeitures
as they occur.
Dividends.
The Company has not historically recorded dividends related to stock options.
Exercise prices for all grants made during the three months ended March 31,
2021 were equal to the market value of the Company’s common stock on the date of grant.
Stock Option Activity
A summary of stock option activity is as follows:
|
|
Number of
Shares Issuable
Upon Exercise
of Outstanding
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contracted
Term in
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
1,184,464
|
|
|
$
|
4.34
|
|
|
|
|
|
|
$
|
316,688
|
|
Granted
|
|
|
208,500
|
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
1,392,964
|
|
|
$
|
3.96
|
|
|
|
8.56
|
|
|
$
|
122,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2021
|
|
|
549,134
|
|
|
$
|
7.32
|
|
|
|
7.63
|
|
|
$
|
1,100
|
|
Unvested, March 31, 2021
|
|
|
843,830
|
|
|
$
|
1.77
|
|
|
|
9.17
|
|
|
$
|
121,600
|
|
The aggregate intrinsic value of options outstanding is calculated
based on the positive difference between the estimated per-share fair value of common stock at the end of the respective period and the
exercise price of the underlying options. There have been no option exercises to date. Shares of common stock issued upon the exercise
of options are from authorized but unissued shares.
As of March 31, 2021, there was approximately $968,000 of total
unrecognized compensation cost related to unvested stock-based compensation arrangements. Of this total amount, the Company expects to
recognize approximately $388,000, $392,000, $173,000, and $15,000 during 2021, 2022, 2023, and 2024 respectively. The Company’s
expense estimates are based upon the expectation that all unvested options will vest in the future. The weighted-average grant-date fair
value of vested and unvested options outstanding at March 31, 2021 was $5.84 and $1.38, respectively.
Restricted
Stock Grants. During 2017, the Company issued 46,000 shares under the 2015 Plan of restricted common stock with a weighted
average grant date fair value of $20.96. The shares vested annually over a three year period. The following table summarizes the restricted
stock grants:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
|
Total Grant
Date Fair
Value
|
|
Outstanding at December 31, 2019
|
|
|
9,334
|
|
|
$
|
21.00
|
|
|
$
|
196,000
|
|
Vested
|
|
|
(9,334
|
)
|
|
$
|
21.00
|
|
|
$
|
(196,000
|
)
|
Outstanding at December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
5. INCOME TAXES
The Company accounts for income taxes in accordance with the liability
method of accounting. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income
tax basis of assets and liabilities, and net operating loss carryforwards (“NOLs”), using the enacted tax rates. Deferred
income tax expense or benefit is based on changes in the asset or liability from period to period. The Company did not record a provision
or benefit for federal, state or foreign income taxes for the three months ended March 31, 2021 or 2020 because the Company has experienced
losses on a tax basis since inception. Because of the limited operating history, continuing losses and uncertainty associated with the
utilization of the NOLs in the future, management has provided a full allowance against the value of its gross deferred tax assets.
The Company also accounts for the uncertainty in income taxes related
to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable
accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition
related to the uncertainty in income tax positions. No uncertain tax positions have been identified.
6. NET LOSS PER SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share for
the three months ended March 31, 2021 and March 31, 2020 is computed by dividing net income (loss) 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, non-vested restricted stock, preferred shares convertible into common stock and, pre-funded
warrants. Since there is a net loss attributable to common stockholders for the three months ended March 31, 2021 and March 31,
2020, the inclusion of common stock equivalents in the computation for that period would be antidilutive.
