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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT UNDER 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 from ___________ to ___________
Commission File Number: 000-55136
Skye Bioscience, Inc.
_____________________________________________________________
(Exact name of registrant as specified in its charter)
Nevada45-0692882
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
11250 El Camino Real, Suite 100, San Diego, CA 92130
(Address of principal executive offices) (Zip Code)
(858) 410-0266
(Registrant’s telephone number, including area code)

5910 Pacific Blvd, San Diego, CA 92121
_________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
NoneNoneNone
Securities registered pursuant to Section 12(g) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock, par value $0.001SKYEOTCQB
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     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     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 filerSmaller reporting company
Emerging growth company
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
As of November 8, 2021, there were 476,108,455 shares of the issuer’s $0.001 par value common stock issued and outstanding.




TABLE OF CONTENTS
Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020

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FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q that are not descriptions of historical facts are forward-looking statements that are based on management’s current expectations and assumptions and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially and negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section below titled “Risk Factors,” including, without limitation, risks relating to:
the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product candidates;
the early stage of our product candidates presently under development;
our need for substantial additional funds in order to continue our operations, and the uncertainty of whether we will be able to obtain the funding we need;
our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;
our ability to retain or hire key scientific or management personnel;
our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;
our dependence on University of Mississippi, third party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators;
our ability to develop successful sales and marketing capabilities in the future as needed;
the size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product candidates;
competition in our industry;
the duration and impact of the novel coronavirus (“COVID-19”) pandemic; and
regulatory developments in the United States and foreign countries.
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,
2021
December 31,
2020
(Unaudited)(Note 2)
ASSETS
Current assets
Cash
$11,089,624 $2,469,410 
Restricted cash
4,570 4,566 
Prepaid expenses and other current assets321,497 190,409 
Prepaid expenses - related party18,125  
Total current assets
11,433,816 2,664,385 
Property and equipment, net80,297 7,341 
Operating lease right-of-use asset164,673  
Other asset8,309  
Total assets
$11,687,095 $2,671,726 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$318,982 $364,340 
Accounts payable - related party20,000 17,032 
Accrued interest - related party130,824 44,087 
Accrued payroll liabilities262,881 61,547 
PPP loan current
 64,062 
Other current liabilities
497,390 197,564 
Derivative liabilities
207,916 38,567 
Operating lease liability, current portion63,581  
Total current liabilities
1,501,574 787,199 
Non-current liabilities
PPP loan non-current
 52,638 
Multi-draw credit agreement - related party
450,000 450,000 
Convertible multi-draw credit agreement - related party, net of discount
1,370,156 931,103 
Operating lease liability, net of current portion100,583  
Total liabilities
3,422,313 2,220,940 
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Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.001 par value; 50,000,000 and 20,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding at September 30, 2021 and December 31, 2020
  
Common stock, $0.001 par value; 5,000,000,000 and 500,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 476,108,455 and 288,074,415 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
476,108 288,074 
Additional paid-in-capital
52,532,017 38,896,693 
Accumulated deficit
(44,743,343)(38,733,981)
Total stockholders’ equity
8,264,782 450,786 
Total liabilities and stockholders’ equity
$11,687,095 $2,671,726 
See accompanying notes to the condensed consolidated financial statements.

