10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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: 001-40045

 
 
NEXIMMUNE, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
42-2518457
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
   
9119 Gaither Road
Gaithersburg, MD
 
20877
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (301)
825-9810
 
 
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, $0.0001 par value per share
 
NEXI
 
The 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
  ☒     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 filer      Smaller 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 7(a)(2)(B) of the Securities 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 June 30, 2021, the registrant had 22,628,007 shares of common stock, $0.0001 par value per share,
outstanding.
 
 
 

Table of Contents
 
 
  
Page
 
   
  
 
1
 
PART I -
 
  
 
3
 
 
 
Item 1.
 
  
 
3
 
 
 
 
 
  
 
3
 
 
 
 
 
  
 
4
 
 
 
 
 
  
 
4
 
 
 
 
 
  
 
5
 
 
 
 
 
  
 
7
 
 
 
 
 
  
 
8
 
 
 
Item 2.
 
  
 
16
 
 
 
Item 3.
 
  
 
24
 
 
 
Item 4.
 
  
 
24
 
PART II -
 
  
 
25
 
 
 
Item 1.
 
  
 
25
 
 
 
Item 1A.
 
  
 
25
 
 
 
Item 2.
 
  
 
25
 
 
 
Item 3.
 
  
 
25
 
 
 
Item 4.
 
  
 
25
 
 
 
Item 5.
 
  
 
25
 
 
 
Item 6.
 
  
 
26
 
  
 
28
 
 
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form
10-Q
are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
 
 
 
our ability to obtain and maintain regulatory approval of
NEXI-001
and
NEXI-002
and/or our other product candidates;
 
 
 
our ability to successfully commercialize and market
NEXI-001
and
NEXI-002
and/or our other product candidates, if approved;
 
 
 
our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately;
 
 
 
the potential market size, opportunity and growth potential for
NEXI-001
and
NEXI-002
and/or our other product candidates, if approved;
 
 
 
our ability to build our own sales and marketing capabilities, or seek collaborative partners, to commercialize
NEXI-001
and
NEXI-002
and/or our other product candidates, if approved;
 
 
 
our ability to obtain funding for our operations;
 
 
 
the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;
 
 
 
the timing of anticipated regulatory filings;
 
 
 
the timing of availability of data from our clinical trials;
 
 
 
the impact of the ongoing
COVID-19
pandemic and our response to it;
 
 
 
the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;
 
 
 
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
 
 
 
our ability to advance product candidates into, and successfully complete, clinical trials;
 
 
 
our ability to recruit and enroll suitable patients in our clinical trials;
 
 
 
the timing or likelihood of the accomplishment of various scientific, clinical, regulatory and other product development objectives;
 
 
 
the pricing and reimbursement of our product candidates, if approved;
 
 
 
the rate and degree of market acceptance of our product candidates, if approved;
 
 
 
the implementation of our business model and strategic plans for our business, product candidates and technology;
 
 
 
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
 
 
 
developments relating to our competitors and our industry;
 
 
 
the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;
 
 
 
the development of major public health concerns, including the novel coronavirus outbreak or other pandemics arising globally, and the future impact of it and
COVID-19
on our clinical trials, business operations and funding requirements; and
 
 
 
our financial performance.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section and elsewhere in this Form
10-Q.
Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, 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 Form
10-Q
may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
1

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 as of the date of this Form
10-Q,
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. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form
10-Q
to conform these statements to new information, actual results or to changes in our expectations, except as required by law.
You should read this Form
10-Q
and the documents that we reference in this Form
10-Q
and have filed with the Securities and Exchange Commission, or SEC, as exhibits to this Form
10-Q
with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
 
2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NEXIMMUNE, INC.
BALANCE SHEETS
 
 
  
June 30,

2021
 
 
December 31,

2020
 
 
  
(unaudited)
 
 
 
 
ASSETS
  
     
 
     
Current assets:
                
Cash and cash equivalents
   $ 63,816,106     $ 5,031,079  
Marketable securities
     38,979,670       —    
Restricted cash
     67,500       67,500  
Prepaid expenses and other current assets
     8,327,117       3,293,858  
Total current assets
     111,190,393       8,392,437  
Property and equipment, net
     4,148,875       2,885,260  
Other
non-current
assets
     53,373       23,373  
Total assets
  
$
115,392,641    
$
11,301,070  
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(DEFICIT)
                
Current liabilities:
                
Accounts payable
   $ 2,169,660     $ 2,760,129  
Accrued expenses
     2,469,942       2,603,027  
Derivative liability
     —         1,702,359  
Other current liabilities
     843,619       843,619  
Convertible notes issued to related parties
     —         7,324,267  
Convertible notes
     —         11,793,397  
Total current liabilities
     5,483,221       27,026,798  
Deferred rent, net of current portion
             23,529  
Other
non-current
liabilities
     —         4,935  
Total liabilities
     5,483,221       27,055,262  
Commitments and contingencies
            
Redeemable convertible preferred stock
 
 
 
 
 
 
 
 
Series A Redeemable Convertible Preferred Stock, $0.0001 par value, no shares outstanding as of June 30,
 
2021
and 121,735,303 shares authorized, issued and outstanding as of December 31, 2020. Liquidation value of
$42,314,789 as of December 31, 2020.
     —         35,047,435  
Series
A-2
Redeemable Convertible Preferred Stock, $0.0001 par value, no shares outstanding as of June 30,
 
