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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ended from ________ to ________

Commission File Number: 001-39788

SCOPUS BIOPHARMA INC

(Exact name of registrant as specified in its charter)

Delaware

82-1248020

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

420 Lexington Avenue, Suite 300

New York, New York, 10170

(Address of principal executive offices)

212-479-2513

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.001 per
share

SCPS

The Nasdaq Stock Market LLC (Nasdaq
Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

x

 

 

Emerging growth company

x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨   No x

As of November 12, 2021, there were 18,094,264 shares outstanding of the registrant’s common stock.

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

    

September 30, 

    

December 31, 

2021

2020

(Unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

3,632,080

$

1,832,100

Prepaid expenses and other current assets

 

396,383

 

139,639

Total current assets

 

4,028,463

 

1,971,739

Property and equipment, net

 

3,168

 

2,329

Total assets

$

4,031,631

$

1,974,068

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

Current liabilities

 

  

 

  

Accounts payable and accrued expenses

$

2,237,267

$

1,521,565

Convertible notes payable, net

 

 

2,283,731

Total current liabilities

 

2,237,267

 

3,805,296

COMMITMENTS AND CONTINGENCIES (NOTE 8)

 

  

 

  

Stockholders’ equity (deficit):

 

  

 

  

Preferred stock, $0.001 par value; 20,000,000 shares authorized; zero shares issued and outstanding

 

 

Common stock, $0.001 par value; 50,000,000 shares authorized; 18,094,264 and 14,577,597 shares issued and outstanding

 

18,094

 

14,578

Additional paid-in capital

 

38,278,607

 

14,224,000

Note receivable

 

(1,500,000)

 

(1,500,000)

Accumulated deficit

 

(34,936,289)

 

(14,501,739)

Accumulated other comprehensive loss

 

(66,048)

 

(68,067)

Total stockholders’ equity (deficit)

 

1,794,364

 

(1,831,228)

Total liabilities and stockholders’ equity (deficit)

$

4,031,631

$

1,974,068

See accompanying notes to condensed consolidated financial statements.

1

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

    

Three Months Ended September 30,

    

Nine Months Ended September 30,

2021

    

2020

2021

    

2020

Revenues

$

$

$

$

Operating expenses:

  

  

  

  

General and administrative

 

2,682,310

 

806,045

 

6,228,103

 

2,087,423

Research and development

 

77,527

 

69,421

 

14,887,657

 

7,354,295

Total operating expenses

 

2,759,837

 

875,466

 

21,115,760

 

9,441,718

Loss from operations

 

(2,759,837)

 

(875,466)

 

(21,115,760)

 

(9,441,718)

Other income (expense):

 

 

 

 

Interest expense

 

(110,669)

 

(284,520)

 

(774,679)

 

(369,665)

Change in fair value of common stock warrant liability

1,470,163

1,455,889

Total other income (expense)

1,359,494

(284,520)

681,210

(369,665)

Net loss

 

(1,400,343)

 

(1,159,986)

 

(20,434,550)

 

(9,811,383)

Comprehensive income (loss):

 

  

 

  

 

  

 

  

Foreign currency translation adjustment

 

(5,590)

 

(3,273)

 

2,019

 

(2,473)

Total comprehensive loss

 

$

(1,405,933)

 

$

(1,163,259)

 

$

(20,432,531)

 

$

(9,813,856)

Net loss per common share:

 

  

 

  

 

  

 

  

Basic and diluted

$

(0.08)

$

(0.08)

$

(1.23)

$

(0.75)

Weighted-average common shares outstanding:

 

  

 

  

 

  

 

  

Basic and diluted

 

17,148,180

 

13,985,000

 

16,551,101

 

13,120,909

See accompanying notes to condensed consolidated financial statements.

2

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

    

    

    

    

    

Accumulated Other 

    

Common Stock

Additional 

Note 

Accumulated 

Comprehensive 

Total Stockholders’

Shares

    

Amount

Paid-in Capital

Receivable

Deficit

Loss

Equity (Deficit)

Balances as of June 30, 2021

18,094,264

$

18,094

$

33,094,511

$

(1,500,000)

$

(33,535,946)

$

(60,458)

$

(1,983,799)

Conversion of convertible notes payable and accrued interest into W Warrants

3,084,875

3,084,875

Reclassification of common stock warrant liability into equity

1,944,754

1,944,754

Stock-based compensation expense

 

 

 

154,467

 

 

 

 

154,467

Foreign currency translation adjustment

 

 

 

 

 

 

(5,590)

 

(5,590)

Net loss

 

 

 

 

 

(1,400,343)

 

 

(1,400,343)

Balances as of September 30, 2021

 

18,094,264

$

18,094

$

38,278,607

$

(1,500,000)

$

(34,936,289)

$

(66,048)

$

1,794,364

    

    

    

    

    

Accumulated Other 

    

Common Stock

Additional 

Note 

Accumulated 

Comprehensive

Total Stockholders’

Shares

    

Amount

Paid-in Capital

Receivable

Deficit

Loss

Equity (Deficit)

Balances as of December 31, 2020

14,577,597

$

14,578

$

14,224,000

$

(1,500,000)

$

(14,501,739)

$

(68,067)

$

(1,831,228)

Issuance of common stock - net of issuance costs of $1,168,900

1,150,000

1,150

9,179,950

9,181,100

Issuance of common stock for acquisition of in-process research and development

1,100,000

1,100

7,654,901

7,656,001

Issuance of common stock on achievement of research and development milestones

 

1,266,667

 

1,266

 

5,065,401

 

 

 

 

5,066,667

Conversion of convertible notes payable and accrued interest into W Warrants

3,084,875

3,084,875

Common stock warrant liability

(3,400,643)

(3,400,643)

Reclassification of common stock warrant liability into equity

1,944,754

1,944,754

Stock-based compensation expense

 

 

 

525,369

 

 

 

 

525,369

Foreign currency translation adjustment

 

 

 

 

 

 

2,019

 

2,019

Net loss

 

 

 

 

 

(20,434,550)

 

 

(20,434,550)

Balances as of September 30, 2021

 

18,094,264

$

18,094

$

38,278,607

$

(1,500,000)

$

(34,936,289)

$

(66,048)

$

1,794,364

See accompanying notes to condensed consolidated financial statements.