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SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2021202020212020
Operating expenses
Research and development
$327,731 $346,217 $1,818,059 $1,574,357 
General and administrative
1,491,378 1,192,003 3,567,985 3,395,729 
Total operating expenses
1,819,109 1,538,220 5,386,044 4,970,086 
Operating loss(1,819,109)(1,538,220)(5,386,044)(4,970,086)
Other expense (income)
Change in fair value of derivative liabilities
(189,649)(424,138)169,349 (433,688)
Interest expense
195,358 182,614 570,322 520,594 
Gain on forgiveness of PPP loan  (117,953) 
Total other expense, net5,709 (241,524)621,718 86,906 
Loss before income taxes(1,824,818)(1,296,696)(6,007,762)(5,056,992)
Provision for income taxes
  1,600 1,600 
Net loss and comprehensive loss$(1,824,818)$(1,296,696)$(6,009,362)$(5,058,592)
Loss per common share:
Basic
$ $(0.01)$(0.02)$(0.02)
Diluted
$ $(0.01)$(0.02)$(0.03)
Weighted average shares of common stock outstanding used to compute earnings per share:
Basic
413,489,603 256,758,472 376,547,498 207,536,173 
Diluted
414,461,032 257,255,653 376,547,498 208,434,966 
See accompanying notes to the condensed consolidated financial statements.
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SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
20212020
Cash flows from operating activities:
Net loss$(6,009,362)$(5,058,592)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization9,412 1,096 
Stock-based compensation expense747,252 241,216 
Change in fair value of derivative liabilities169,349 (433,688)
Amortization of debt discount439,053 402,624 
Gain on forgiveness of PPP loan(117,953) 
Changes in assets and liabilities:
Prepaid expenses and other current assets(131,088)40,686 
Prepaid expenses - related party(18,125) 
Other asset(8,309) 
Accounts payable(72,719)601,823 
Accounts payable - related parties2,968 11,400 
Accrued interest - related party86,737 81,813 
Accrued payroll liabilities201,334  
Other current liabilities201,861 (156,576)
Operating lease liability(6,442) 
Net cash used in operating activities(4,506,032)(4,268,198)
Cash flows from investing activities:
Purchase of property and equipment(36,828) 
Net cash used in investing activities(36,828) 
Cash flows from financing activities:
Proceeds from multi-draw credit agreement – related party, net of $0 and $9,301 issuance costs for the September 30, 2021 and September 30, 2020 periods, respectively
 450,000 
Proceeds from PPP loan 116,700 
Proceeds from the sale of common stock and warrants – net of $851,538 and $854,078 issuance costs for the September 30, 2021 and September 30, 2020 periods, respectively
6,146,496 6,085,589 
Proceeds from common stock warrant exercises6,999,999  
Proceeds from pre-funded warrant exercises11,800 10,533 
Proceeds from stock option exercises4,783  
Net cash provided by financing activities13,163,078 6,662,822 
Net increase in cash and restricted cash8,620,218 2,394,624 
Cash and restricted cash, beginning of period
$2,473,976 $1,834,515 
Cash and restricted cash, end of period$11,094,194 $4,229,139 
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Supplemental disclosures of cash-flow information:
Reconciliation of cash and restricted cash:
Cash$11,089,624 $4,224,601 
Restricted cash4,570 4,538 
Total cash and restricted cash shown in the consolidated statements of cash flows$11,094,194 $4,229,139 
Cash paid during the period for:
Interest$44,087 $35,645 
Income taxes1,600 1,600 
Supplemental disclosures of non-cash financing activities:
Purchases of property and equipment in other current liabilities$39,607 $ 
Establishment of right-of-use asset170,606  
Accrued stock issuance costs - September 2021 Financing83,722  
Reclassification of warrant liabilities to equity from exercise of warrants 26,563 
See accompanying notes to the condensed consolidated financial statements.
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SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmounts
Balance, January 1, 2020182,895,247 $182,895 $32,538,445 $(32,173,282)$548,058 
Stock-based compensation expense— — 64,142 — 64,142 
Series B warrant exercises312,500 313 26,250 — 26,563 
Net loss for the three months ended March 31, 2020— — — (2,341,660)(2,341,660)
Balance, March 31, 2020183,207,747 $183,208 $32,628,837 $(34,514,942)$(1,702,897)
Stock-based compensation expense— — 28,709 — 28,709 
Net loss for the three months ended June 30, 2020— — — (1,420,236)(1,420,236)
Balance, June 30, 2020183,207,747 $183,208 $32,657,546 $(35,935,178)$(3,094,424)
Stock-based compensation expense— — 148,365 — 148,365 
Common stock and warrants issued