2021
and 28,384,899 shares authorized, 22,047,361 shares issued and outstanding as of December 31,
2020.
Liquidation
value of $8,683,746 as of December 31, 2020.
     —         7,685,865  
Series
A-3
Redeemable Convertible Preferred Stock, $0.0001 par value, no shares outstanding as of June 30,
 
2021
and 34,061,879 shares authorized, 31,209,734 shares issued and outstanding as of December 31,
2020.
Liquidation
value of $11,699,176 as of December 31, 2020.
     —         10,887,449  
Total redeemable convertible preferred stock
     —         53,620,749  
Stockholders’ equity (deficit)
                
Common Stock, $0.0001 par value, 250,000,000 shares authorized, 22,628,007 issued and outstanding as of June 30, 2021 and 1,256,609 shares issued and outstanding as of December 31, 2020.
     2,263       126  
Additional
paid-in-capital
     207,480,819       8,206,938  
Accumulated other comprehensive loss
 
 
(2,917
 
 
 
Accumulated deficit
     (97,570,745     (77,582,005
Total stockholders’
equity (deficit)
     109,909,420       (69,374,941
Total liabilities, redeemable convertible preferred stock and stockholders’
equity (deficit)
  $ 115,392,641     $ 11,301,070  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited financial statements.
 
3

Table of Contents
NEXIMMUNE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Revenue
 
$        $        $        $     
Operating expenses:
 
                             
Research and development
 
  8,124,973       4,209,261       14,137,581       8,481,428  
General and administrative
 
  4,038,050       2,565,402       8,095,642       4,653,803  
 
 
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
 
  12,163,023       6,774,663       22,233,223       13,135,231  
Loss from operations
 
  (12,163,023     (6,774,663     (22,233,223     (13,135,231
Other (expense) income:
 
                             
Interest income
 
  6,851       1,184       10,464       19,868  
Interest expense
 
  (101     (183,682     (904,220     (184,671
Change in fair value of derivative liability
 
 
      —         2,424,877       —    
Other (expense) income
 
  (25,974     26,636       (26,696     54,001  
 
 
 
 
   
 
 
   
 
 
   
 
 
 
Other (expense) income
 
  (19,224     (155,862     1,504,425       (110,802
 
 
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
 
$ (12,182,247   $ (6,930,525   $ (20,728,798   $ (13,246,033
Accumulated dividends on Redeemable Convertible Preferred Stock
 
  —         (815,816     (377,562   $ (1,631,632
 
 
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
attributable
to common
 
stockholders
 
$
(12,182,247  
$
(7,746,341   $ (21,106,360   $ (14,877,665
 
 
               
 
 
   
 
 
 
Basic and diluted net loss
attributable
to common stockholders per common share
 
$ (0.54   $ (6.17   $ (1.20   $ (11.86
 
 
               
 
 
   
 
 
 
Basic and diluted weighted-average number of common shares outstanding
 
  22,608,866       1,254,681       17,648,551       1,254,681  
STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
 
    
Three Months Ended June 30,
   
Six Months Ended June 30,
 
    
2021
   
2020
   
2021
   
2020
 
Net loss
   $ (12,182,247   $ (6,930,525   $ (20,728,798   $ (13,246,033
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive loss:
                                
Unrealized (loss) gain on
available-for-sale
marketable securities, net of tax
     (2,917     —         (2,917     (506
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive loss
   $ (12,185,164   $ (6,930,525   $ (20,731,715   $ (13,246,539
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited financial statements.
 
4

Table of Contents
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
For the Three Months Ended June 30, 2021 and 2020 (unaudited)
 
 
 
Redeemable Convertible Preferred Stock
 
 
Stockholders’ Deficit
 
 
 
Series A
 
 
Series
A-2
 
 
Series
A-3
 
 
Common Stock
 
 
 
 
 
 
 
 
Accumulated

Other

Comprehensive

Income/ (Loss)
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Additional

Paid-In

Capital
 
 
Accumulated

Deficit
 
 
Total

Stockholders

Deficit
 
Balance at March 31, 2021
   
   
$
     
   
$
     
   
$
      22,579,219    
$
2,258    
$
205,847,571    
$
(85,388,498  
$
   
$
(120,461,331
Exercise of stock options
   
     
     
     
     
     
      48,788       5       149,767      
     
      149,772  
Stock-based compensation
   
     
     
     
     
     
     
     
      1,483,481      
     
      1,483,481  
Change in unrealized loss on marketable
available-for-sale
securities
   
     
     
     
     
     
     
     
     
     
      (2,917     (2,917
Net loss
   
     
     
     
     
     
     
     
     
      (12,182,247    
      (12,182,247
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 3
0
, 2021
   
    $
     
    $
     
    $
      22,628,007     $ 2,263     $ 207,480,819     $ (97,570,745   $ (2,917   $ 109,909,420  
                         
Balance at March 31, 2020
    121,735,303     $ 35,047,435       22,047,361     $ 7,685,865       31,209,734     $ 10,887,449       1,254,681     $ 126     $ 5,024,770     $ (54,031,516   $     $ (49,006,620
Stock-based compensation
   
     
     
     
     
     
     
     
      339,790      
     
      339,790  
Change in
unrealized gains  
available-for-sale

securities
   
     
     
     
     
     
     
     
     
     
             
Beneficial conversion feature on convertible notes
   
     
     
     
     
     
     
     
      1,035,263      
     
      1,035,263  
Net loss
   
     
     
     
     
     
     
     
     