3

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

    

    

    

    

    

Accumulated Other 

    

Common Stock

Additional 

Note

Accumulated 

Comprehensive

Total Stockholders’

Shares

    

Amount

Paid-in Capital

Receivable

Deficit

 Loss

Equity (Deficit)

Balances as of June 30, 2020

13,975,691

$

13,976

$

12,304,487

$

(1,500,000)

$

(12,290,844)

$

(32,654)

$

(1,505,035)

Issuance of units and warrants - net of issuance costs of $16,500

21,906

22

207,010

207,032

Warrants exchanged for Convertible Notes

(168,000)

(168,000)

Stock-based compensation expense

60,255

60,255

Stock-based payment for services

 

5,000

 

5

 

19,995

 

 

 

 

20,000

Foreign currency translation adjustment

 

 

 

 

 

 

(3,273)

 

(3,273)

Net loss

 

 

 

 

 

(1,159,986)

 

 

(1,159,986)

Balances as of September 30, 2020

 

14,002,597

$

14,003

$

12,423,747

$

(1,500,000)

$

(13,450,830)

$

(35,927)

$

(2,549,007)

    

    

    

    

    

Accumulated Other 

    

Common Stock

Additional 

Note

Accumulated 

Comprehensive

Total Stockholders’

Shares

    

Amount

Paid-in Capital

Receivable

Deficit

Loss

Equity (Deficit)

Balances as of December 31, 2019

12,509,024

$

12,509

$

3,577,533

$

$

(3,639,447)

$

(33,454)

$

(82,859)

Issuance of common stock and warrants for acquisition of in-process research and development

1,466,667

1,467

5,865,200

5,866,667

Issuance of units and warrants - net of issuance costs of $72,187

21,906

22

1,448,254

1,448,276

Warrants exchanged for Convertible Notes

(168,000)

(168,000)

Issuance of warrants relating to note receivable

1,500,000

(1,500,000)

Stock-based compensation expense

 

 

 

180,765

 

 

 

 

180,765

Stock-based payment for services

5,000

5

19,995

20,000

Foreign currency translation adjustment

 

 

 

 

 

 

(2,473)

 

(2,473)

Net loss

 

 

 

 

 

(9,811,383)

 

 

(9,811,383)

Balances as of September 30, 2020

 

14,002,597

$

14,003

$

12,423,747

$

(1,500,000)

$

(13,450,830)

$

(35,927)

$

(2,549,007)

See accompanying notes to condensed consolidated financial statements.

4

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

    

Nine Months Ended September 30,

2021

2020

Cash flows from operating activities:

  

  

Net loss

$

(20,434,550)

$

(9,811,383)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation

 

1,147

 

1,073

Issuance of common stock and warrants for acquisition of in-process research and development

7,656,001

6,346,321

Stock issued for R&D milestone

5,066,667

Change in fair value of common stock warrant liability

(1,455,889)

Stock-based compensation

 

525,369

 

180,765

Stock-based payment for services

 

 

20,000

Amortization of debt issuance costs and debt discount

 

606,104

 

290,203

Changes in operating assets and liabilities:

 

  

 

Prepaid expenses and other current assets

 

(256,723)

 

37,571

Accounts payable and accrued expenses

 

1,015,866

 

1,329,454

Net cash used in operating activities

 

(7,276,008)

 

(1,605,996)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(1,999)

 

Cash flows from financing activities:

 

  

 

  

Gross proceeds from issuance of common stock

 

10,350,000

 

Issuance costs related to the issuance of common stock

 

(1,168,900)

 

Gross proceeds from issuance of Convertible Notes and warrants

1,459,403

Issuance costs related to the issuance of Convertible Notes and warrants

(192,788)

Gross proceeds from issuance of units and warrants

 

 

841,232

Issuance costs related to the issuance of units and warrants

 

 

(72,187)

Payment of principal on convertible notes

(104,505)

Payment of deferred offering costs

 

 

(44,030)

Net cash provided by financing activities

 

9,076,595

 

1,991,630

Effects of changes in foreign currency exchange rates on cash

 

1,392

 

(1,824)

Net increase in cash

 

1,799,980

 

383,810

Cash, beginning of period

 

1,832,100

 

36,747

Cash, end of period

$

3,632,080

$

420,557

Supplemental disclosure of cash flow information:

 

  

 

  

Non-cash financing activity:

 

  

 

  

Deferred offering costs in accounts payable and accrued expenses

 

 

79,085

Convertible notes issued in lieu of cash

 

 

299,153

Convertible notes issued in exchange for warrants

 

 

252,000

W Warrants issued in lieu of cash

 

 

199,577

W Warrants accounted for as warrant liability

3,400,643

Reclassification of warrant liability into equity

1,944,754

Conversion of convertible notes payable and accrued interest into W Warrants

3,084,875

Cash paid during the period for:

 

 

  

Interest

25,043

470

Taxes

 

 

See accompanying notes to condensed consolidated financial statements.