56,333,334 56,333 6,029,256 — 6,085,589 
Exercise of pre-funded warrants

10,533,334 10,533 — — 10,533 
Net loss for the three months ended September 30, 2020— — — (1,296,696)(1,296,696)
Balance, September 30, 2020250,074,415 $250,074 $38,835,167 $(37,231,874)$1,853,367 

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Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmounts
Balance, January 1, 2021288,074,415 $288,074 $38,896,693 $(38,733,981)$450,786 
Stock-based compensation expense600,000 600 145,980 — 146,580 
Exercise of common stock warrants67,166,667 67,167 3,962,833 — 4,030,000 
Exercise of pre-funded warrants11,800,000 11,800 — — 11,800 
Net loss for the three months ended March 31, 2021— — — (2,160,517)(2,160,517)
Balance, March 31, 2021367,641,082 $367,641 $43,005,506 $(40,894,498)$2,478,649 
Stock-based compensation expense— — 111,699 — 111,699 
Exercise of common stock options106,250 107 4,676 — 4,783 
Exercise of common stock warrants28,333,334 28,333 1,671,667 — 1,700,000 
Net loss for the three months ended June 30, 2021— — — (2,024,027)(2,024,027)
Balance, June 30, 2021396,080,666 $396,081 $44,793,548 $(42,918,525)$2,271,104 
Stock-based compensation expense750,000 750 484,973 — 485,723 
Common stock and warrants issued58,111,112 58,111 6,004,663 — 6,062,774 
Exercise of common stock warrants21,166,667 21,166 1,248,833 — 1,269,999 
Net loss for the three months ended September 30, 2021— — — (1,824,818)(1,824,818)
Balance, September 30, 2021476,108,445 $476,108 $52,532,017 $(44,743,343)$8,264,782 
See accompanying notes to the condensed consolidated financial statements.
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SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of Operations and Business Activities
Nature of Operations
Skye Bioscience, Inc. (the “Company”) was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the “Merger”) pursuant to which Nemus, a California corporation (“Nemus Sub”), became the Company’s wholly owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub to form a Nevada company.
Effective March 25, 2019, the Company changed its name from Nemus Bioscience, Inc. to Emerald Bioscience, Inc. Effective January 19, 2021, the Company changed its name from Emerald Bioscience, Inc. to Skye Bioscience, Inc.
In August 2019, the Company formed a new subsidiary in Australia, SKYE Bioscience Pty Ltd. (formerly "EMBI Australia Pty Ltd."), an Australian proprietary limited company (“SKYE Bioscience Australia”), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of SKYE Bioscience Australia is to conduct clinical trials for the Company’s product candidates.
The Company is a biopharmaceutical company located in San Diego, California that researches and develops and plans to commercialize therapeutics derived from cannabinoids through its own directed research efforts and through several license agreements with the University of Mississippi (“UM”). UM is federally permitted and licensed to cultivate cannabis for research purposes in the United States.
As of September 30, 2021, the Company has devoted substantially all its efforts to securing product licenses, carrying out its own research and development, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.
Liquidity and Going Concern
The Company has incurred operating losses and negative cash flows from operations since inception and as of September 30, 2021, had an accumulated deficit of $44,743,343. As of September 30, 2021, the Company had unrestricted cash in the amount of $11,089,624. The Company expects to continue to incur significant losses through 2022 and expects to incur significant losses and negative cash flows from operations in the future.
The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. As the Company approaches its first clinical trial, it expects to ramp up research and development spending and to increase cash used in operating activities. However, based on the Company’s expected cash requirements, without obtaining additional funding by September 2022, management believes that the Company will not have enough funds to continue clinical studies and pay down its related party debt. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald Health Sciences ("Sciences"), a related party (Note 8). On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) with Sciences. As of September 30, 2021, the Company had an outstanding principal balance of $2,464,500 under the Amended Credit Agreement. Effective September 15, 2021, the disbursement line under the Amended Credit Agreement was closed and it no longer serves as a potential source of liquidity to the Company. The outstanding advances plus accrued interest under the Amended Credit Agreement are due on October 5, 2022 (See Note 4).
On April 22, 2020, the Company entered into a Paycheck Protection Program Promissory Note in the principal amount of $116,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). During the nine months ended September 30, 2021, the full amount of principal and accrued interest was forgiven and the Company realized a gain of $117,953 (Note 4).
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During the nine months ended September 30, 2021, the Company received proceeds of $7,011,799 from the exercise of warrants (Note 5).
On September 29, 2021, the Company closed the September 2021 Financing (Note 5), pursuant to which the Company sold 58,111,112 shares of common stock, 19,666,667 pre-funded warrants and 77,777,779 common stock warrants in a registered public offering. The net proceeds from the transaction were $6,062,774. The common stock warrants and pre-funded warrants have an exercise price of $0.09 and $0.0001, respectively. The term of the common stock warrants is five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital and the repayment of the Amended Credit Agreement, if necessary.