      (6,930,525    
      (6,930,525 )
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
   
 121,735,303
     
$ 35,047,435
     
22,047,361
     
$ 7,685,865
     
31,209,734
     
 $ 10,887,449
     
1,254,681
    $ 126     $ 6,399,823     $  (60,962,041     —       $ (54,562,092 )
 
5
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
For the Six Months Ended June 30, 2021 and 2020 (unaudited)
 
 
 
Redeemable Convertible Preferred Stock
 
 
Stockholders’ Deficit
 
 
 
Series A
 
 
Series
A-2
 
 
Series
A-3
 
 
Common Stock
 
 
 
 
 
 
 
 
Accumulated

Other

Comprehensive

Income/ (Loss)
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Additional

Paid-In

Capital
 
 
Accumulated

Deficit
 
 
Total

Stockholders

Deficit
 
Balance at January 1, 2021
 
 
121,735,303
 
 
$
35,047,435
 
 
 
22,047,361
 
 
$
7,685,865
 
 
 
31,209,734
 
 
$
10,887,449
 
 
 
1,256,609
 
 
$
126
 
 
$
8,206,938
 
 
$
(77,582,005
 
 
—  
 
 
$
(69,374,941
Cumulative effect of adoption of accounting standard
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(2,277,332
 
 
740,058
 
 
 
—  
 
 
 
(1,537,274
Issuance of Series A redeemable preferred stock upon exercise of warrants
 
 
145,000
 
 
 
1,450
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
Conversion of preferred stock into common stock
 
 
(121,880,303
 
 
(35,048,885
 
 
(22,047,361
 
 
(7,685,865
 
 
(31,209,734
 
 
(10,887,449
 
 
10,144,041
 
 
 
1,014
 
 
 
53,621,185
 
 
 
—  
 
 
 
—  
 
 
 
53,622,199
 
Conversion of convertible debt into common stock
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
3,669,010
 
 
 
367
 
 
 
30,251,689
 
 
 
—  
 
 
 
—  
 
 
 
30,252,056
 
Issuance of common stock in connection with the initial public offering. net of transaction costs
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
7,441,650
 
 
 
744
 
 
 
114,550,571
 
 
 
—  
 
 
 
—  
 
 
 
114,551,315
 
Exercise of stock options
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
113,801
 
 
 
12
 
 
 
446,843
 
 
 
—  
 
 
 
—  
 
 
 
446,855
 
Exercise of warrants
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
2,896
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
Stock-based compensation
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
2,680,925
 
 
 
—  
 
 
 
—  
 
 
 
2,680,925
 
Change in unrealized loss on marketable
available-for-sale
securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,917
 
 
(2,917
Net loss
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(20,728,798
 
 
—  
 
 
 
(20,728,798
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 3
0
, 2021
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
22,628,007
 
 
$
2,263
 
 
$
207,480,819
 
 
$
(97,570,745
 
$
(2,917
 
$
109,909,420
 
                         
Balance at January 1, 2020
 
 
121,735,303 
 
 
$
35,047,435
 
 
 
22,047,361
 
 
$
 7,685,865 
 
 
 
31,209,734
 
 
$
10,887,449
 
 
 
1,254,681
 
 
$
126
 
 
$
4,705,808
 
 
$
(47,716,008
)
 
$
506
 
 
$
(43,009,568
Stock-based compensation
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
658,752
 
 
 
—  
 
 
 
—  
 
 
 
658,752
 
Change in unrealized gains on marketable
available-for-sale
securities
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(506
 
 
(506
Beneficial conversion feature on convertible notes
 
  —    
 
 
 
 
 
 
 
 
 
 
 
 
—  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,035,263
 
 
 
 
 
 
 
 
 
 
 
 
 
1,035,263
 
Net loss
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(13,246,033
 
 
—  
 
 
 
(13,246,033
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2020
 
 
121,735,303
 
 
$
 
35,047,435
 
 
 
22,047,361
 
 
$
       
7,685,865
 
 
 
31,209,734
 
 
$
   
10,887,449
 
 
 
1,254,681
 
 
$
126
 
 
$
6,399,823
 
 
$
(60,962,041
 
 
—  
 
 
$
(54,562,092
)
 
6

Table of Contents
NEXIMMUNE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
  
Six Months Ended June 30,
 
 
  
2021
 
 
 
 
2020
 
Cash flows from operating activities
  
     
 
     
Net loss
   $ (20,728,798
 
$
(13,246,033
Adjustments to reconcile net loss to net cash used in operating activities:
        
 
     
Depreciation and amortization
     393,875
 
 
  290,750
 
(Gain) loss on asset disposal
     (464
 
  398
 
Stock-based compensation
     2,680,925
 
 
  658,752
 
Non-cash
interest expense
     903,919
 
 
  140,829
 
Change in fair value of derivative liability
     (2,424,877
 
  1,334
 
Changes in operating assets and liabilities:
        
 
     
Prepaid expenses and other assets
     (5,985,891
 
  (1,191,324
Accounts payable
     172,566
 
 
  698,078
 
Accrued expenses, deferred rent and other
     219,163
 
 
  129,502
 
    
 
 
 
 
 
 
 
Net cash used in operating activities
     (24,769,582
 
  (12,517,714
Cash flows from investing activities
        
 
     
Purchase of property and equipment
     (1,634,586
 
  (390,220 )
Proceeds from disposal of equipment
     464
 
 
  550
 
Collections on employee advances
    
 
 