5

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.      Organization and Description of the Business

Nature of Operations

Scopus BioPharma Inc. (“Scopus”) and its subsidiary, Vital Spark, Inc. (“VSI”), are headquartered in New York. Its other subsidiaries, Olimmune Inc. (“Olimmune “), DBA “Duet Therapeutics,” and Scopus BioPharma Israel Ltd. (“SBI”), are headquartered in Los Angeles, California and Jerusalem, Israel, respectively. Scopus, VSI, Olimmune, and SBI are collectively referred to as the “Company.” The Company is a clinical-stage biopharmaceutical company developing transformational therapeutics for serious diseases with significant unmet medical needs.

Going Concern

The provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern (ASC 205-40) requires management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period (including interim periods), an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial statements are issued.

The Company is an early-stage company and has not generated revenues to date. As such, the Company is subject to all of the risks associated with early-stage companies. Since inception, the Company has incurred losses and negative cash flows from operating activities which have been funded from the issuance of convertible notes, common stock, and warrants (sees Notes 3, 6 and 9). The Company does not expect to generate positive cash flows from operating activities in the near future, if at all, until such time it completes the development of its drug candidates, including obtaining regulatory approvals, and anticipates incurring operating losses for the foreseeable future.

The Company incurred net losses of $1,400,343 and $20,434,550, respectively, for the three and nine months ended September 30, 2021 and had an accumulated deficit of $34,936,289 as of September 30, 2021. The Company’s net cash used in operating activities was $7,276,008 for the nine months ended September 30, 2021. Further, while the Company has raised significant cash proceeds from a public offering (see Note 3), the Company still has significant obligations related to certain research and development acquisitions (see Note 4) and agreements (see Note 7), and operating expenses.

The Company’s ability to fund its operations is dependent upon management’s plans, which include raising capital through issuances of debt and equity securities, securing research and development grants, generating sufficient revenues, and controlling the Company’s expenses. A failure to raise sufficient financing, generate sufficient revenues, or control expenses, among other factors, will adversely impact the Company’s ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives.

This evaluation is further impacted by an ongoing pandemic related to the COVID-19 coronavirus. While uncertain at this time, the extent of its impacts depends largely on the spread and duration of the outbreak, and may result in disruptions to capital raises, employees, and vendors which could result in negative impacts to operational and financial results.

Accordingly, management has concluded this raises substantial doubt of the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.Organization and Description of the Business (Continued)

Going Concern (continued)

The Company’s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company be unable to continue as a going concern.

COVID-19 Pandemic

The Company is continually monitoring the impact of the global pandemic on its business, especially since the Company conducts activities in multiple locations, both in and outside of the United States. These locations are New York City and Los Angeles in the United States and Jerusalem and Tel Aviv in Israel. At various times since the onset of the global pandemic, these locations have been severely affected by COVID-19 and, as a result, have been subject to various requirements to stay at home and self-quarantine, as well as constraints on mobility and travel, especially international travel.

In many locations, the primary focus of healthcare providers and hospitals has been to combat the virus. While the Company continues to advance its development programs, the Company is also continually assessing the impact of the global pandemic on its product development efforts, including any impact on the timing and/or costs for its clinical trials, investigational new drug application (“IND”) enabling work, and other research and development activities. There is no certainty as to the length and severity of societal disruption caused by COVID-19. Consequently, the Company does not have sufficient visibility to predict the impact of the global pandemic on its operations and overall business, including delays in the progress of its planned pre-clinical work and clinical trials, or by limiting its ability to recruit physicians or clinicians to run its clinical trials, enroll patients or conduct follow-up assessments in its clinical trials. Further, the business or operations of its strategic partners and other third parties with whom the Company conducts business may also be adversely affected by the global pandemic. The Company continues to monitor the impact of the global pandemic, including regularly reevaluating the timing of its research and development and clinical milestones. In light of the more restrictive constraints on international travel, the Company continues to adjust program emphasis and prioritization. Until the Company is able to gain greater visibility as to the impact of the global pandemic, the Company intends to commit greater resources to its existing and future programs in the United States and is slowing investment in program development outside the United States.

2.      Summary of Significant Accounting Policies

The Company’s accounting policies are the same as those described in Note 2 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2021, and as amended on April 29, 2021 (collectively, “the 2020 10-K”).

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 irrevocably elected to avail itself of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.

The Company has reviewed recent accounting pronouncements and concluded they are either not applicable to the business or no material effect is expected on the condensed consolidated financial statements as a result of future adoption.

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.      Summary of Significant Accounting Policies (Continued)

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. In management’s opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. All significant intercompany transactions have been eliminated upon consolidation. Certain prior period amounts have been reclassified to conform to current period presentation.

The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s 2020 10-K. The accompanying condensed consolidated balance sheet at December 31, 2020 has been derived from the audited balance sheet at December 31, 2020 contained in the Company’s 2020 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements include those related to the fair value of warrants, stock-based compensation, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets, and probability of meeting certain milestones. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in making estimates, actual results could differ materially from those estimates.

Offering Costs

Offering costs totaling $1,168,900 were recognized as a reduction of the proceeds of the Company’s follow-on public offering completed in February 2021 (see Note 3).

Fair Value Measurement

Certain assets and liabilities are carried at fair value in accordance with U.S. GAAP. Fair value is defined as the price which would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies, are as follows:

Level 1

Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2

Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets which are not active, or other inputs observable or can be corroborated by observable market data.

Level 3

Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.      Summary of Significant Accounting Policies (Continued)

Fair Value Measurement (Continued)

As of September 30, 2021 and December 31, 2020, the carrying amounts of the Company’s cash, accounts payable and accrued expenses, and convertible notes payable approximate their respective fair value due to the short-term nature of these instruments.

The common stock warrant liability was recorded at fair value on a recurring basis and is considered a Level 3 liability until its reclassification into equity during the three-month period ended September 30, 2021.