The Company plans to continue to pursue funding through public equity financings, licensing arrangements, government grants or other strategic arrangements. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all. If the Company raises additional funds by issuing equity securities, dilution to existing stockholders would result.
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to the United States and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread around the world and throughout the United States and Australia, where the Company has operations and conducts laboratory research and clinical studies. In response to the outbreak, federal and state authorities in the United States have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and significant economic disruptions to the global financial markets. These disruptions could impact the Company’s ability to raise additional capital and obtain the necessary funds.
Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of THCVHS is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States. In connection with the COVID-19 pandemic, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. The location of the clinical trial are clinical sites in Australia and since the COVID-19 outbreak in that country, the multiple cities have experienced health emergency lockdowns which have had a negative impact on the conduct and timelines of clinical studies. Therefore, the Company has shifted its first-in-human studies of THCVHS to the second quarter of 2022.
After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements as of and for the year ended December 31, 2020, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosures necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).
The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or any future periods. The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the Company’s audited financial statements as of December 31, 2020, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2021. The unaudited financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial
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statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which includes a broader discussion of the Company’s business and the risks inherent therein.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates and judgements as to the appropriate carrying values of equity instruments, derivative liabilities, debt with embedded features, and the valuation of stock based compensation awards, which are not readily apparent from other sources.
Risks and Uncertainties
The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, uncertainties related to the impact of COVID-19 (Note 1), results of research and development activities, uncertainties surrounding regulatory developments in the United States and Australia, and the Company’s ability to attract new funding.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value:
Level 1:    Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
Level 2:    Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3:    Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, including, cash, prepaid expenses, accounts payable and other current liabilities approximate their fair value due to the short maturities of these financial instruments. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3).
As of December 31, 2020, the Company estimated that the fair value of the Amended Credit Agreement was materially consistent with the fair value estimate as of December 31, 2019 of $1,877,938, plus the non-convertible advances made in 2020. This determination was based on the following considerations: (i) the Company has not experienced any significant change in its credit worthiness or operations year over year, (ii) there have been no repayments or convertible draws, (iii) the facility is closer to maturity, and (iv) the embedded conversion feature on the convertible advances is out-of-the-money at the reporting date. As of September 30, 2021, the Company estimated that the fair value of the Amended Credit Agreement, including the non-convertible advances was $2,501,632. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature using Level 3 inputs and considering the discounted cash flows of the interest and principal payments through maturity (Note 4).
Convertible Instruments
The Company accounts for hybrid contracts with embedded conversion features in accordance with ASC 815, Derivatives and Hedging Activities (“ASC 815”) which requires companies to bifurcate conversion options from their host instruments and
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account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently recorded at fair value at each reporting date based on current fair value, with the changes in fair value reported in the results of operations.
The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income), net in the accompanying Condensed Consolidated Statements of Comprehensive Loss.
When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.
Warrants Issued in Connection with Financings
The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income), net in the Condensed Consolidated Statements of Comprehensive Loss.
Debt Issuance Costs and Interest
Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility.
Research and Development Expenses and Licensed Technology
Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third party contract research organizations and investigative sites, third party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for
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the personnel involved in the Company’s preclinical and clinical drug development activities; facilities expense, and other expenses; and equipment and laboratory supplies.
Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