  80,224
 
Purchase of marketable securities
     (38,981,461
 
 
 
Proceeds from maturities and sales of
available-for-sale
marketable securities
    
 
 
  1,006,372
 
    
 
 
 
 
 
 
 
Net cash
 
(used in)
 provided by investing activities
     (40,615,583
 
  696,926
 
Cash flows from financing activities
        
 
     
Proceeds from initial public offering, net of transaction costs
     114,721,518
 
 
 
 
Proceeds from the exercise of stock options
     446,855
 
 
 
 
Proceeds from the exercise of warrants
     1,450
 
 
 
 
Principal payments on capital leases
     (10,524
 
  (9,756
Proceeds from the issuance of convertible notes from related parties
     56,500
 
 
  4,900,460
 
Proceeds from the issuance of convertible notes
     8,974,980
 
 
  1,637,826
 
Issuance costs associated with convertible notes
     (20,587
 
  (89,895
Proceeds from the issuance of short-term debt
 
 
 
 
 
843,619
 
    
 
 
 
 
 
 
 
Net cash provided by financing activities
     124,170,192
 
 
  7,282,254
 
Net increase (decrease) in cash, cash equivalents and restricted cash
     58,785,027
 
 
  (4,538,534 )
Net cash, cash equivalents and restricted cash at beginning of period
     5,098,579
 
 
  9,196,487
 
    
 
 
 
 
 
 
 
Net cash, cash equivalents and restricted cash at end of period
   $ 63,883,606
 
 
$ 4,657,953
 
    
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
        
 
     
Cash paid during the year for interest
   $ 300
 
 
$ 1,608
 
    
 
 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
        
 
     
Property and equipment purchases included in accounts payable and accrued expenses
   $ 80,905
 
 
$ 1,487
 
Deferred financing costs included in accounts payable
 
$
 
 
$
181,377
 
The accompanying notes are an integral part of these unaudited financial statements.
 
7

NEXIMMUNE, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Nature of the business and basis of presentation
NexImmune, Inc. (“Company”, “we”, “us” or “NexImmune”), a Delaware corporation headquartered in Gaithersburg, Maryland, was incorporated on June 7, 2011. The Company is an emerging biopharmaceutical company advancing a new generation of immunotherapies based on its proprietary Artificial Immune Modulation (AIM) technology. The AIM nanotechnology platform, originally developed at Johns Hopkins University, is the foundation for an innovative approach to immunotherapy in which the body’s own immune system is stimulated to orchestrate a targeted T cell response against a disease. Central to the AIM technology are AIM nanoparticles, which act as synthetic dendritic cells. These AIM nanoparticles can be programmed to present specific antigens and
co-stimulatory
signals to specific T cells, generating an immune response that can be directed toward any foreign substance or cell type in a patient’s body. The C
o
mpany’s first t
w
o products, both for the treatment of different types of cancer, entered clinical trials in 2020.
2. Basis of Presentation
Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). These financial statements should be read in conjunction with our audited financial statements and the accompanying notes to our financial statements contained in our Annual Report on Form
10-K
for the year ended December 31, 2020, as filed with the SEC on March 31, 2021.
In management’s opinion, the accompanying financial statements contain all adjustments, including normal, recurring adjustments, necessary to fairly present our financial position as of June 30, 2021 and December 31, 2020, and our statements of operations and comprehensive income, statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and statement of cash flows for the three and six month periods ended June 30, 2021 and 2020. Interim results are not necessarily indicative of results for an entire year.
Recent accounting standards and pronouncements
Recently Adopted
In August 2020, the FASB issued ASU
2020-06,
an update to ASC Topic 470, Subtopic - 20,
Debt - Debt with Conversion and Other Options, and ASC Topic 815, Subtopic - 4, Derivatives and Hedging - Contracts in Entity’s Own Equity
. ASU
2020-06
simplifies the guidance for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity by reducing the number of accounting models for convertible instruments and amends guidance in ASC Topic 260, Earnings Per Share, relating to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU
2020-06
is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2021, with early adoption permitted for fiscal years that begin after December 15, 2020.
The Company early adopted this standard effective January 1, 2021 using the modified retrospective method. Under this standard, only conversion features embedded in the debt instrument that are accounted for as derivatives in accordance with ASC 815 or under the substantial premium model in ASC 470, require separate accounting. Prior to the adoption of this standard, the Company had recorded a beneficial conversion feature as a discount to convertible notes issued. Upon adoption of this standard, the beneficial conversion feature is no longer separately accounted. As a result of applying the modified retrospective method, the Company recognized a transition adjustment of 
$0.7 million recorded in accumulated deficit, a reduction of additional
paid-in
capital of $2.2 million and an increase to the carrying value of the convertible notes of $1.5 million on January 1, 2021.
 
Not Yet Adopted
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842)
. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued additional guidance, which offers a transition option to entities adopting the new lease standards, and a package of practical expedients an entity can elect to utilize to reduce the level of effort required for adoption. Under the transition option, entities can elect to apply the new guidance using a modified retrospective approach at the beginning of the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their financial statements. In November 2019, the FASB issued ASU
2019-10
deferring the effective date for private entities for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU
2020-05
which further defers the effective date for private entities for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company is currently reviewing its leases and other contracts to determine the impact the adoption of this guidance will have on the financial statements. The Company currently expects that the adoption of this guidance will change the way it accounts for its operating leases and will result in recording
right-of-use
assets and lease liabilities in the balance sheets, and result in additional lease-related disclosures in the footnotes to the financial statements. The Company expects that it will adopt this guidance utilizing the modified retrospective approach and elect the package of practical expedients.
 