The table below presents the changes in Level 3 liabilities measured at fair value on a recurring basis (see Note 9).

Common Stock

    

Warrant Liability

Balance at December 31, 2020

$

Reclassification of common stock warrants into liability (see Note 9)

 

3,400,643

Change in fair value of common stock warrant liability

 

(1,455,889)

Reclassification of common stock warrant liability into equity (see Note 9)

 

(1,944,754)

Balance at September 30, 2021

$

There are no assets measured at fair value on a recurring basis, nor are there assets or liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2021 and 2020.

Net Loss Per Share

Basic net loss per common share attributable to common shareholders is calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the relevant period. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as dilutive net loss per share as the inclusion of the weighted-average number of all potential dilutive common shares which consist of convertible debt, stock options and warrants, would be anti-dilutive.

The following table presents the weighted-average, potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

Three months ended September 30, 

Nine months ended September 30, 

    

2021

    

2020

    

2021

    

2020

Warrants

25,500,529

17,549,374

19,811,300

10,065,363

Convertible Notes (if converted)

4,300,025

10,318,068

9,972,901

4,543,765

Stock options

982,283

600,000

1,203,344

600,000

Contingent consideration in common stock

 

1,266,666

 

2,533,333

 

2,025,828

 

1,054,015

Total

 

32,049,503

 

31,000,775

 

33,013,373

 

16,263,143

3.      Public Offering

On February 10, 2021, the Company completed a follow-on public offering of 1,150,000 shares, including the Company’s underwriters’ exercise, in full, of their over-allotment option, of its common stock at a public offering price of $9.00 per share for aggregate gross proceeds of $10,350,000. The Company received aggregate net proceeds of $9,181,100, after deducting offering costs of $1,168,900, related to the follow-on public offering.

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.      Acquisitions

On June 25, 2021, the Company completed the acquisition of Olimmune, a developer of oligonucleotide immunotherapies for the treatment of multiple cancers. Olimmune owned the exclusive right to negotiate two license agreements, which were executed concurrently with the closing of the acquisition, related to Olimmune’s drug candidates, CpG-STAT3ASO and CpG-STAT3decoy, with City of Hope (see Note 7). The transaction was accounted for as an asset acquisition as the purchase primarily related to a single asset. The aggregate upfront expense, including the upfront license fees paid to City of Hope, totaled approximately $8.1 million, consisting of approximately $0.4 million payable in cash and the issuance of approximately $7.7 million of common stock. Pursuant to asset acquisition accounting, acquired in-process research and development with no alternative future use is expensed at acquisition. Accordingly, this amount, totaling $8.1 million, was recognized in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2021.

On June 10, 2020, the Company completed the acquisition of Bioscience Oncology Pty. Ltd. (“Bioscience Oncology”), a pre-clinical biopharmaceutical company which held a single asset, the exclusive right to negotiate a license agreement for CpG-STAT3siRNA with City of Hope (see Note 7). The transaction was accounted for as an asset acquisition as the purchase primarily related to a single asset. The aggregate upfront expense, including the upfront license fees paid to City of Hope totaled approximately $7.2 million, composed of approximately $0.9 million, which was paid in cash, and the issuance of approximately $5.9 million and $0.5 million of common stock and W Warrants, respectively. Pursuant to asset acquisition accounting, acquired in-process research and development with no alternative future use is expensed at acquisition. Accordingly, this amount was recognized in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss during the nine months ended September 30, 2020. Under the terms of the agreement, the previous shareholders of Bioscience Oncology were eligible to receive additional contingent consideration of up to approximately 2.6 million shares of common stock upon the achievement of specified milestones, which is to be recorded when it is determined the corresponding milestone is probable to be achieved. As of September 30, 2021, the previous shareholders of Bioscience Oncology had been issued approximately 1.3 million shares of common stock upon achievement of a specified milestone and remain eligible to receive additional contingent consideration of approximately 1.3 million shares of common stock (the “Contingent Common Stock”) upon achievement of a second specified milestone (see Notes 7 and 9).

5.      Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following as of:

    

September 30, 

    

December 31, 

2021

2020

Professional fees

$

1,360,966

$

659,446

Research and development expenses

487,306

305,870

Management service fees and expenses

 

209,508

 

308,246

Convertible Notes interest payable

0

156,014

Other accounts payable and accrued expenses

 

179,487

 

91,989

Total accounts payable and accrued expenses

$

2,237,267

$

1,521,565

Amounts due to related parties included in accounts payable and accrued expenses totaled $199,999 and $308,246 as of September 30, 2021 and December 31, 2020, respectively (see Note 11).

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.      Debt

Between June 2020 and September 2020, the Company issued an aggregate initial principal amount of $2,001,605 of Convertible Notes with W Warrants attached in a private placement (the “Convertible Notes Private Placement”) for net cash proceeds of $1,741,531 after issuance costs of $260,074, of which $192,787 was recognized as deferred financing costs and the remaining $67,287 as a reduction of the proceeds allocated to the attached W Warrants. The Convertible Notes had an annual interest rate of 10% and a scheduled maturity on the earlier of July 31, 2021 or a change of control of the Company (the “Maturity Date”). For each $1.00 of initial principal, the purchaser also received one W Warrant. Prior to the Maturity Date, the holder could elect to convert each $1.00 of initial principal amount of Convertible Notes plus accrued and unpaid interest into W Warrants at a conversion price of $0.50 per W Warrant.

Between February 2020 and June 2020, the Company issued convertible notes on identical terms to those of the Convertible Notes Private Placement to HCFP/Portfolio Services LLC (“Portfolio Services”) (see Note 9), investors and vendors, on a direct basis, in an aggregate initial principal amount of $636,230 for $187,500 in cash, with the balance as consideration for legal and management services rendered and payable.