Stock-Based Compensation Expense
Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the fair value is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. The Company uses the Black Scholes valuation method for estimating the grant date fair value of stock options using the following assumptions:
Volatility - Expected volatility is estimated using the historical stock price performance over the expected term of the award.
Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award.
Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted.
Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future.
Loss Per Common Share
The Company applies ASC No. 260, Earnings per Share in calculating its basic and diluted loss per common share. Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents.
The computations of basic and diluted net loss per common share are as follows:
Three Months Ended
September 30, (Unaudited)
Nine Months Ended
September 30, (Unaudited)
2021202020212020
Basic net loss per share:
Net loss$(1,824,818)$(1,296,696)$(6,009,362)$(5,058,592)
Weighted average common shares outstanding – basic413,489,603 256,758,472 376,547,498 207,536,173 
Net loss per share - basic$ $(0.01)$(0.02)$(0.02)
Diluted net loss per share:
Net loss (as adjusted)$(1,704,980)$(1,720,835)$(6,009,362)$(5,401,484)
Weighted average common shares outstanding – diluted414,461,032 257,255,653 376,547,498 208,434,966 
Net loss per share - diluted$ $(0.01)$(0.02)$(0.03)
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
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Three Months Ended
September 30, (Unaudited)
Nine Months Ended
September 30, (Unaudited)
2021202020212020
Stock options23,490,000 25,000,678 23,490,000 25,000,678 
Common shares underlying convertible debt5,303,591 5,215,457 5,303,591 5,215,457 
Warrants133,945,796 145,336,155 134,917,225 22,304,750 
Leases

In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019.

At the inception of an arrangement, the Company determines whether the arrangement is, or contains, a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contract is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

Lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the Condensed Consolidated Balance Sheets as operating lease right-of-use assets, operating lease liability, current portion and operating lease liability, net of current portion.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in fiscal periods ending after December 15, 2020. Upon implementation, the Company may use either a modified retrospective or full retrospective method of adoption. The adoption of ASU 2020-06 will impact the way the Company calculates its loss per common share, result in expanded disclosures around convertible instruments and remove the requirement to assess and record beneficial conversion features. The impact from adoption will depend on whether the Company elects to early adopt this ASU. The Company currently plans to adopt the provisions of this ASU on the effective date. However, it reserves the right to early adopt these provisions.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The aim of ASU 2021-04 is to clarify and reduce diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The Company has elected to early adopt this guidance as of July 1, 2021 and has applied the guidance as of January 1, 2021, in accordance with the ASU. The adoption of this guidance had no impact on the interim periods in 2021 prior to the date of adoption. Upon implementation, the new guidance was applied to the July 2021 Inducement (Note 5), which resulted in recording the value attributable to the Inducement Warrants as an equity issuance cost. Because this amendment provided clarification where there was a lack of GAAP, management has determined that there was no resulting impact from the adoption of this standard to the financial statements.
3. Warrants and Derivative Liabilities
There are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants and derivative liabilities. These judgements and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event, if applicable, and the determination of the appropriate valuation methods.
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If the Company had made different assumptions, the fair value of the warrants and derivative liabilities could have been significantly different (See Note 2).
Warrants
Warrants vested and outstanding as of September 30, 2021 are summarized as follows:
SourceExercise
Price
Term
(Years)
Number of
Warrants
Vested and
Outstanding
Pre 2015 Common Stock Warrants$1.00 101,110,000 
2015 Common Stock Warrants5.00 10100,000 
2016 Common Stock Warrants to Service Providers1.15 1040,000 
2016 Series C Common Stock Warrants to Placement Agent0.40 5125,000 
2017 Series D Common Stock Warrants to Placement Agent0.25 5480,000 
2017 Common Stock Warrants to Service Provider0.41 5125,000 
2018 Emerald Financing Warrants0.10 53,400,000 
Emerald Multi-Draw Credit Agreement Warrants0.50 57,500,000 
2019 Common Stock Warrants0.35 58,000,000 
2020 Common Stock Warrants to Placement Agent0.08 4.998,166,667 
2021 Inducement Warrants0.15 521,166,667 
2021 Inducement Warrants to Placement Agent0.19 51,481,667 
2021 Common Stock Warrants0.09 577,777,779 
2021 Pre-Funded Warrants Indefinite19,666,667 
2021 Common Stock Warrants to Placement Agent0.11 55,444,445 
Total warrants vested and outstanding as of September 30, 2021154,583,892 
July 2021 Inducement Warrants and September 2021 Financing Warrants