8

In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326)
, which modifies the measurement of expected credit losses on certain financial instruments. In addition, for
available-for-sale
debt securities, the standard eliminates the concept of other-than-temporary impairment and requires the recognition of an allowance for credit losses rather than reductions in the amortized cost of the securities. The standard is effective for fiscal year beginning after December 15, 2022, and interim periods beginning after December 15, 2022 and requires a modified-retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period. Early adoption is permitted. Based on the composition of the Company’s investment portfolio, current market conditions and historical credit loss activity, the adoption of ASU
2016-13
is not expected to have a material impact on its financial position, results of operations or the related disclosures.
3. Cash and Cash Equivalents, Restricted cash, and Marketable Securities
The following table presents the Company’s cash and cash equivalents as of June 30, 2021 and December 31, 2020:
 
 
  
June 30, 2021
 
  
December 31, 2020
 
  
Recurring Fair

Value Measurement
 
Cash and cash equivalents:
  
  
  
Cash
  
$
251,862      $
 
105,888           
Money market funds
     44,665,609         4,925,191        Level 
1
 
Fixed income debt securities
     18,898,635       
 
       Level 2  
Total Cash and cash equivalent
s
 
 
 63,816,106 
 
 
 
5,031,079
 
 
 
 
 
Restricted cash
 
 
67,500
 
 
 
67,500
 
 
 
 
 
    
 
 
    
 
 
          
Total cash
,
 
cash equivalents
, and restricted cash
   $ 63,883,606      $ 5,098,579           
    
 
 
    
 
 
          
 
The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at amortized cost, plus accrued interest, which approximates fair value.
Amounts included in restricted cash represent those required as collateral on corporate credit cards.
Marketable Securities
Marketable securities consist of fixed-income debt securities with an original maturity in excess of ninety days. These investments are classified as
available-for-sale
and are carried at fair value. Unrealized gains and losses, net of taxes, are reported as a component of other comprehensive income or loss.
Realized gains and losses are reported as other income (expense) within the statement of operations. 
The specific identification method is used to determine the cost basis of the marketable securities sold. There were no realized gains or losses on the sale of marketable securities for the three and six month ended periods ended June 30, 2021 and 2020. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. The Company determined that any decline in fair value of these investments is temporary as the Company does not intend to sell these securities and it is not likely that the Company will be required to sell the securities before the recovery of their amortized cost basis.
As of June 30, 2021, the Company’s marketable securities consisted of only fixed-income securities that mature within one year. The amortized cost of these securities amounted to $39.0 million, and the estimated fair value amounted to $39.0 million as of June 30, 2021. The gross unrealized gains and gross unrealized losses on these marketable securities were not material as of June 30, 2021. All marketable securities are measured as Level 2 investments. As of December 31, 2020, the Company did not hold any 
marketable se
c
urities.
4. Fair Value Measurements
The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts payable, accrued expenses, convertible notes and derivative liabilities. The fair values of the cash and cash equivalents, accounts payable and accrued expenses approximated their carrying values as of June 30, 2021 and December 31, 2020 due to their short-term maturities. The Convertible Notes as discussed in Note 10 contain embedded derivative features that
were
required to be bifurcated and remeasured to fair value at each reporting period
 while those instruments were outstanding
.
 
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The Company accounts for recurring and nonrecurring fair value measurements in accordance with ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value, and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
 
Level 1 -
  
Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
   
Level 2 -
  
Fair value is determined by using inputs, other than Level 1 quoted prices that are directly and indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those u
s
ed in valuation or other pricing models that can be corroborated by observable market data.
   
Level 3 -
  
Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant judgments to be made by a reporting entity.
In instances where the determination of the fair value measurement is based on inputs from different levels of fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety. The Company periodically evaluates financial assets and liabilities subject to fair value measurements to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make judgments as to the significance of inputs used in determining fair value and where such inputs lie within the ASC 820 hierarchy.
The Company’s derivative liability related to certain features embedded within the Company’s Convertible Notes as discussed in Note 10. The derivative is accounted for as a liability and remeasured to fair value as of each balance sheet date until the Convertible Note is settled or cancelled. The Convertible Notes were converted into shares of common stock upon the Company’s completion of the Initial Public Offering (“IPO”) on February 11, 2021. The related remeasurement adjustments are recognized in the accompanying statements of operations.
During the period ended June 30, 2021 and December 31, 2020 the Company did not have any transfers between levels. There were no Level 3 recurring fair value measurements as of June 30, 2021. The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis:
  
Balance as of December 31, 2020
  
$
1,702,359
 
Fair value of derivative liabilities issued
  
 
722,518
 
Incremental expense related to fair value changes in derivative liabilities
  
 
(2,424,877
 
  
 
 
 
Balance as of June 30, 2021
  
$
  
 
 
  
 
 
 
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:
 
 
  
June 30, 2021
 
  
December 31, 2020
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
Assets
  
     
  
     
  
     
  
     
  
     
  
     
Money market funds
  
$
44,665,609
 
  
$
 
  
$
 
  
$
 
  
$
   
  
$
 
Fixed income debt securities
  
     
  
 
18,898,635
 
  
 
 
  
 
 
  
   
  
 
 
 
  
$
44,665,609
 
  
$
18,898,635
 
  
     