Holders of W Warrants purchased in a private placement, the terms of which were subsequently amended in April 2020, were provided the option to surrender two W Warrants for the purchase of $1.00 of initial principal amount of Convertible Notes. On September 28, 2020, all holders of such W Warrants elected to surrender their W Warrants and, accordingly, the Company issued an aggregate principal amount of $252,000 of Convertible Notes in exchange for 504,000 surrendered W Warrants of equivalent fair market value.

Effective July 31, 2021, the holders of the Convertible Notes converted, under the original terms of the Convertible Notes, an aggregate of $3,084,875 of initial principal and accrued and unpaid interest at a rate of $0.50 per W Warrant, resulting in the issuance of 6,169,771 W Warrants. The remaining outstanding principal and accrued and unpaid interest through July 31, 2021 of $129,548 was repaid in cash. Accordingly, the Company has no further obligations under the Convertible Notes.

As of their issuance dates, the Convertible Notes principal amount of $2,889,835, reduced for issuance costs of $260,074, was allocated to the Convertible Notes and W Warrants, based on their respective relative fair value, resulting in an allocation of $1,733,769 and $895,992 to the Convertible Notes and W Warrants, respectively. The resulting difference between the principal amount and the amount allocated to Convertible Notes of $1,156,066 was recognized as debt discount, which was amortized as interest expense over the term of the Convertible Notes. The net amount allocated to the W Warrants was recognized as an increase to “Additional paid-in capital” in the accompanying condensed consolidated statements of stockholders’ equity (deficit) under the caption “Issuance of units and warrants.”

Balances related to the Convertible Notes included the following as of:

    

June 30, 

    

December 31, 

2021

2020

Convertible Notes principal amount

$

2,889,835

Unamortized discount

 

 

(508,622)

Deferred financing costs

 

 

(97,482)

Convertible notes payable, net

$

$

2,283,731

Interest expense for the three and nine months ended September 30, 2021 totaled $110,669 and $774,679, respectively. Interest expense for the three and nine months ended September 30, 2020 totaled $284,520 and $369,665, respectively. For the three and nine months ended September 30, 2021, interest expense includes $24,083 and $168,575, respectively, of interest expense and $86,586 and $606,104, respectively, of debt discount and amortization of deferred financing costs. For the three and nine months ended September 30, 2020, interest expense includes $63,503 and $83,769, respectively, of interest expense and $225,324 and $290,203, respectively, of debt discount and amortization of deferred financing costs.

11

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SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.      Research and Development Agreements

Agreement Related to Intellectual Property Rights

In July 2017, VSI, as “Licensee,” entered into a Patent License Agreement (the “Patent License Agreement”) with The U.S. Department of Health and Human Services, as represented by the National Institute on Alcohol Abuse and Alcoholism (“NIAAA”) and the National Institute on Drug Abuse (“NIDA”) of the National Institutes of Health (“NIH”), (collectively “Licensor”). In the course of conducting biomedical and behavioral research, the Licensor developed inventions that may have commercial applicability. The Licensee acquired commercialization rights to three patents covering a series of novel dual-action CB1 receptor inverse agonists, which includes MRI-1867, in order to develop processes, methods, or marketable products for public use and benefit.

Pursuant to the terms of the Patent License Agreement, VSI is required to make minimum annual royalty payments on January 1 of each calendar year, which shall be credited against any earned royalties due for sales made in that year, throughout the term of the Patent License Agreement. The third annual payment of $25,000 was made in January 2021, of which the remaining $6,250 is included in “Prepaid expenses and other current assets” in the accompanying condensed consolidated balance sheets. For the three months ended September 30, 2021 and 2020, $6,250 of this prepaid royalty expense was recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss. For the nine months ended September 30, 2021 and 2020, $18,750 of this prepaid royalty expense was recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

The Patent License Agreement also provides for payments from VSI to the Licensor upon the achievement of certain product development and regulatory clearance milestones, as well as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents. Through September 30, 2021, the Licensor has not achieved any milestones and therefore VSI has not made any milestone payments.

VSI is obligated to pay earned royalties based on a percentage of net sales, as defined in the Patent License Agreement, of licensed product throughout the term of the Patent License Agreement. Since April 18, 2017 (inception) through September 30, 2021, there have been no sales of licensed products. In addition, VSI is also obligated to pay the Licensor additional sublicensing royalties on the fair market value of any consideration received for granting each sublicense. Through September 30, 2021, VSI has not entered into any sublicensing agreements and therefore no sublicensing consideration has been paid to Licensor.

VSI is also obligated under the Patent License Agreement to reimburse Licensor for certain patent fees and expenses. Patent fee reimbursement under the Patent License Agreement was $5,017 and $15,050 for the three and nine months ended September 30, 2021, respectively. Patent fee reimbursement under the Patent license agreement was $6,680 and $20,040 for the three and nine months ended September 30, 2020, respectively. These costs are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Cooperative Research and Development Agreement

Effective January 11, 2018, VSI signed a two-year Cooperative Research and Development Agreement (the “CRADA Agreement”) with the NIH for preclinical testing relating to the Patent License Agreement described above. Pursuant to the terms of the CRADA Agreement, each party will provide scientific staff and other support necessary to conduct the research and other activities described in the research plan. This agreement was subsequently amended to defer funding for year two subject to additional testing by NIH and approval of the results by VSI. On May 7, 2019, the Company made the first of two equal payments of $55,870 to NIH. As of September 30, 2021 and December 31, 2020, the second payment of $55,870, which is subject to delivery of final research results, is included in “Accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets.