The following potentially dilutive securities have been excluded from
the computation of diluted net income (loss) per share since their inclusion would be antidilutive:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants
|
|
|
16,450,946
|
|
|
|
9,268,352
|
|
Preferred shares as convertible into common stock
|
|
|
9,444,444
|
|
|
|
537,500
|
|
Stock options
|
|
|
1,392,964
|
|
|
|
884,464
|
|
Total potentially dilutive shares
|
|
|
27,288,354
|
|
|
|
10,690,316
|
|
7. COMMITMENTS AND CONTINGENCIES
Real Property Leases
Florham Park, New Jersey
On June 4, 2018, the Company entered in an Agreement of Lease
for 3,893 square feet for its corporate headquarters in Florham Park, New Jersey. The lease commencement date was October 2018 and
terminates in February 2024. The Company has an option to extend the term of the lease for one additional 60-month period.
Under the terms of the lease, the Company paid a security deposit of
$75,000 and the aggregate rent due over the term of the lease is approximately $828,000, which will be reduced to approximately $783,000
after certain rent abatements. The Company is required to pay its proportionate share of certain operating expenses and real estate taxes
applicable to the leased premises. After certain rent abatements the rent is approximately $12,500 per month for the first year and then
escalates thereafter by 2% per year for the duration of the term.
Madison, Wisconsin
The Company presently rents office space in Madison and is rented for
approximately $3,000 per month under an agreement that expires on August 31, 2021.
Operating Lease Liability
In
June 2018, the Company executed an agreement for office space in the Borough of Florham Park, Morris County, New Jersey to be used
as its headquarters (“HQ Lease”). The HQ Lease commenced upon completion of certain improvements by the landlord in October 2018
and terminates in February 2024 with an option to extend the term of the lease for one additional 60-month period. As of December 31,
2018, the Company recorded a deferred lease liability of approximately $176,000 for the improvements funded by the landlord on the consolidated
balance sheet. The Company amortizes the deferred liability as a reduction to rent expense in the consolidated statement of operations
over the term of the lease.
Under the HQ Lease, the Company will pay monthly fixed
rent based on approximate rate per rentable square foot which ranges between approximately $12,400 to $13,600 over the lease period. In
addition, the Company received certain rent abatements and lease incentives subject to the limitations in the HQ Lease. The HQ Lease’s
net ROU asset and lease liability are approximately $264,000 and ($393,000), respectively, as of March 31, 2021 and rental expense
for the three months ended March 31, 2021 is approximately $28,000.
Discount Rate
The Company has determined the interest rate implicit
in the lease considering factors such as Company’s credit rating, borrowing terms offered by the U.S. Small Business Administration,
amount of lease payments, quality of collateral and alignment of the borrowing term and lease term. The Company considers 10% per annum
as reasonable to use as the incremental borrowing rate for purposes of the calculation of lease liabilities.
Maturity Analysis of Short-Term and Operating Leases
The
following table approximates the dollar maturity of the Company’s undiscounted payments for
its short-term leases and operating lease liabilities as of March 31, 2021:
Years ending December 31,
|
|
|
|
|
Remainder of 2021
|
|
$
|
117,000
|
|
2022
|
|
|
158,000
|
|
2023
|
|
|
161,000
|
|
2024
|
|
|
14,000
|
|
Total undiscounted lease payments
|
|
|
450,000
|
|
Less: Imputed interest
|
|
|
(57,000
|
)
|
Present value of lease liabilities
|
|
$
|
393,000
|
|
Legal
The Company may be involved in legal matters and disputes in the ordinary
course of business. We do not anticipate that the outcome of such matters and disputes will materially affect the Company’s financial
statements.
8. LOAN PAYABLE
On April 21, 2020, the Company received loan proceeds in the amount
of approximately $184,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus
Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times
of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after 24 weeks as long
as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll
levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the 24-week period.
The unforgiven portion of the PPP loan is payable over two years at
an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes
consistent with the PPP requirements. On December 30, 2020, the principal loan amount of $184,000 and accrued interest of $1,280
were forgiven, and recognized as a gain on extinguishment of debt.
9. SUBSEQUENT EVENTS
On April 1, 2021, the Company’s
October 2015 Private Placement Series A warrants expired and on April 20, 2021, the Company’s April 2016 Underwritten
Registered Series A warrants expired.