  
     
  
     
  
     
Liability
  
     
  
     
  
     
  
     
  
     
  
     
Derivative liability
  
 
 
  
 
 
  
 
 
  
 
 
  
   
  
$
1,702,359
 
 
  
$
 
  
$
 
  
$
 
  
$
 
  
$
   
  
$
1,702,359
 
 
The fair value of the derivative liability was determined using a binomial lattice model by calculating and comparing the fair value of the Convertible Notes with and without the embedded features.
Key inputs into this valuation model are ( l) the probability of various events which result in conversion prior to the maturity of the Convertible Notes; (2) the estimated timing of conversion; (3) time period to maturity; (4) the fair value of the Company’s stock underlying the Convertible Notes within each scenario; (5) the expected volatility of the Company’s stock through the various events resulting in conversion; (6) the risk-adjusted discount rate; and (7) the Company’s stock dividend yield.
The recurring Level 3 fair value measurements of the embedded features of the Convertible Notes issued in January 2021 include the following significant unobservable inputs:
Unobservable Input
  
Assumptions
Probabilities of conversion provisions
  
5%-50
%
Estimated timing of conversion (yrs)
  
0.13-0.31
Time period to maturity (yrs)
   0.31
Fair value of the Company’s stock
  
$0.45-$0.56
Stock price volatility
  
76-90
%
Risk-adjusted discount rate
   25.56
%
Dividend yield
   0
%
Significant changes to these assumptions would result in increases or decreases to the fair value of the derivative liability. There were no Convertible Notes issued after January 2021. Immediately before the conversion of the Convertible Notes on February 11, 2021, the derivative liability was remeasured to fair value which the Company concluded was immaterial. The derivative liability was remeasured to zero. There were no derivative instruments after February 11, 2021.
 
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5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at June 30, 2021 and December 31, 2020:
 
 
  
June 30,

2021
 
  
December 31,
2020
 
Prepaid research and development expenses
   $ 5,946,498      $ 1,894,785  
Prepaid maintenance agreements
     230,394        144,575  
Prepaid insurance
     1,945,516        98,421  
Prepaid other
     144,580        124,929  
Deferred financing costs
     —          952,633  
Other current assets
     60,129        78,515  
    
 
 
    
 
 
 
Total prepaid expenses and other current assets
   $ 8,327,117      $  3,293,858  
    
 
 
    
 
 
 
6. Property and Equipment
Property and equipment consist of the following at June 30, 2021 and December 31, 2020:
 
 
  
June 30,

2021
 
  
December 31,
2020
 
Laboratory equipment
   $ 5,047,152      $ 3,801,545  
Computer equipment and software
     389,495        305,214  
Furniture and fixtures
     47,877        47,877  
Leasehold improvements
     209,338        153,965  
Assets under construction
     271,103         
 
 
 
5,964,965
 
 
 
 4,308,601
 
Less accumulated depreciation and amortization
     (1,816,090      (1,423,341
    
 
 
    
 
 
 
Total 
Property and equipment, net
   $ 4,148,875      $ 2,885,260  
    
 
 
    
 
 
 
 
Depreciation and amortization expense was $216,168 and $149,572 for the three months ended June 30, 2021 and 2020, and $395,001 and $290,750 for the six months ended June 30, 2021 and 2020, respectively.
7. Accrued Expenses
A summary of the components of accrued expenses is as follows as of June 30, 2021 and December 31, 2020:
 
 
  
June 30,

2021
 
  
December 31,
2020
 
Accrued professional fees
   $ 207,033      $ 135,033  
Accrued salaries, benefits and related expenses
     1,896,677        1,924,405  
Accrued severance
               26,724  
Accrued interest
     3,491        408,315  
Other accrued expenses
     362,741        108,550  
    
 
 
    
 
 
 
Total accrued expenses
   $ 2,469,942      $  2,603,027  
    
 
 
    
 
 
 
 
The accrued severance relates to a former executive of the Company. The terms of the agreement provided severance pay including Cobra insurance continuation from a period ranging from 12 months.
8. Commitments and Contingencies
Maryland Biotechnology Center Grant
The Company entered into a Translational Research Award Agreement effective May 23, 2012 with the Department of Business & Economic Development with the State of Maryland, Maryland Biotechnology Center (“MBC”). The mission of MBC is to integrate entrepreneurial strategies to stimulate the transformation of scientific discovery and intellectual assets into capital formation and business development. Under the agreement, MBC provided $200,000 to NexImmune for research on its artificial aAPC for cancer immunotherapy. In 2013, an amendment increased the amount by $125,000 for a total grant of $325,000. This grant was recorded as income in 2012 and 2013, as the Company incurred the expenses which qualified it for the grant.
The Company must repay the funds through annual payments calculated at 3% of annual revenues for the preceding year. Payments shall continue for 10 years after the first payment date and may total up to 200% of the total grant amount. The end date of the agreement is defined as January 31, 2024, or when any and all repayments due to MBC have been made. If the Company does not earn any revenue, the grant does not need to be repaid. Through June 30, 2021, no revenue has been recorded, therefore, no payments to MBC are due.
Johns Hopkins University Exclusive License Agreement
The Company entered into an Exclusive License Agreement with Johns Hopkins University (“JHU”) effective June 2011, which was amended and restated in January 2017, under which there are license fees, royalties, and milestone payments. As part of the agreement, the Company acquired a perpetual, exclusive license from JHU covering its invention related to Antigen Specific T cells. In consideration for the Exclusive License Agreement, the Company made an upfront payment of $155,000 and issued 26,918 shares of Common Stock.
JHU was also entitled to milestone fees of $75,000 in connection with clinical trial milestones. For the first licensed product or licensed service in the therapeutic field, the Company may be required to pay JHU additional aggregate milestone fees of $1.6 million for clinical and regulatory milestone fees. The Company may be required to pay JHU reduced milestone fees for the second and third
 