There were no expenses incurred in connection with the CRADA Agreement for the three months ended September 30, 2021 and 2020. Total expenses incurred in connection with the CRADA Agreement for the nine months ended September 30, 2021 and 2020 amounted to $0 and $31,039, respectively. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

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7.      Research and Development Agreements (Continued)

Memorandums of Understanding

Effective July 28, 2018, SBI entered into two Memorandums of Understanding (“MOUs”) with Yissum Research Development Company (“Yissum”) of the Hebrew University of Jerusalem Ltd. (“Hebrew University”). Research under the Yissum MOUs was completed in December 2019 and March 2020, respectively, resulting in the license agreements below.

There were no fees incurred in connection with these MOU’s for the three months ended September 30, 2021 and 2020. The fees incurred in connection with these MOU’s for the nine months ended September 30, 2021 and 2020 amounted to $0 and $29,457, respectively. These fees are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Effective March 5, 2019, the Company entered in a license agreement with Yissum with respect to the results of the research relating to the combination of cannabidiol with approved anesthetics as a potential treatment for the management of pain. Under the license agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the license agreement, including net sales generated from sub-licensees. In addition, the Company will be obligated to make payments upon the achievement of certain clinical development and product approval milestones. From March 5, 2019 through September 30, 2021, there have been no sales of licensed products by the Company nor has the Company entered into any sub-licensing agreements.

Further, none of the milestones in the agreement have been reached and therefore as of September 30, 2021, there is no obligation to make any milestone payments.

Effective August 8, 2019, the Company entered into a second license agreement with Yissum with respect to the research results relating to the synthesis of novel cannabinoid dual-action compounds and novel chemical derivatives of cannabigerol and tetrahydrocannabivarin. Under this license agreement, the Company is required to pay earned royalties based upon a percentage of net sales at one percentage for regulated products and a lesser percentage for non-regulated products. The Company is obligated to pay development milestone payments tied to regulated products totaling $1,225,000 in the aggregate and $100,000 for non-regulated products in the aggregate. None of the milestones in the agreement have been reached and therefore as of September 30, 2021 there is no obligation to make any milestone payments.

CpG-STAT3siRNA License Agreement and Sponsored Research Agreement

In June 2020, the Company entered into an exclusive, worldwide license agreement with City of Hope relating to CpG-STAT3siRNA (the “siRNA License Agreement”). In addition to the siRNA License Agreement, the Company also entered into a Sponsored Research Agreement (the “SRA”) relating to on-going research and development activities in collaboration with City of Hope relating to CpG-STAT3siRNA. The Company obtained the right to negotiate the siRNA License Agreement with City of Hope as part of the Bioscience Oncology acquisition in June 2020. Under the terms of the siRNA License Agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the siRNA License Agreement, including net sales generated from sub-licensees. In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $3,525,000 in the aggregate. None of the milestones in the siRNA License Agreement have been reached and therefore as of September 30, 2021, there is no obligation to make any milestone payments. Pursuant to the terms of the SRA, the Company has committed to fund research and development at City of Hope for two years in accordance with a predetermined funding schedule. Total expenses incurred in connection with the siRNA License agreement and SRA were $70,000 and $210,000 for the three and nine months ended September 30, 2021 and $62,500 and $76,389 for the three and nine months ended September 30, 2020, respectively. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

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7.      Research and Development Agreements (Continued)

In March 2021, the Company paid to City of Hope approximately $1.2 million relating to the clinical lot manufacturing and IND preparation costs for CpG-STAT3siRNA and agreed to pay $10,000 per month to City of Hope for certain project management and regulatory services relating to the preparation of the IND for CpG-STAT3siRNA until such IND was filed with the FDA, which occurred in April 2021. Further, the Company incurred costs of approximately $10,010 and $0.3 million during the three and nine months ended September 30, 2021, respectively, pursuant to a clinical research support agreement (the “CRSA) relating to the Phase 1 clinical trial for CpG-STAT3siRNA to be conducted at City of Hope. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

In May 2021, the Company received United States Food and Drug Administration (“FDA”) approval of its IND application related to CpG-STAT3siRNA. Pursuant to the definitive agreement to acquire Bioscience Oncology, this approval satisfied a milestone that resulted in the issuance of approximately 1.3 million common shares of contingent consideration to the previous stockholders of Bioscience Oncology in June 2021 totaling approximately $5.1 million, based upon a value of $4.00 per share determined at the time of acquisition. The consideration was included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Olimmune License Agreements

On June 25, 2021, the Company completed the acquisition of Olimmune and Olimmune concurrently entered into two exclusive, worldwide license agreements with City of Hope relating to Olimmune’s drug candidates. The Company obtained the ASO Patent Rights license agreement and the Decoy Patent Rights license agreement (together, the “Olimmune License Agreements”) with City of Hope as part of the Olimmune acquisition in June 2021 (see Note 4). Under the terms of the Olimmune License Agreements, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the Olimmune License Agreements, including net sales generated from sub-licensees. The Company incurred the upfront license fees of $385,622 in connection with these license agreements, of which $181,436 is included in accrued expenses at September 30, 2021. In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $6,750,000 for each license, or $13,500,000 in the aggregate. None of the milestones in the Olimmune License Agreements have been reached and therefore as of September 30, 2021, there is no obligation to make any milestone payments.

8.      Commitments and Contingencies

Research and Development Agreements

The Company has entered into various research and development agreements which require the Company to provide certain funding and support. See Note 7 for further information regarding these agreements.

Legal Proceedings

The Company is party to litigation in several matters with or relating to Morris C. Laster, M.D., Ashish Sanghrajka and/or Paul Hopper. Dr. Laster is a former officer and director of the Company and Mr. Sanghrajka is a former officer. Messrs. Sanghrajka and Hopper are current members of the Company’s board of directors (the “Board”). Such matters have been disclosed in the referenced SEC filings or as set forth below.