In connection with the July 2021 Inducement (Note 5), the Company issued 21,166,667 common stock warrants and 1,481,667 warrants to the placement agent. The warrants were equity classified at issuance and the Company recorded the fair value of the common stock warrants and placement agent warrants of $2,790,884 and $192,224, respectively, as equity issuance costs related to the September 2021 Financing within equity. The warrants were vested at issuance and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:

Common Stock
 Warrants
Placement Agent
 Warrants
Dividend yield0.00 %0.00 %
Volatility factor137.87 %137.87 %
Risk-free interest rate0.73 %0.73 %
Expected term (years)55
Underlying common stock price$0.15 $0.15 

In connection with the September 2021 Financing (Note 5), the Company issued 77,777,779 common stock warrants, 19,666,667 pre-funded warrants, and 5,444,445 common stock warrants to the placement agent. The warrants were equity classified at issuance and the Company allocated $3,265,676 and $943,489 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $421,522 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:

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Common Stock
 Warrants
Pre-funded
Warrants
Placement Agent
 Warrants
Dividend yield0.00 %0.00 %0.00 %
Volatility factor136.02 %135.06 %136.02 %
Risk-free interest rate1.01 %1.55 %1.01 %
Expected term (years)5105
Underlying common stock price$0.09 $0.09 $0.09 

Derivative Liabilities
The following tables summarize the activity of derivative liabilities for the periods indicated:
Nine Months Ended September 30, 2021
December 31, 2020
Fair
Value of Derivative Liabilities
Fair
Value of
Derivative
Liabilities
Issued
Change in
Fair Value of Derivative
Liabilities
Reclassification
of Derivatives
to Equity
September 30, 2021
Fair
Value of Derivative Liabilities
Emerald Financing - warrant liability (1)
$38,567 $ $169,349 $ $207,916 
Current balance of derivative liabilities$38,567 $ $169,349 $ $207,916 

Nine Months Ended September 30, 2020
December 31, 2019
Fair
Value of Derivative Liabilities
Fair
Value of
Derivative
Liabilities
Issued
Change in
Fair
Value of
Derivative
Liabilities
Reclassification
of Derivatives
to Equity
September 30, 2020
Fair
Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (2)
$90,797 $ $(90,797)$ $ 
Emerald Financing - warrant liability (1)
276,024  (234,875) 41,149 
Series B - warrant liability(3)
134,579  (108,016)(26,563) 
Total derivative liabilities$501,400 $ $(433,688)$(26,563)$41,149 
Less, noncurrent portion of derivative liabilities(90,797) 
Current balance of derivative liabilities$410,603 $41,149 
Emerald Financing Warrant Liability (1)
In connection with the August 2020 Financing, the exercise price of the warrants was permanently set to $0.10. The warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant holder also has the right to participate in subsequent financing transactions on an as-if converted basis.
The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity, and determined that the warrants also meet the definition of a derivative. With the assistance of a third party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements. Beginning March 31 2021, the Company changed its valuation approach for the Emerald Financing Warrant Liability to a Black Scholes valuation method, as it was determined that a more simplistic model such as the Black Scholes valuation method yields a substantially similar result as a Monte Carlo simulation due to the Company's current assumptions.
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The warrant liability is valued at the balance sheet dates using the following assumptions:
September 30,
2021
December 31,
2020
Dividend yield0.00%0.00%
Volatility factor134.8%90.9%
Risk-free interest rate0.16%0.14%
Expected term (years)1.382.13
Underlying common stock price$0.11 $0.04 
Emerald Multi-Draw Credit Agreement Compound Derivative Liability (2)

On April 29, 2020, the Company entered into the Amended Credit Agreement which removed the change in control provision as an event of default for advances before and after the amendment. As a result of the modification, the contingent interest feature component of the compound derivative is no longer required to be bifurcated as a derivative liability.