 
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licensed products or licensed services in the therapeutic field in connection with clinical and regulatory milestones. In the diagnostic field, the Company may be required to pay JHU aggregate milestone fees of $400,000 for the first licensed product, or licensed service and reduced milestone fees for the second and third licensed products, or licensed services in connection with regulatory and commercial milestones. The Company may be required to pay JHU aggregate milestone fees of $100,000 for commercial milestones for the first licensed product or licensed service in the
non-clinical
field. In the aggregate, the Company may be required to pay JHU additional milestone fees of up to $4.2 million for all clinical, regulatory and commercial milestones for all licensed products or licensed services in the therapeutic field, the diagnostic field and the
non-clinical
field. The Company may also be required to pay royalties in the low to upper
mid-single
digits on net sales of therapeutic products, diagnostic products and
non-clinical
products. The Company is required to make minimum annual royalty payments of $100,000 to JHU under the A&R JHU License Agreement, which started in the low five figures in the first year of the agreement and increased to the low six figures in the third year and for each subsequent year of the agreement. The Company may also be required to pay JHU a low double digit percentage of any
non-royalty
sublicense consideration we receive.
The Company will record a liability when su
c
h events become probable of occurring. The Company has not reached any of the milestones or transacted its first commercial sale as of June 30, 2021.
The Company must make minimum royalty payments, which began upon the fourth anniversary of the agreement and upon every anniversary thereafter during the term of the agreement, which offset future royalties per above owed to JHU. The Company has incurred $375,000 in cumulative minimum royalties from inception. Future annual minimum royalties consist of $100,000 due each year during the remaining term of the agreement. The Company records milestones, royalties and minimum royalties at the time when payments become probable. During the three and six months ended June 30, 2021 and 2020, the Company incurred $25,000 and $50,000, respectively, related to minimum royalties owed, included in research and development expenses on the accompanying statement of operations. The Company has accrued royalties of $100,000 as of June 30, 2021.
Paycheck Protection Program Loan
On April 23, 2020, the Company applied for an unsecured $843,619 loan under the Paycheck Protection Program (“PPP Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). On May 1, 2020, the PPP Loan was approved and funded. The Company entered into a promissory note of $843,619, which is recorded within other current liabilities in the accompanying balance sheet. The Company treats the PPP Loan as debt under ASC 470. The use of loan proceeds must be for payroll costs, payment of interest on covered mortgage obligations, rent and utility costs over either an eight-week or
24-week
period, at the Company’s option.
The PPP Loan has a maturity date of April 23, 2022 and accrues interest at an annual rate of 0.98%. Interest and principal payments are deferred for the first six months of the loan. Thereafter, monthly interest and principal payments are due until the loan is fully satisfied. The promissory note evidencing the PPP Loan contains customary events of default resulting from, among other things, default in the payments.
The PPP Loan indebtedness may be forgiven in whole or in part upon request and the Company must provide documentation in accordance with the SBA requirements and the Company must certify that the amounts requested to be forgiven qualify under those requirements. The SBA may approve or deny the Company’s loan forgiveness application, in whole or part. The amount of potential loan forgiveness may be reduced if NexImmune fails to maintain employee and salary levels during the applicable eight-week or
24-week
period following receipt of the loan proceeds. The Company submitted the PPP Loan forgiveness application in March 2021 and received full forgiveness of the $843,619 PPP Loan in July 2021.
Contingencies
From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. As of June 30, 2021 and December 31, 2020, the Company was not involved in any material legal proceedings.
9. Convertible Notes
In April 2020, the Company entered into Convertible Note Purchase Agreement (“Agreement”) for the sale of up to $15,000,000 of convertible promissory notes with 6% interest rate (“Convertible Notes”). The Agreement specified an initial closing date of April 23, 2020 and allowed additional closings within 90 days of the initial closing. The Convertible Notes were scheduled to mature on April 23, 2021.
 
During the three months ended June 30, 2020, the Company issued convertible notes with a principal amount of $6,538,286.
The terms of the Convertible Notes require a mandatory conversion upon certain qualified financing events (“Mandatory Conversion”) and
allowed
for conversion at the option of the holder upon certain non-qualified financing events (“Optional Conversion 1”). Upon Mandatory Conversion and Optional Conversion 1, the outstanding principal amount and all accrued and unpaid interest would automatically convert into the Company’s preferred stock of the same series issued in such equity financing and will be equal to the number of preferred stock obtained by dividing (a) all principal and accrued but unpaid interest under such Convertible Note by (b) the price per share paid by the other purchasers of the preferred stock sold in such equity financing multiplied
by
80
%.
 