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8.      Commitments and Contingencies (Continued)

In April 2021, Dr. Laster initiated litigation (the “Delaware Matter”) against the Company in the Delaware Court of Chancery (the “Chancery Court”) with respect to ownership of 3,500,000 shares of the Company’s common stock (the “Disputed Shares”). Pursuant to a stipulation (the “Stipulation”) approved by the Chancery Court in the Delaware Matter, the parties agreed to, among other things, an expedited timeline for resolving the Delaware Matter with a trial intended to be held in December 2021. Such Stipulation also provided for adjournments or postponements of the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), such that the Annual Meeting would be held and the vote on the items of business to be considered at the Annual Meeting would take place during a specified time after a decision on the merits by the Chancery Court or a final settlement between the parties. Pursuant to additional proceedings in the Chancery Court, the Company became subject to further expedition for document production. The Company’s inability to meet such further expedition, among other things, resulted in the Company being sanctioned by the Chancery Court. In an attempt to mitigate the dispute and to reduce the on-going expenses and disruption of expedition, the Company has taken steps to resolve the Delaware Matter, including facilitating the transfer by the then-record owner to Dr. Laster of record ownership of the Disputed Shares and facilitating the delivery of an irrevocable proxy by the then-record owner to Dr. Laster to vote such shares. As a result of these steps, the Company believes that the Chancery Court may determine that expedition of the trial to determine record ownership of the Disputed Shares and other matters may no longer be necessary. There can be no assurance, however, that the Chancery Court will not require further expedition relating to the Disputed Shares or other matters.

In July 2021, the Company reported that it had terminated the employment of Mr. Sanghrajka in accordance with the terms of his employment agreement. The Company also reported that the audit committee of the Board had conducted an internal review and, as a result of such review, requested the resignations of Messrs. Sanghrajka and Hopper from the Board. In August 2021, Mr. Sanghrajka filed a lawsuit against the Company and several other parties alleging, among other things, that he was wrongfully terminated by the Company. The Company believes Mr. Sanghrajka’s lawsuit is without merit. On October 3, 2021, the Company filed a lawsuit against Messrs. Sanghrajka and Hopper and an affiliate of Mr. Hopper alleging, among other things, fraud and breaches of fiduciary duty and contractual obligations owed to the Company in connection with Mr. Hopper’s sale of Bioscience Oncology to the Company and for declaratory judgment that Messrs. Sanghrajka and Hopper are not entitled to indemnification or advancement of expenses. In response to the lawsuit filed by the Company, counsel for Messrs. Sanghrajka and Hopper sent a letter to the Company demanding indemnification and advancement of expenses relating to the Company’s lawsuit against them. On October 7, 2021, the Company received a letter from counsel in Australia for Mr. Hopper claiming, among other things, that the Company made defamatory statements about Mr. Hopper in certain of the its SEC filings, including in the filing disclosing the request for Mr. Hopper to resign. The Company believes that Mr. Hopper’s claims are without merit.

On Octoder 26, 2021, Dr. Laster and Messrs. Sanghrajka and Hopper (collectively, the “Plaintiffs”) filed a stockholder derivative lawsuit, purportedly on behalf of the Company, against all of the other members of the Company’s Board and certain of their affiliates in the Chancery Court (the “Derivative Complaint”). The Derivative Complaint alleges, among other things, that certain directors (the “Management Directors”) have wasted and diverted corporate assets, and that the other directors (the “Independent Directors”), excluding Messrs. Sanghrajka and Hopper, failed to stop the Management Directors from taking such actions. The Plaintiffs assert that they did not make demand upon the Company’s Board because demand would have been futile, notwithstanding the fact that five of the Company’s nine directors, including Mr. Hopper, are independent. On November 12, 2021, the Company filed a motion to dismiss the Derivative Complaint for failure to make a pre-suit demand on its Board.

Litigation is highly unpredictable and the costs of litigation, including legal fees and expenses, and the possible liabilities, including monetary damages, to which the Company could become subject could be significant. Any such liabilities could have a material adverse effect on the Company. The Company has not recorded any liability as of September 30, 2021 because a potential loss is not probable or reasonably estimable given the preliminary nature of the various proceedings. The Company’s existing capital resources will not be sufficient to fully implement its business plan, including the development of its drug candidates, while also continuing to be subject to or pursuing on-going litigation, especially on an expedited basis. The Company will require additional financing and there can be no assurance that any such financing will be available on satisfactory terms, or at all. Further, there can be no assurance that the absence of any additional financing, as necessary, will not have a material adverse effect on the Company.

Information relating to the litigation described above, other than relating to the Derivative Complaint, is more fully set forth in, and should be considered with, the information in the Company’s SEC filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2021 and June 30, 2021, Current Reports on Form 8-K filed with the SEC on July 9, 2021 and September 30, 2021 and the materials filed by the Company on Schedule 14A.

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9.      Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share with such designation, rights and preferences as may be determined from time-to-time by the Company’s board of directors. Authority is expressly vested in the board of directors to authorize the issuance of one or more series of preferred stock. All 20,000,000 shares remained unissued as of September 30, 2021.

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.001 per share. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares of common stock then outstanding) by an affirmative vote of the holders of a majority of the common stock.

The powers, preferences, and rights of the holders of the common stock are junior to the preferred stock and are subject to all the powers, rights, privileges, preferences, and priorities of the preferred stock. The holder of each share of common stock shall have the right to one vote per share. Each holder of common stock shall be entitled to receive dividends and distributions (whether payable in cash or otherwise) as declared by the board of directors of the Company, subject to the rights of any class of preferred stock outstanding. In the event of any liquidation, dissolution or winding-up of the Company (whether voluntary or involuntary), the assets available for distribution to holders of common stock will be in equal amounts per share.