Series B Warrant Liability (3)

During the nine months ended September 30, 2020, 312,500 Series B Common Stock Warrants with an intrinsic value of $26,563 were exercised for no consideration per share, which resulted in the issuance of 312,500 shares of common stock. Prior to exercise, these Series B Warrants were adjusted to fair value using a Black Scholes valuation method which considered the closing trading price on the exercise dates. Because the exercise price of these options had been reset to $0.00, the fair value derived from the valuation model approximated the market value of the Company’s common stock on the exercise dates.
4. Debt
Multi-Draw Credit Agreement- Related Party
The Company’s Debt with Sciences consists of the following:
Conversion
Price
As of September 30,
2021
As of December 31,
2020
Total principal value of convertible debt—related party$0.40 $2,014,500 $2,014,500 
Unamortized debt discount(641,987)(1,079,821)
Unamortized debt issuance costs(2,357)(3,576)
Carrying value of total convertible debt - related party1,370,156 931,103 
Total principal value of non-convertible debt—related partyn/a450,000 450,000 
Total carrying value of advances under the multi-draw credit agreement$1,820,156 $1,381,103 
On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (See Note 8). On April 29, 2020, the Company entered into the Amended Credit Agreement with Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default. The amendments to the pre-existing advances were accounted for as a modification. For all advances made after the Credit Agreement was amended, advances will be convertible at a reduced conversion price of $0.25 per share of Common Stock, unless Sciences provides notice that the advance will not be convertible.
On March 29, 2021, the Company amended the Amended Credit Agreement to defer interest payments through the earlier of maturity or prepayment of the principal balance. On September 15, 2021, the Company further amended the Amended Credit Agreement to close the disbursement line. The amendments were considered a modification for accounting purposes.
Advances under the Amended Credit Agreement are unsecured, and bear interest at an annual rate of 7% and mature on October 5, 2022. At Sciences’ election, convertible advances and unpaid interest may be converted into common stock at the applicable fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc.
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The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances, including accrued interest, payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10%, until such amount is paid in full.
In connection with each advance under the Amended Credit Agreement, the Company has agreed to issue to Sciences warrants to purchase shares of common stock in an amount equal to 50% of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years and are immediately exercisable upon issuance. Under the Amended Credit Agreement, Sciences may issue notice that no warrants will be granted at the time of the advance request. The warrants issued under the Credit Agreement have an exercise price of $0.50 per share and any future warrants issued under the Amended Credit Agreement will have a reduced exercise price of $0.35 per share. The exercise prices are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (See Note 3).
As of September 30, 2021, the unamortized debt discount on the convertible advances will be amortized over a remaining period of approximately 1.01 years. As of September 30, 2021, the fair value of the shares underlying the convertible advances under the Amended Credit Agreement was $528,806. As of September 30, 2021, the if-converted value did not exceed the principal balance.
PPP Loan
On April 24, 2020, the Company received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA for a principal amount of $116,700. The PPP Loan had an interest rate of 1.00% per year and funds from the PPP Loan could only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before October 9, 2020.
On April 5, 2021, the Company submitted an application for the full forgiveness of the PPP Loan to the PPP Loan Lender for the full amount of the loan. On May 20, 2021, the Company received notification that the application was accepted and that the full amount of the PPP Loan including accrued interest was forgiven. During the nine months ended September 30, 2021, the Company has recorded a gain on forgiveness of the PPP loan in an amount of $117,953.
Interest Expense
The Company’s interest expense consists of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Related party interest expense – stated rate$44,086 $44,087 $130,824 $117,459 
PPP loan interest expense – stated rate 294 445 511 
Non-cash interest expense:
Amortization of debt discount
150,852 137,849 437,834 401,507 
Amortization of transaction costs
420 384 1,219 1,117 
$195,358 $182,614 $570,322 $520,594 
5. Stockholders’ Equity and Capitalization
Increase to Authorized Shares of Capital Stock
On February 5, 2021, the Company increased its authorized shares of common and preferred stock to 5,000,000,000 and 50,000,000, respectively.