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If the Mandatory Conversion and Optional Conversion 1 did not occur by the maturity date, the outstanding principal amount plus all accrued and unpaid interest would be converted at the option of the holder into Company’s
 
common stock at the price per share obtained by dividing $
85
 million by the Company’s fully-diluted
capitalization (“Optional Conversion 2”). 
If the Company (i) consummates a change in control or (ii) the Company’s common stock becomes publicly listed on a stock exchange, the outstanding principal amount plus all accrued and unpaid interest
would automatically
convert into shares of the Company’s most senior series of capital stock outstanding at the time of such change in control or public listing, at a price equal to the lower of (a) 90% of the price per share paid by the purchasers of such stock in such a transaction and (b) the price per share obtained by dividing $125 million by the Company’s fully-diluted capitalization (“Change in Control”).
The Agreement was amended in July 2020 to increase the aggregate principal amount to $50,000,000 convertible notes and to allow for additional closings within 150 days of the initial closing date. The Agreement was amended in September 2020 to allow for additional closings within 190
days of the initial closing date. In addition, the provisions of Mandatory Conversion and Optional Conversion 1 were amended to allow for conversion upon an equity financing at a price equal to the lower of (a) 80% of the price per share paid by the purchasers of such stock in such a transaction and (b) the price per share obtained by dividing
 $125,000,000 by the Company’s fully-diluted capitalization. The Company evaluated the amendments and concluded that the amendments represented a debt modification.
In October 2020, the Agreement was further amended to allow additional closings through December 31, 2020, and in January 2021 it was amended again to allow closings through January 31, 2021. In January 2021, the Company issued convertible notes with a principal amount of $9,031,480.
The Company evaluated the Convertible Notes and determined that the Mandatory Conversion feature, Optional Conversion 1 feature and Change in Control meet the definition of an embedded derivative liability that is required to be bifurcated from the host instrument and measured at fair value. The fair value of the derivative liability for the
 
convertible notes issued in January
 2021
 was $722,518
 
and $75,584
for the convertible notes issued during the three and six months ended June 30, 2020.
The Company recognized debt issuance costs of
 
$256,212 and
a
 
debt discount of $1,982,594
from of the initial value of the derivative liability on Convertible Notes outstanding during the six months ended June 30, 2021.
No
amounts were recognized during the three months ended June 30, 2021 as no Convertible Notes were outstanding during the period. The Company recognized debt issuance costs of
 
$89,895 and a debt discount of $1,331,535,
comprising the initial value of the derivative liability of
 
$296,272
and the beneficial conversion feature of
$1,035,263
on Convertible Notes outstanding during the three and six months ended June 30, 2020. The debt issuance costs and debt discount are amortized over the term of the Convertible Notes using the effective interest method. Amortization expense for the three and six months ended June 30, 2021 was
$0 and
$613,770,
respectively. Amortization expense for the three and six months ended June 30, 2020 was
$140,821.
The debt issuance costs and debt discount amortization expense is included in interest expense in the accompanying statements of operations.
The interest expense at 6% of the Convertible Notes’ principal amount for the three and six months ended June 30, 2021
 
was $0
 
and $217,593, respectively
.
 The interest expense at 6% of the Convertible Notes’ principal amount for the three and six months ended June 30, 2020 was $42,364.
 The effective interest rate during the three and six months ended June 30, 2021
and 2020
was 25
and 27
%,
respectively. The unamortized debt
issuance costs and debt discount on the
 
Convertible Notes as of June 30, 2020 were $78,141 and $1,202,467
, respectively and as of December 31, 2020, were
$116,636 and $2,383,986, respectively.
The Company completed an IPO on February 11, 2021, which triggered the mandatory conversion of all the outstanding Convertible Notes plus accrued interest into 3,669,010 shares of common stock (Note 10). Upon conversion of the Convertible Notes, the outstanding Convertible notes principal plus accrued interest thereon, net of unamortized debt discounts totaling $30,252,056 was reclassified to stockholders’ equity (deficit).
10. Series A Redeemable Convertible Preferred Stock and Stockholders’
Equity (Deficit)
Issuances of Common Stock
On February 11, 2021, the Company completed its IPO, pursuant to which it issued and sold 7,441,650 shares of its common stock at a public offering price of $17.00 per share, resulting in net proceeds of $114,551,315, after deducting underwriting discounts and commissions and other offering expenses. Upon the closing of the IPO, all of the 175,137,398 outstanding shares of the Company’s Redeemable Convertible Preferred Stock automatically converted into 10,144,052 shares of common stock after giving effect to the reverse stock split, and all of the outstanding convertible debt and accrued but unpaid interest thereon of $31,272,224 converted to 3,669,010 shares of common stock. Upon completion of the offering on February 11, 2021, the Company’s authorized capital stock consists of 250,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share, all of which shares of preferred stock are undesignated.
In January 2021, 145,000 warrants were exercised at an exercise price of $0.01 and 145,000 shares of Series A redeemable convertible stock were issued and then converted into common stock upon the closing of the IPO. The remaining outstanding warrants outstanding as of December 31, 2020 were exercised and settled in January 2021 with 2,896 shares of common stock issued in a cashless exercise.
11. Stock-Based Compensation
During January 2017, the Company adopted the 2017 Equity Incentive Plan (“2017 Plan”), which provides for granting of restricted stock, options to purchase shares of common stock and other awards to employees, directors and consultants. In March 2017, the Company amended the 2017 Plan to increase the number of available shares to 660,838. In June 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”) which provides for granting of restricted stock, options to purchase shares of common stock, and other awards to employees, directors and consultants, and reserved 1,741,770 shares for this purpose. The 2018 Plan was amended in July 2018 to increase the number of available shares to 1,809,143. In February 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”) and reserved 2,757,556 shares under the plan. No further shares will be issued under the 2017 and 2018 plans. There are