Equity Units

On February 4, 2020, the Company offered up to 200,000 Series A units at a price of $5.00 per unit in a Regulation A+ Tier II offering (the “A Units”). Each A Unit consists of one share of the Company’s common stock and two Series W Warrants (“W Warrants”). Each W Warrant is exercisable for one Series B Unit (“B Unit”). Each B Unit consists of one share of common stock and one Series Z Warrant (“Z Warrant”). Each Z Warrant is exercisable for one share of common stock. The exercise price of the W Warrant is $4.00, and the exercise price of the Z Warrant is $5.00. The W Warrants and Z Warrants will be exercisable commencing on October 1, 2021 and July 1, 2022, respectively, and expire on September 30, 2026 and June 30, 2027, respectively, unless previously exercised.

Warrants

On July 31, 2021, the Company issued 6,169,771 W Warrants from the conversion of the Convertible Notes (Note 6). During the nine months ended September 30, 2021, no warrants were exercised or forfeited. As of September 30, 2021, 15,054,209 warrants were outstanding at a weighted-average exercise price of $3.96, and 250,000 warrants were exercisable at a weighted-average exercise price of $1.50. As of September 30, 2021, the remaining contractual term of the outstanding warrants was 4.97 years.

On June 5, 2020, the Company issued to HCFP/Capital Partners 18-B-2 LLC (“CP18B2”) 3,000,000 W Warrants in consideration of a $1.5 million contingent promissory note (“Note Receivable”). The Note Receivable accrues interest at a rate of 1% per annum. Payment of this Note Receivable is contingent on exercise or sale of the W Warrants prior to their expiration. If the W Warrants have not been sold or exercised prior to their expiration by CP18B2, no payment of principal and interest of the Note Receivable is required.

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9.      Stockholders’ Equity (Continued)

Common Stock Warrant Liability

At June 25, 2021, the sum of (i) the Company’s number of shares of common stock outstanding as of June 25, 2021, (ii) the total number of shares of common stock not yet issued or issuable pursuant to derivative securities and (iii) the number of shares of Contingent Common Stock, which sum is not a determination of shares actually issued and outstanding under applicable law, exceeded the number of authorized shares. Pursuant to ASC Topic 815, Derivatives and Hedging (“ASC 815”), the number of shares of common stock calculated as being in excess of the number of authorized shares should be classified as a liability and revalued at the end of each reporting period, as applicable. As a result, at June 25, 2021, the Company reclassified from additional paid-in capital to common stock warrant liability a total of 356,836 W Warrants at a fair value of $3,400,643.

As of July 31, 2021, after giving effect to the conversion of the Convertible Notes on the Maturity Date and giving pro forma effect to the exercise of all derivative securities, including W Warrants (which had not yet become exercisable), Z Warrants (which had not yet become issuable) and all other warrants and stock options (including stock options which had not yet vested), net of forfeiture of 300,000 stock options, the aggregate number of fully-diluted shares of common stock would have been fewer than the number of authorized shares. On the Maturity Date of the Convertible Notes, initial principal and accrued and unpaid interest of $3,084,875 and $129,548 was converted into 6,169,771 W Warrants and repaid in cash, respectively. None of the W Warrants issued upon conversion of the Convertible Notes were exercisable. At that date, the Company reclassified the fair value of the warrant liability of $1,944,754 into the additional paid-in capital. The change in fair value of the common stock warrant liability of $1,455,889 between June 25, 2021 and July 31, 2021 is reflected in “Change in fair value of common stock warrant liability” in the accompanying condensed consolidated statements of comprehensive loss.

The fair value of the common stock warrant liability at reclassification date of June 25, 2021 and as of July 31, 2021 was estimated using a Monte Carlo daily price simulation based on the market value of the underlying common stock at the measurement date. Inputs to the model at each date included:

    

June 25,

    

July 31,

 

2021

2021

Price of underlying common stock

$

6.96

$

4.65

 

Expected dividend rate

0

%  

0

%

Expected term (years)

 

6.0

 

6.0

Weighted-average expected stock price volatility

 

80

%  

80

%

Risk-free interest rate

 

1.10

%  

0.97

%

Contingent Common Stock

As a result of the Company’s acquisition of Bioscience Oncology, the previous shareholders of Bioscience Oncology are eligible to receive remaining contingent consideration of up to approximately 1.3 million shares of common stock upon the achievement of a specified milestone, which will be recorded when it is determined the corresponding milestone is probable to be achieved (see Notes 4 and 7).

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9.      Stock Options

Effective September 24, 2018, the Company approved the Scopus BioPharma Inc. 2018 Equity Incentive Plan (the “Plan”), and reserved 1,000,000 shares of the Company’s common stock, such amount subsequently being increased to 2,400,000 shares, for issuance under the Plan. The stock options shall be granted at an exercise price per share equal to at least the fair market value of the shares of common stock on the date of grant and generally vest over a three-year period.

In addition, in connection with the Company’s follow-on offering (see Note 3), the Company granted options to purchase 115,000 shares of the Company’s common stock to the underwriter.

There were no stock options granted during the three and nine months ended September 30, 2020. The assumptions used to calculate the fair value of stock options granted during the three and nine months ended September 30, 2021 are as follows:

Price of underlying common stock

    

$

9.97

$

10.61

Expected dividend rate

 

0.0%

Expected term (years)

 

5.0

Weighted-average expected stock price volatility

 

80.5% — 80.7%

Risk-free interest rate

 

0.4% — 0.5%

Stock option activity is summarized as follows for the nine months ended September 30, 2021:

    

    

    

Weighted-average

Weighted-average 

Grant Date

Options