Warrant Exercises
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During the nine months ended September 30, 2021, 11,800,000 pre-funded warrants with an intrinsic value of $460,200 were exercised in exchange for 11,800,000 shares of common stock for gross proceeds of $11,800. As of September 30, 2021 all of the pre-funded warrants have been exercised.
During the nine months ended September 30, 2021, 116,666,668 of the 2020 common stock warrants, including the warrants that were exercised in connection with the July 2021 Inducement discussed below, with an intrinsic value of $8,764,967 were exercised in exchange for 116,666,668 shares of common stock for gross proceeds of $6,999,999.

July 2021 Inducement and September 2021 Financing

On July 21, 2021, the Company entered into an Inducement Offer to Exercise Common Stock Purchase Warrants (the “July 2021 Inducement”) with certain institutional investors and H.C. Wainwright & Co., LLC ("Wainwright") acting as the placement agent. As a result, on July 26, 2021, the investors exercised 21,166,667 warrants at their original exercise price of $0.06, for gross proceeds of $1,270,000. In exchange, the Company granted 21,166,667 new warrants with substantially the same terms and an exercise price of $0.15 per share (Notes 2 & 3).

On September 27, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors for the issuance and sale of securities, with Wainwright acting as the placement agent, pursuant to which the Company sold 58,111,112 shares of common stock and 19,666,667 pre-funded warrants, and issued 77,777,779 common stock warrants, in a registered public offering which closed on September 29, 2021 (the “September 2021 Financing”). The common stock and pre-funded warrants were sold at a price per share of $0.09 and $0.0899, respectively, for gross aggregate proceeds of $6,998,034. The common stock warrants and pre-funded warrants have an exercise price of $0.09 and $0.0001, respectively. The common stock warrants have a term of five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full (Note 3).

In connection with the July 2021 Inducement and September 2021 Financing, the Company incurred cash issuance costs of $935,260, for net proceeds of $6,062,774. Additionally, the Company issued warrants to purchase 6,926,112 shares of common stock to the placement agent, which represent 7% of the total shares of common stock and pre-funded warrants sold in the offering and 7% of the Inducement Warrants issued (Note 3).

6. Stock-Based Compensation
Stock Incentive Plan
On October 31, 2014, after the closing of the Merger, the Board of Directors approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The share reserve under the 2014 Plan equals 10% of the number of issued and outstanding shares of common stock of the Company. In August 2020, the Company approved Amendment No. 2 to the 2014 Plan, which increased the share reserve by an additional 7,876,835 shares over the 10% of the number of issued and outstanding shares of common stock, and removed certain restrictions on the number of shares of common stock and the amount of cash-based awards up to which participants of the 2014 Plan can receive in a calendar year. The 2014 Plan authorizes the issuance of awards including stock options, stock appreciation rights, restricted stock, stock units and performance units to employees, directors, and consultants of the Company. As of September 30, 2021, the Company had 30,047,929 shares available for future grant under the 2014 Plan.
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Stock Options
The following is a summary of option activities under the Company’s 2014 Plan for the nine months ended September 30, 2021:
Number of
Shares
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (Years)
Outstanding, December 31, 202022,050,000 $0.06 9.52
Granted2,475,000 0.14 
Exercised(106,250)0.05 
Cancelled(40,000)0.05 
Forfeited(888,750)0.05 
Outstanding, September 30, 202123,490,000 $0.07 8.88
Exercisable, September 30, 20218,690,000 $0.09 8.61
During the nine months ended September 30, 2021, 106,250 stock options with an intrinsic value of $13,281 were exercised for gross proceeds of $4,783.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions: